The Hartford Financial Services Group, Inc. December 2017 Overview of The Hartford

Transcription

1 The Hartford Financial Services Group, Inc. December 2017 Overview of The Hartford Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.

2 Safe harbor statement Certain statements made in this presentation should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of These include statements about The Hartford s future results of operations. We caution investors that these forward-looking statements are not guarantees of future performance, and actual results may differ materially. Investors should consider the important risks and uncertainties that may cause actual results to differ, including those discussed in The Hartford s news releases issued on October 23, 2017 and December 4, 2017, The Hartford s Quarterly Reports on Form 10-Q, The Hartford s 2016 Annual Report on Form 10-K, and other filings we make with the U.S. Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today s date. The discussion in this presentation of The Hartford s financial performance includes financial measures that are not derived from generally accepted accounting principles (GAAP). Information regarding these non-gaap financial measures, including reconciliations to the most directly comparable GAAP financial measures, is provided in the Appendix, the news releases issued on October 23, 2017 and December 4, 2017 and The Hartford s Investor Financial Supplement for third quarter 2017 which is available at the Investor Relations section of The Hartford s website at From time to time, The Hartford may use its website to disseminate material company information. Financial and other important information regarding The Hartford is routinely accessible through and posted on our website at In addition, you may automatically receive alerts and other information about The Hartford when you enroll your address by visiting the Alerts section at Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 2

3 The Hartford has successfully executed its strategy to exit capital market-sensitive businesses and focus on underwriting businesses The Strategy Announced In March 2012 Sell Individual Life and Retirement Plans Put Annuity businesses into runoff (Talcott Resolution) Focus on P&C 1, Group Benefits and Mutual Funds The Execution Steps, Sold Individual Life, Retirement Plans and Japan variable annuity businesses Group Benefits separated from Talcott Resolution Dec. 2017: Announced agreement to sell Talcott Resolution The Results in 2018 P&C Other Operations 6% 2017 September YTD 2 Core Earnings 3 excluding Corporate Mutual Funds 8% Group Benefits 19% Commercial and Personal Lines 67% Generated $7.6B in cash proceeds and consideration Reduced debt levels and improved financial flexibility, including A&E and pension actions in 2017 Concentrated focus on underwriting-centric businesses 1. P&C includes Commercial Lines, Personal Lines and P&C Other Operations 2. Year-to-date (YTD) 3. Pro forma for sale of Talcott Resolution; denotes financial measure not calculated based on generally accepted accounting principles (GAAP) Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 3

4 Our P&C, Group Benefits and Mutual Funds businesses have attractive characteristics and strong competitive advantages The Hartford s businesses have: Strong market positions Good margins and excess capital generation Low capital markets sensitivity Commercial Lines: Leader in the highly attractive small and middle market segments Group Benefits: A leading provider of life and disability protection through employers Personal Lines: 30+ year partnership with AARP Mutual Funds: A high return business with consistent cash flows Personal Lines 24% 3Q17 LTM 1 Premiums Pro Forma 2 Group Benefits 33% Commercial Lines 43% 1. Last twelve months as of Sept. 30, 2017 (3Q17 LTM) 2. Includes written premiums for Commercial Lines and Personal Lines, fully insured ongoing premiums for Group Benefits, and the pro forma impact of the 4Q17 acquisition of Aetna s $2.0 billion premium of U.S. group life and disability business Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 4

5 The Hartford is a leading U.S. P&C and Group Benefits insurer Leading U.S. Market Positions $1,131 $259 Core Earnings ($ in millions) $872 $934 $15 With Strong Competitive Advantages Leading share in P&C Small Commercial #2 in Workers Compensation 1 #2 in Group Life and Disability 2 #4 in Commercial Multi-Peril 1 #4 in Direct Personal Lines 1 #7 overall in P&C Commercial 1 $872 $884 $919 ($12) Q17, LTM Underwriting Gain (Loss) and Fees, After-tax Net Investment Income, After-tax Net Written Premium ($ in millions) $10,578* $10,568* $3,918 $3,837 $3,630 $6,625 $6,732 $6, Q17, LTM Commercial Lines $10,522* Personal Lines Broad and deep commercial distribution partnerships Longstanding Personal Lines partnership with AARP Top choice among agents Best-in-class technology, with significant investments in underwriting, claims and customer service Recognized for claims excellence 1. Per A.M. Best, based on 2016 direct written premiums 2. In-force premium as of 12/31/16, per LIMRA, including the acquisition of Aetna s U.S. group life and disability business *Total net written premium includes all other premiums in P&C Other Operations Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 5

