INVESTOR PRESENTATION

Transcription

1 The Hartford Financial Services Group, Inc. November 2015 INVESTOR PRESENTATION Copyright 2015 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 release issued on October 26, 2015, The Hartford s Quarterly Reports on Form 10-Q, The Hartford s 2014 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 news release issued on October 26, 2015 and The Hartford s Investor Financial Supplement for third quarter 2015 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 2015 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 s Primary Goals Achieve profitable growth in our P&C, Group Benefits and Mutual Funds businesses Generate excess capital to invest in the businesses and return to shareholders Create shareholder value by improving core earnings ROE 1, 2 and by growing book value per share 1, 3 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Return on equity 3. Book value per diluted share, excluding accumulated other comprehensive income Copyright 2015 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 The Hartford: Has a portfolio of businesses with attractive characteristics and strong competitive advantages Is delivering profitable growth through a clear strategic plan Has a solid financial foundation and is generating significant excess cash flow Is continuing on the path to superior shareholder return Copyright 2015 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 TODAY Our businesses have attractive characteristics and strong competitive advantages The Hartford s businesses Have strong market positions Have good margins and generate excess capital Have low capital markets sensitivity Commercial Lines: Leader in the highly attractive small and middle market segments Personal Lines: Unique 30+ year partnership with AARP Group Benefits: A leading provider of life and disability protection through employers Mutual Funds: A high return business with consistent cash flows Talcott Resolution: Continued runoff of the annuity blocks and return of capital to the holding company 2014 Core Earnings 1 by Segment 2 Mutual Funds 5% Group Benefits 9% Talcott Resolution 23% Personal Lines 11% Commercial Lines 52% 1. Denotes financial measure not calculated based on generally accepted accounting principles 2. Core earnings excluding Corporate and P&C Other Operations Copyright 2015 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 THE HARTFORD TODAY P&C The Hartford is a leading P&C insurer with strong competitive advantages and leading market positions Strong Competitive Advantages Leader in highlyattractive small commercial segment Broad and deep commercial distribution partnerships Longstanding Personal Lines partnership with AARP Leading choice among agents Best-in-class technology Recognized for claims excellence Core Earnings 1 ($ in millions) $775 $1,079 $1, % Property & Casualty 3Q13, LTM 3Q14, LTM 3Q15, LTM Leading Market Positions Leading share in P&C Small Commercial #2 in Workers Compensation 2 #4 in Commercial Multi-peril 2 #4 in Direct Personal Lines 2 #9 overall in P&C Commercial 2 1. Last twelve months (LTM) results as of third quarter of the year 2. Per A.M. Best, based on 2014 direct written premiums Copyright 2015 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 THE HARTFORD TODAY Commercial Lines The Hartford is an industry leader Improving Underwriting, Strong Profitability Diversified Premium Mix Combined Ratio Earned Premium by Product Liability Bond Professional Liability 3% 9% 3% Package 19% Industry Average* The Hartford *Per Conning s Report 2Q15 P&C Forecast and Analysis reported industry combined ratio 10% Auto 9% Property 47% Workers Compensation Best-in-Class Technology Strong Agent Relationships Source: March 2015 blind study with The Hartford appointed agents Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 7

8 THE HARTFORD TODAY Personal Lines Long-standing relationship with AARP Superior Underwriting with Strong Profitability Market Leading Position Combined Ratio Industry Average* The Hartford Major Direct Personal Lines Company (per A.M. Best, 2014) #4 *Per Conning s Report 2Q15 P&C Forecast and Analysis reported industry Combined Ratio Unique Competitive Advantage Best-in-Class Product for AARP Customers 30+ year exclusive marketing partnership with AARP Opportunity to further penetrate AARP membership 1. Of total ~38 million AARP members, The Hartford estimates eligible policyholders of ~27 million ~3M ~27M 1 AARP Policies Policies in force AARP Members Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 8