6 Going forward, The Hartford is focused on several objectives Sell and separate Talcott Resolution and integrate Aetna Group Benefits acquisition in smooth and timely manner Maintain strong margins and underwriting discipline in Commercial Lines and Group Benefits Improve Personal Lines margins through continued pricing, underwriting and distribution initiatives and reinvigorate new business production Increase core earnings 1 and core earnings ROE 1, 2 while maintaining a strong balance sheet and redeploying excess capital 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Return on equity Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 6

7 COMPLETE SALE OF TALCOTT RESOLUTION AND INTEGRATE AETNA GROUP BENEFITS ACQUISITON Sale of Talcott Resolution will complete The Hartford s exit from the run-off life and annuity businesses; closing expected by June 30, 2018 Total value of transaction: Cash from investor group Pre-closing dividend 1 Cash consideration HLI debt included in sale Hartford equity interest in acquiring company Total consideration Estimated retained tax benefits Total value 9M17 3 pro forma impacts: Loss on discontinued operations, after tax Net loss per weighted average diluted share Core loss per weighted average diluted share 5 Loss on sale, after tax Loss on sale per diluted share outstanding Leverage ratio 8 Stranded costs to be eliminated over time ~ approximately $1,443 million 300 million $1,743 million 143 million 164 million $2,050 million ~950 million 2 ~$3.0 billion ~$(3.0) billion 4 ~$(8.05) ~$(0.71) ~$(3.2) billion 6,7 ~$(8.79) 6,7 Increase of 4.8 pts. to 29.5% $35-$45 million, before tax Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. Principal terms: The Hartford will retain Talcott Resolution tax benefits with estimated GAAP carrying value of $950 million Hartford Investment Management Company will continue to manage a significant majority of Talcott Resolution s general account invested assets for an initial term of five years Transition services agreement up to 24 months, after closing Other key closing items: No financing contingency as purchase funded entirely by equity Equity commitment letters have been received and no debt is being raised to fund the purchase 1. Subject to approval by Connecticut Insurance Department 2. Estimate of retained tax benefits based on current tax law, subject to final determination of the tax basis of operations sold; primarily comprised of net operating loss carryovers (NOLs), alternative minimum tax (AMT) credits and foreign tax credits 3. First nine months of 2017 (9M17) 4. Loss on discontinued operations, after tax, includes loss on sale and earnings from Talcott Resolution reclassified to discontinued operations; includes Talcott Resolution earnings for 9M17 5. Denotes financial measures not calculated based on GAAP 6. Subject to change based on shares outstanding and 4Q17 Talcott Resolution earnings 7. At closing, shareholders equity will be further reduced for the amount of accumulated other comprehensive income (AOCI ) of the Talcott Resolution business, which was $931 million as of Sept. 30, 2017, or $2.56 of book value per diluted share. Talcott Resolution s AOCI largely consists of net unrealized gains on investments 8. Total rating agency adjusted debt to capitalization ratio (based on Moody s methodology) 7

8 COMPLETE SALE OF TALCOTT RESOLUTION AND INTEGRATE AETNA GROUP BENEFITS ACQUISITON Talcott Resolution sale completes The Hartford s exit from annuity business and provides future strategic and financial benefits Underwriting- Focus on centric business underwriting concentration Strengthens focus on our market-leading underwriting-centric P&C and Group Benefits businesses Completes our exit from the run-off life and annuity businesses Improved ROE and earnings growth profile Smaller and Reduced less volatile capital market balance tail sheet risk and volatility Eliminates impact of Talcott Resolution s lower ROE and earnings run-off on consolidated ROE and earnings Eliminates capital market tail risk related to Talcott Resolution Reduces the size and complexity of the consolidated balance sheet, including lower investment, reserve and debt-to-capital leverage Eliminated Increased enterprise financial tail risk flexibility Increases financial flexibility with the cash proceeds received and debt reduction from the transaction Ability to reinvest proceeds in higher return opportunities 8 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.

9 COMPLETE SALE OF TALCOTT RESOLUTION AND INTEGRATE AETNA GROUP BENEFITS ACQUISITON The acquisition of Aetna s group life and disability business is expected to be accretive to earnings in 2018 and beyond Hartford Life and Accident Insurance Company (HLA), the primary group benefits insurance operating subsidiary of The Hartford, reinsures on a coinsurance basis Aetna s U.S. book of group life and disability insurance with premiums of approximately $2 billion Acquisition does not include dental, vision or long-term care products Acquisition closed on November 1, 2017 Purchase price consists principally of a $1.38 billion ceding commission Funded by dividends from insurance subsidiaries and holding company resources without issuance of debt or equity Financially accretive in 2018: Expected to increase annual premium by approximately $2.0 billion plus investment income on transferred invested assets, less expenses Group Benefits core earnings expected to rise by $80 to $100 million, after tax, including amortization of intangibles of $20 to $30 million, after tax Estimated savings beginning in 2018 on run-rate operating expenses of approximately $100 million, before tax, expected to be largely achieved within two years Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. Pro Forma Group Benefits Premium Full Year ($ in billions) Small (2%) Middle Market (42%) Premiums by Product $5.1 $3.1 $1.5 $1.4 48% 46% $0.1 $2.0 $2.7 $2.5 $ Actual Pro Forma Disability Life Other 1. Fully insured ongoing premium, excluding buyout premiums 2. Excludes The Hartford s non-employer Group Specialty business 49% 47% Employer Group 2 Premiums by Employer Size National Accounts (56%) 9

10 COMPLETE SALE OF TALCOTT RESOLUTION AND INTEGRATE AETNA GROUP BENEFITS ACQUISITON Group Benefits Acquisition of Aetna s group insurance business is a unique opportunity and solidifies our market leading position Increases market presence Accelerates technological strategy The Hartford has become #2 insurer in the group life and disability market, up from #5 1 Combines two complementary franchises that are both committed to high-quality products and best-in-class customer and claims service Accelerates our technology strategy by adding industry-leading digital capabilities and an integrated absence management and claims platform Reduces investment costs previously expected for digital initiatives and enhancements of legacy systems Enhances distribution footprint Enhances The Hartford s distribution footprint and sales force Provides an exclusive, multi-year collaboration to sell The Hartford s group life and disability products through Aetna s medical sales team Expands data and analytical capabilities Enables expanded data and advanced analytical capabilities Increases competitive advantage around recovery management, driving improved outcomes for customers Higher ROE Stock potential price beta more Financially consistent with accretive peers Expected to be accretive to net income and core earnings beginning in 2018 Purchase price was funded by dividends from insurance subsidiaries and holding company resources without issuance of debt or equity 1. Source: LIMRA, based on in-force master contracts, certificates, total premiums collected as of Dec. 31, 2016, and annualized premiums Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 10

11 MAINTAIN STRONG MARGINS IN COMMERCIAL LINES AND GROUP BENEFITS Commercial Lines Continues to deliver strong results Package Auto Diversified Premium Mix 2016 Earned Premium by Product Property 18% 10% Liability 9% 9% Bond Professional Liability 3% 3% 48% Workers Compensation 2016 Written Premiums by Lines Strong Underwriting and Profitability Q17, LTM Combined Ratio 1 Underlying Combined Ratio 1. Denotes financial measure not calculated based on GAAP Distinctive Agent Relationships ($ in millions) $826 $42 Small Commercial (52%) $2,343 $3,521 Middle Market (35%) Specialty Commercial (12%) Other Commercial (1%) Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 11

12 MAINTAIN STRONG MARGINS IN COMMERCIAL LINES AND GROUP BENEFITS Group Benefits A market leader in the group life and disability, a business that leverages our workers compensation expertise Group Benefits Underwriting Complements The Hartford s Workers Compensation Expertise Loss Ratio (Excluding Association Financial Institutions) M17 Total Disability Life The acquisition of Aetna s group insurance further strengthen our leadership position Leader in Group Life and Disability (in-force premium as of 12/31/16, per LIMRA) #2 Strong Profitability Core Earnings Margin 1 5.6% 5.7% 6.2% Q17, LTM 1. Denotes financial measure not calculated based on GAAP Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. Book of Business Remains Balanced Between Disability and Life Premium 2 ($ in billions) $3.1 $3.1 $1.5 $1.5 $1.4 $1.4 $5.1 $2.5 $ Pro Forma Disability Life Other 2. Fully insured ongoing premium, excluding buyout premiums, excluding Association Financial Institutions 12

13 IMPROVE PERSONAL LINES MARGINS Personal Lines The Hartford is a leading direct personal lines insurer with a 30+ year partnership with AARP Net Written Premium by Distribution Market Leading Position Other Agency AARP Agency 10% 14% 2016 FY 75% 1% Other AARP Direct Major Direct Personal Lines Company (per A.M. Best, 2016) #4 Focused on AARP Membership for Growth Focused on Improving Margins in 2017 & 2018 The Hartford s personal lines business is focused on AARP members, with the goal of increasing its penetration of this 38 million member association Opportunity to further penetrate AARP membership ~38M ~3M AARP Policies Policies in force AARP Members Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford Q17, LTM Combined Ratio Underlying Combined Ratio 1. 3Q17, LTM includes 4Q16 combined ratio and underlying combined ratio adjusted for 2016 accident year development 1 13