9 THE HARTFORD TODAY Group Benefits A market leader in group life and disability that complements our P&C businesses Group Benefits Underwriting Complements The Hartford s Workers Compensation Expertise Leading Provider of Group Life and Disability Loss Ratio (Excluding Association Financial Institutions) Leader in Group Disability (in-force premium as of 6/30/15, per LIMRA) #4 Strong Market Position in Group Life (in-force premium as of 6/30/15, per LIMRA) #7 Strong Profitability Pivoting to Top-line Growth; Opportunities in the Voluntary and Small Case Market 4.3% Core Earnings Margin 1 5.2% 5.8% Premium 2 ($ in billions) $3.3 $ Q15, LTM 1. Denotes financial measure not calculated based on GAAP; Excludes buyout premiums E 2. Fully insured ongoing premium, excluding buyout premiums Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 9

10 THE HARTFORD TODAY Mutual Funds A successful stand-alone operation generating strong performance and consistent cash flow to the holding company $11.8 Strong Trend in Sales and Net Flows Mutual Fund 1 Sales and Redemptions ($ in billions) ($4.4) ($4.5) $15.2 $15.2 $16.8 ($1.4) $0.0 ($16.3) ($19.7) ($16.6) ($16.8) Q15, LTM Sales Net Flows Redemptions 1. Mutual funds sold through retail, bank trust, registered investment advisor and 529 plan channels and excludes Talcott mutual fund assets (company-sponsored mutual fund assets that are held in separate accounts supporting variable insurance and investment products) Consistent Cash Flow to Holding Company Mutual Funds Dividends to Holding Company $114 ($ in millions) $71 $ E 50% Delivering on Solid Long-term Fund Performance % Mutual Funds 2 Outperforming Morningstar Peers Five Year Basis 40% 72% 72% 74% 67% 44% Q15 Equity Fixed Income 33% 2. Mutual Fund AUM only on Morningstar net of fees basis as of Sept. 30, 2015 Mutual Fund 3Q15 ROE 3 33% With Only $300 Million of Equity, Our Highest Return Business Equity by Business, 3Q15 ($ in billions) $ Q15 ROE last twelve months $8.9 $10.7 P&C Group Benefits $2.5 Mutual Funds Talcott Resolution Copyright 2015 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 THE HARTFORD TODAY Talcott Resolution Focused on running off legacy annuity blocks and returning significant capital to the holding company Annuity assets under management decreasing steadily through natural runoff and some contractholder initiatives Separate operating entities from other businesses that are capital self-sufficient in stress scenarios Returning significant capital for investment or return to shareholders $1.5 billion of dividends planned in The Hartford is committed to the runoff of Talcott Resolution, and will consider opportunities to maximize shareholder value through sale or other actions if it is economic Assets Under Management 1 ($ in billions) Variable annuity Individual Annuity Contract Count (in thousands) $1,469 Down 21% Talcott Resolution Return of Capital E ($ in millions) Q15 Variable Annuity Fixed Annuity $40.0 $44.5 Fixed annuity Institutional $1,000 PPLI $500 $15.2 $ As of Sept. 30, 2015; excludes assets associated with sold businesses E 2016E Copyright 2015 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 The Hartford: Has a portfolio of businesses with attractive characteristics and strong competitive advantages Is delivering profitable growth through a clear strategic plan Has a solid financial foundation and generating significant excess cash flow Is continuing on the path to superior shareholder return Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 12

13 PRODUCT DISTRIBUTION CUSTOMER EXPERIENCE OPERATING CAPABILITIES TALENT PILLARS OF PROFITABLE GROWTH The Hartford s strategy is focused on five principal pillars to drive profitable growth Achieve Profitable Growth and Total Shareholder Return Supported by a Solid Balance Sheet and Capital Generation from our Businesses Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 13

14 PILLARS OF PROFITABLE GROWTH Product Expansion Becoming a broader and deeper risk player to support our distribution partners and policyholders Commercial Lines Expanding risk appetite in select industries such as real estate, construction and technology Expanding specialty and financial products to current policyholders, such as new professional liability E&O policy for Small Commercial Large property capabilities supported by expanded reinsurance program in 2014 Personal Lines Product development focused on further penetration of the AARP membership Open Road released in 42 states, with more planned by year end 2015 TrueLane, our telematics product, now available in 42 states plus D.C.; one-third of eligible new households choosing to enroll Group Benefits Expanding voluntary products, including critical illness and accident, and exploring dental and vision Further penetrating the small case market; announced renewal rights agreement with AIG for its small-case group benefits policies in Oct Participating in healthcare exchanges Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 14