14 IMPROVE PERSONAL LINES MARGINS Personal Lines Auto profitability initiatives taking hold, laying foundation for improved results in 2017 and beyond Increased Rate Actions Underwriting Actions Impact on New Business Auto New Written Premium ($ in millions) $101 $96 $111 $114 $110 $83 (47%) $70 $48 $42 $38 $37 Number of Rate Filings AARP Direct AARP Agency Other Agency Other Policy Count Retention Underlying Combined Ratio 85% 86% 86% 86% 86% 86% 86% 85% 83% 84% 82% 82% 81% 79% 80% 80% 78% 78% 79% 76% 75% 81% 80% 78% 77% 78% 78% 78% 79% 73% 74% 70% 66% 1 AARP AARP Agency Other Agency 1. Includes policies that are available to renew on either a six or twelve month policy term. The policy retention represents the percentage of policies that renewed since the last policy term and is not annualized Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford Underlying Combined Ratio ( as developed 1 through Dec. 31, 2016) Underlying Combined Ratio (as originally reported) 1. As developed combined ratio takes into account impact of prior accident year development since accident year-end 14

15 INCREASE CORE EARNINGS AND CORE EARNINGS ROE Going forward, The Hartford is focused on increasing core earnings and core earnings ROE Talcott Resolution s ROE 1 was a significant drag on consolidated ROE 3Q17 LTM core earnings ROE was 1.5 points lower than core earnings ROE, excluding Talcott Resolution Net income ROE at Talcott Resolution was also been impacted by deferred acquisition costs (DAC) unlock and variable annuity (VA) hedging results not included in core earnings In addition, Talcott Resolution s core earnings reduced consolidated core earnings growth rates Between 2012 and 3Q17 LTM, consolidated core earnings excluding Talcott Resolution rose 82% Including Talcott Resolution, core earnings rose only 25% over the same period Expect 2018 consolidated ROE to improve to 10% or better, and additional improvement in 2019 and beyond with redeployment of proceeds 2019 will be first full year to reflect sale Amount of future improvement will also depend on future P&C and Group Benefits underwriting results and net investment income Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 7.6% 8.9% 5.1% 5.1% $ % Q17 Talcott Resolution Consolidated Consolidated ex. Talcott Resolution $357 Core Earnings ROE 2,3 Core Earnings 2 ($ in millions) $1,122 $1,404 $ % $1, Q17 LTM Q17 LTM Q17 LTM 1. ROE assumes debt and interest is attributable to Talcott Resolution consistent with overall debt to capitalization of the consolidated entity 2. Denotes financial measure not calculated based on GAAP 3. Twelve month trailing core earnings ROE, excluding AOCI, levered 15

16 The Hartford will also focus on reducing debt leverage as a result of the Aetna acquisition and Talcott Resolution sale Due to acquisition of Aetna and loss on sale of Talcott Resolution, pro forma rating agency adjusted debt to capitalization ratio at Sept. 30, 2017 increases to 29.5% from 24.7%, as reported The Hartford will repay debt in 2018 and 2019 to reduce debt leverage by about 3 points: Call of $500 million junior subordinated debt at par in June 2018 (previously announced) Repayment of 2019 debt maturity of $413 million In addition, future earnings will help improve leverage ratios However, future share repurchases would increase the debt to total capital ratio Leverage Ratio 1 Impact Sept. 30, 2017 As Reported and Pro Forma 24.7% 29.5% ~3 points 22-23% As Reported Pro Forma Long-term Goal Impact of 2018 and 2019 debt to be repaid Company Debt Ratings Hartford Financial Services Group Senior Debt Ratings Moody s 2 Standard & Poor s Baa2 (Stable) (under credit review for upgrade) BBB+ (Stable) 1. Rating agency adjusted debt to capitalization 2. Hartford Financial Services Group, Inc. senior debt is under review for upgrade at Moody's Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 16

17 Also focused on book value growth, which will decrease significantly in 2017 due to sale of Talcott Resolution BVPS 1 and BVPS, ex. AOCI, pro forma for the sale of Talcott Resolution at closing, of $35.98 and $36.93, respectively Sale of Talcott Resolution results in a reduction in BVPS, but is expected to improve ROE and earnings growth profile, reduce risk and volatility and increase financial flexibility Other risk reduction transactions that have reduced BVPS growth over the past year: 4Q16 included a charge of $423 million, after tax, resulting from a reinsurance agreement with National Indemnity Company (NICO) covering The Hartford s A&E liability exposures 2Q17 included a transfer of $1.6 billion of U.S. defined benefit pension obligation to Prudential Financial resulting in a pension settlement charge of $488 million, after tax Book Value Per Diluted Share $42.84 $42.96 $44.35 $47.33 $ M17 Pro Forma Talcott Sale Book Value Per Diluted Share, ex. AOCI 2,3 $40.71 $43.76 $45.24 $45.72 $ M17 Pro Forma Talcott Sale 1. Book value per diluted share (BVPS) 2. Denotes financial measure not calculated based on GAAP 3. Book value per diluted share, excluding accumulated other comprehensive income Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 17

18 Appendix - Discussion and Reconciliation of GAAP to Non-GAAP Financial Terms Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.

19 Discussion and reconciliation of non-gaap financial measures The Hartford uses non-gaap financial measures in this presentation to assist investors in analyzing the company's operating performance for the periods presented herein. Because The Hartford's calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing The Hartford's non-gaap financial measures to those of other companies. Definitions and calculations of non-gaap and other financial measures used in this presentation can be found below, in The Hartford s press releases, dated October 23, 2017 and December 4, 2017, and in The Hartford's Investor Financial Supplement for third quarter 2017, which are available on The Hartford's website, Annualized investment yield, excluding limited partnerships: is the annualized net investment income excluding limited partnerships and other alternative investments divided by the monthly average invested assets at amortized cost, excluding repurchase agreement and securities lending collateral, derivatives book value, and limited partnerships and other alternative investments. The company believes that annualized net investment income, excluding limited partnerships, provides investors with an important measure of the trend in investment earnings because it excludes the impact of the volatility in returns related to limited partnerships. Three Months Ended Sep 30, 2017 Consolidated As reported Pro forma Annualized investment yield 4.3% 4.1% Annualized investment yield on limited partnerships and other alternative investments Annualized investment yield excluding limited partnerships and other alternative investments 11.7% 12.8% 4.0% 3.8% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 19

20 Discussion and reconciliation of non-gaap financial measures Book value per diluted share excluding accumulated other comprehensive income ("AOCI ): Book value per diluted share excluding AOCI is a non-gaap financial measure based on a GAAP financial measure. It is calculated by dividing (a) common stockholders' equity excluding AOCI, after tax, by (b) common shares outstanding and dilutive potential common shares. The Hartford provides book value per diluted share excluding AOCI to enable investors to analyze the company s stockholders equity excluding the effect of changes in the value of the company s investment portfolio and other assets due to interest rates, currency and other factors. The Hartford believes book value per diluted share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in market value. Book value per diluted share is the most directly comparable GAAP measure. A reconciliation of book value per diluted share, including AOCI to book value per diluted share, excluding AOCI can be found on a reported and pro forma basis for the specified periods in the tables set forth below. Dec Pro forma As reported for loss on sale (1) As of As of As of Dec Dec Sep Sep Sep Pro forma upon closing (2) Sep Book value per diluted share, including AOCI $44.35 $42.96 $42.84 $47.33 $48.30 $38.54 $35.98 Less: Per diluted share impact of AOCI ($0.89) ($0.80) $2.13 $1.61 $2.56 $1.61 ($0.95) Book value per diluted share, excluding AOCI $45.24 $43.76 $40.71 $45.72 $45.74 $36.93 $36.93 (1) Pro forma assumes Talcott Resolution met held for sale criteria as of September 30, 2017 including accruing loss on sale (2) Pro forma assumes sale of Talcott Resolution closed on September 30, 2017 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 20

21 Discussion and reconciliation of non-gaap financial measures continued Core Earnings: The Hartford uses the non-gaap measure core earnings as an important measure of the company s operating performance. The Hartford believes that the measure core earnings provides investors with a valuable measure of the performance of the company s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain realized capital gains and losses, certain restructuring charges, pension settlements, loss on extinguishment of debt, reinsurance gains and losses on business disposition transactions, income tax benefit from reduction in valuation allowance, discontinued operations, and the impact of Unlocks to deferred policy acquisition costs ("DAC"), sales inducement assets, unearned revenue reserves and death and other insurance benefit reserve balances. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the effects of DAC) that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Net income (loss) is the most directly comparable U.S. GAAP measure. Core earnings should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of the company s business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) and core earnings when reviewing the company s performance. Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 21

22 Discussion and reconciliation of non-gaap financial measures continued A reconciliation of net income (loss) to core earnings (losses) for individual reporting segments on a reported and pro forma basis are provided for the specified periods in the tables set forth below. Twelve Months Ended Dec 31, 2016 As reported Pro forma ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Consolidated Net income (loss) $1,007 ($22) ($529) $230 $78 $244 ($112) $896 $896 Less: Unlock benefit (charge), before tax (2) - (2) - Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax 15 2 (70) 41 - (140) (104) (256) (116) Less: Loss on reinsurance transactions, before tax - - (650) (650) (650) Less: Income tax benefit (expense) (5) (15) Less: Income (loss) from discontinued operations, after tax 284 Core earnings (losses) $997 ($24) ($101) $204 $78 $383 ($202) $1,335 $911 Commercial Lines Personal Lines P&C Other Ops Twelve Months Ended Dec 31, 2015 Group Benefits As reported Mutual Funds Talcott Resolution Pro forma Corporate Consolidated Consolidated ($ in millions) Net income (loss) $1,003 $187 ($53) $187 $86 $430 ($158) $1,682 $1,682 Less: Unlock benefit, before tax Less: Net realized capital gains (losses) after DAC, excluded (9) 4 3 (12) - (165) 14 (165) - from core earnings, before tax Less: Restructuring and other costs, before tax (20) (20) (20) Less: Loss on extinguishment of debt, before tax (21) (21) (21) Less: Net reinsurance gain on dispositions, before tax Less: Income tax benefit (expense) 2 (2) Less: Income from discontinued operations, after tax Core earnings (losses) $1,003 $185 ($57) $195 $86 $472 ($234) $1,650 $1,129 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 22

23 Discussion and reconciliation of non-gaap financial measures continued Last Twelve Months Ended Sep 30, 2017 ($ in millions) Property & Casualty Talcott Resolution Consolidated ex. Talcott Resolution Consolidated Net income $532 $298 $193 $491 Less: Unlock benefit, before tax Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax 29 (60) (36) (96) Less: Loss on reinsurance transaction, before tax (650) - (650) (650) Less: Pension settlement, before tax - - (750) (750) Less: Income tax benefit (expense) 219 (40) Less: Income (loss) from discontinued operations, after tax Core earnings $934 $357 $1,047 $1,404 Twelve Months Ended Dec 31, 2012 ($ in millions) Talcott Resolution Consolidated ex. Talcott Resolution Consolidated Net income (loss) $1 ($39) ($38) Less: Unlock benefit (charge), before tax (211) - (211) Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax Less: Restructuring and other costs, before tax (69) (131) (200) Less: Loss on extinguishment of debt, before tax - (910) (910) Less: Loss on reinsurance transactions, before tax (415) (118) (533) Less: Income tax benefit (expense) Less: Income (loss) from discontinued operations, after tax (253) (5) (258) Core earnings $546 $576 $1,122 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 23

24 Discussion and reconciliation of non-gaap financial measures continued Nine Months Ended Sep 30, 2017 As reported Pro forma ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Consolidated Net income (loss) $ 579 $ 65 $ 62 $ 185 $ 73 $ 253 $ (645) $ 572 $ 572 Less: Unlock benefit, before tax Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax (51) Less: Pension settlement, before tax (750) (750) (750) Less: Income tax benefit (expense) (19) (3) (5) (9) - (3) Less: Income (loss) from discontinued operations, after tax Core earnings (losses) $ 543 $ 59 $ 57 $ 167 $ 73 $ 246 $ (156) $ 989 $ 721 Nine Months Ended Sep 30, 2016 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $ 730 $ 6 $ (106) $ 167 $ 61 $ 199 $ (80) $ 977 Less: Unlock benefit, before tax Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax 32 4 (44) 34 - (131) (5) (110) Less: Income tax benefit (expense) (12) (1) 54 (12) Core earnings (losses) $ 710 $ 3 $ (116) $ 145 $ 61 $ 272 $ (155) $ 920 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 24

25 Discussion and reconciliation of non-gaap financial measures continued Core earnings per diluted share: Core earnings per diluted share is calculated based on the non-gaap financial measure core earnings. It is calculated by dividing (a) core earnings, by (b) diluted common shares outstanding. The Hartford believes that the measure core earnings per diluted share provides investors with a valuable measure of the company's operating performance for the same reasons applicable to its underlying measure, core earnings. Net income (loss) per diluted common share is the most directly comparable GAAP measure. Core earnings per diluted share should not be considered as a substitute for net income (loss) per diluted share and does not reflect the overall profitability of the company's business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) per diluted share and core earnings per diluted share when reviewing the company's performance. A reconciliation of net income (loss) per diluted common share to core earnings per diluted share can be found on a reported and pro forma basis for the specified periods in the tables set forth below. PER SHARE DATA Diluted earnings (losses) per common share: Nine Months Ended Sep 30 Sep Net income per share $1.54 $2.45 Less: Unlock benefit (charge), before tax Less: Net realized capital losses including DAC, excluded from core earnings, before tax 0.13 (0.28) Less: Pension settlement, before tax (2.01) - Less: Income tax benefit (expense) on items excluded from core earnings Core earnings per share $2.65 $2.31 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 25

26 Discussion and reconciliation of non-gaap financial measures continued As reported Pro forma Twelve Months Ended Twelve Months Ended Nine Months Ended Dec Dec Dec Dec Sep PER SHARE DATA Diluted earnings (losses) per common share: Net income per share $3.96 $2.27 $3.96 $2.27 $1.54 Less: Unlock benefit (charge), before tax 0.19 (0.01) Less: Net realized capital losses including DAC, excluded from core earnings, before tax (0.41) (0.65) - (0.29) 0.26 Less: Restructuring and other costs, before tax (0.05) - (0.04) - - Less: Loss on extinguishment of debt, before tax (0.05) - (0.05) - - Less: Loss (gain) on reinsurance transactions, before tax 0.07 (1.65) - (1.65) - Less: Pension settlement, before tax (2.01) Less: Income tax benefit (expense) on items excluded from core earnings Less: Income (loss) from discontinued operations, after tax Core earnings per diluted share $3.88 $3.38 $2.66 $2.31 $1.94 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 26

27 Discussion and reconciliation of non-gaap financial measures continued Core earnings margin: The Hartford uses the non-gaap measure core earnings margin to evaluate, and believes it is an important measure of, the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding buyouts and realized gains (losses). Net income margin is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses). Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin can be found on a reported basis for the periods in the tables set forth below. Nine Months Ended Sep Sep Twelve Months Ended Dec Dec Dec Net income margin 6.7% 6.1% 6.3% 5.4% 5.5% Less: Effect of net capital realized gains, net of tax on after tax margin 0.6% 0.7% 0.6% (0.2%) 0.3% Core earnings margin 6.1% 5.4% 5.7% 5.6% 5.2% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 27

28 Discussion and reconciliation of non-gaap financial measures continued Return on Equity Core Earnings: The Company provides different measures of the return on stockholders' equity ( ROE ). ROE - Core earnings is calculated based on non-gaap financial measures. ROE - Core earnings is calculated by dividing (a) core earnings for the prior four fiscal quarters by (b) average common stockholders' equity, excluding AOCI. ROE - Net income is the most directly comparable U.S. GAAP measure. ROE - Net income is calculated by dividing (a) net income for the prior four fiscal quarters by (b) average common stockholders' equity, including AOCI. ROEs at the segment level and for consolidated, excluding Talcott Resolution, represent a levered view of ROE as debt financing and related interest expense are attributed to the businesses consistent with the overall average debt to capitalization ratios of the consolidated entity. The Company excludes AOCI in the calculation of ROE - core earnings to provide investors with a measure of how effectively the Company is investing the portion of the Company's net worth that is primarily attributable to the Company's business operations. The Company provides to investors return-on-equity measures based on its non-gaap core earnings financial measures for the reasons set forth in the Core Earnings discussion above. Reconciliations of ROE - Net income (loss) to ROE - Core earnings (losses) at a segment and consolidated level as well as on a consolidated level, excluding Talcott Resolution and A&E, can be found on a reported and pro forma basis for the specified periods in the tables set forth below. P&C Return on Equity - Last Twelve Months Ended Sep 30, 2017 Group Benefits Mutual Funds As reported Consolidated Talcott excluding Resolution Talcott Consolidated Pro forma Consolidated Net income (loss) 5.0% 11.6% 34.5% 3.4% 2.4% 2.7% 2.7% Less: Unlock benefit (charge), before tax 0.0% 0.0% 0.0% 0.6% 0.0% 0.2% - Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax 0.3% 1.8% 0.0% (0.9%) (0.3%) (0.5%) (0.2%) Less: Loss on reinsurance transactions, before tax (7.6%) 0.0% 0.0% 0.0% (5.7%) (3.6%) (3.6%) Less: Pension settlement, before tax 0.0% 0.0% 0.0% 0.0% (6.6%) (4.2%) (4.2%) Less: Income tax benefit (expense) 2.6% (0.6%) 0.0% (0.6%) 5.1% 3.0% 3.2% Less: Income from discontinued operations, after tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.8% Less: Impact of AOCI, excluded from Core ROE (1.0%) (1.7%) (0.3%) (0.8%) 0.2% (0.4%) (0.2%) Core earnings (losses) 10.7% 12.1% 34.8% 5.1% 9.7% 8.2% 5.9% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 28

29 Discussion and reconciliation of non-gaap financial measures continued Return on Equity - Last Twelve Months Ended Sep 30, 2016 P&C Group Benefits Mutual Funds Talcott Resolution Consolidated excluding Talcott Consolidated excluding Talcott and A&E Consolidated Net income (loss) 10.4% 9.3% 33.2% 2.1% 10.8% 12.2% 7.6% Less: Unlock benefit (charge), before tax 0.0% 0.0% 0.0% 1.0% 0.0% 0.0% 0.4% Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax 0.0% 1.5% 0.0% (3.9%) 0.0% 0.2% (1.3%) Less: Restructuring and other costs, before tax 0.0% 0.0% 0.0% 0.0% 0.2% 0.0% 0.0% Less: Loss on reinsurance transactions, before tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Less: Income tax benefit (expense) 0.5% (0.5%) 0.0% 1.0% 1.2% 1.2% 1.1% Less: Impact of AOCI, excluded from Core ROE (1.1%) (1.4%) (0.2%) (0.7%) 0.3% 0.2% (0.2%) Core earnings (losses) 11.0% 9.7% 33.4% 4.7% 9.1% 10.6% 7.6% Last Twelve Months Ended Dec 31, 2016 As reported Pro forma Consolidated Talcott ex. Talcott Resolution Resolution Consolidated Consolidated ROE - Net income (loss) 2.5% 6.8% 5.2% 5.2% Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax (2.2%) (1.1%) (1.5%) (0.7%) Less: (Loss) gain on reinsurance transactions, before tax - (6.0%) (3.8%) (3.8%) Less: Income tax benefit (expense) - 4.3% 2.7% 2.7% Less: Income from discontinued operations, after tax % Less: Impact of AOCI, excluded from Core ROE (0.4%) 0.7% 0.2% 0.2% ROE - Core earnings (losses) 5.1% 8.9% 7.6% 5.2% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 29

30 Discussion and reconciliation of non-gaap financial measures continued Last Twelve Months Ended Dec 31, 2015 As reported Pro forma Consolidated Talcott ex. Talcott Resolution Resolution Consolidated Consolidated ROE - Net income (loss) 4.9% 12.0% 9.3% 9.3% Less: Unlock benefit (charge), before tax 1.1% - 0.4% - Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax (2.5%) - (1.0%) - Less: Restructuring and other cost, before tax - (0.2%) (0.1%) (0.1%) Less: Loss on extinguishment of debt, before tax - (0.2%) (0.1%) - Less: (Loss) gain on reinsurance transactions, before tax 0.4% - 0.2% 0.1% Less: Income tax benefit (expense) 0.3% 1.0% 0.7% 0.6% Less: Income from discontinued operations, after tax - 0.1% - 2.6% Less: Impact of AOCI, excluded from Core ROE (0.6%) 0.4% - (0.2%) ROE - Core earnings (losses) 6.2% 10.9% 9.2% 6.3% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 30

31 Discussion and reconciliation of non-gaap financial measures continued Underlying combined ratio: Represents the combined ratio before catastrophes and prior accident year development (PYD) (also referred to as Current Accident Year (CAY) combined ratio before catastrophes) and is a non-gaap financial measure. Combined ratio is the most directly comparable GAAP measure. The combined ratio is the sum of the loss and loss adjustment expense ratio (also known as a loss ratio), the expense ratio and the policyholder dividend ratio. This ratio measures the cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates a positive underwriting result. A combined ratio above 100 indicates a negative underwriting result. The underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes. The company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve. A reconciliation of the combined ratio to the underlying combined ratio for individual reporting segments can be found on a reported basis for the specified periods in the tables set forth below. Nine Months Ended Twelve Months ended Twelve Months Ended Sep Sep Sep Dec Dec Commercial Lines Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Small Commercial Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Middle Market Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Specialty Commercial Combined ratio Impact of catastrophes and PYD on combined ratio 2.1 (6.6) 0.1 (6.5) (8.9) Underlying combined ratio Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 31

32 Discussion and reconciliation of non-gaap financial measures continued Nine Months Ended Sep 30 Sep Twelve Months Ended Sep 2017 Dec Twelve Months Ended Dec Dec Dec Personal Lines Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Automobile Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Homeowners Combined ratio Impact of catastrophes and PYD on combined ratio Underlying combined ratio Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 32