15 PILLARS OF PROFITABLE GROWTH Commercial Lines Distribution Enhancing our relationships with more than ~11,000 partners in ~20,000 locations Commercial Lines Our technology and service capabilities make us a leading choice among agents National company with a local presence in more than 100 locations across the country Expanding sales and underwriting presence in key geographies Hired 20 new Middle Market underwriters since 4Q14 with expansion into Midwest and Western U.S. Deepening agent relationships in Middle Market as we strengthen our risk capabilities and deploy additional underwriting resources to targeted regions Multi-year sponsorship of Major League Baseball (MLB) launched in 2015 Exclusive business insurance, homeowners insurance and employee benefits partner of MLB National Underwriter Property & Casualty recognized The Hartford as the No. 2 Commercial Carrier, based on a producer survey 1 1. Hartford was named #2 Commercial Underwriter in National Underwriter article published in November 5/12, 2012 based on a 2012 Producer Survey Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 15

16 PILLARS OF PROFITABLE GROWTH Personal Lines Distribution Enhancing our AARP relationship Personal Lines 30+ year relationship with AARP; contract through Jan. 1, 2023 AARP Agency a growth driver, with 7% net written premium growth in 3Q15 14,000+ independent agent locations Enhancing effectiveness of Agency distribution by cultivating agents that market our value proposition Expanding small businesses coverage to AARP Now offering Small Commercial products to AARP members in all states, effective April 2015 Copyright 2015 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 PILLARS OF PROFITABLE GROWTH Group Benefits Distribution Enhancing the channel to the customer Group Benefits Strong relationships with multi-line distributors Expanded representatives focused on small businesses (<500 employees) Leveraging data to target highest potential producers and pursue targeted accounts Participating on private exchange platforms currently on 5 active exchanges and pursuing more Leadership position with group benefit specialists Investing in enhanced producer analytics and increased field resources in targeted growth markets Copyright 2015 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 PILLARS OF PROFITABLE GROWTH Customer Experience Keeping the customer at the center of everything we do Focus on continuous improvement initiatives to enhance the customer experience, which will improve retention, increase new business and optimize expenses Digital access, including: Self-service Quoting Mobile sales Online policy change features Agency customers can now quote and make policy changes Policyholders can now calculate the premium impact of changes to their auto policy and process the change online or with the assistance of a customer service representative or agent Providing channel of choice options to customers, leading to higher customer satisfaction and increased retention Reducing the need for policy change phone calls, which average 11 minutes each Online auto quote tool Named a gold medal winner in the latest P&C Insurance Monitor Awards Report; The Hartford recognized as a standout for providing bundled auto and home quoting options Online customer service center received honorable mention for user experience enhancements launched in The improved service experience is noted as organized and thorough with a clean design that is easy to navigate. Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 18

19 PILLARS OF PROFITABLE GROWTH Customer Experience Recognition for excellence J.D. Power Recognition 1 Highest Customer Satisfaction Among Auto Insurers in the Mid-Atlantic Region and Florida (J.D. Power, 6/20/2014) The Hartford s Small Business Contact Centers have been recognized by J.D. Power for providing An Outstanding Customer Service Experience for the Live Phone Channel for the third year in a row (J.D. Power, 2/5/2015) Ranked among top 3 auto insurers in providing a satisfying purchase experience (J.D. Power, 4/27/2015) 1. For J.D. Power Contact Center Certificate Program information, visit Copyright 2015 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 PILLARS OF PROFITABLE GROWTH Operating Capabilities Investing to enhance competitive advantages Investing in market-leading back-office support Policy administration system Claims system Predictive analytics Significant technology investments to improve efficiency and customer/partner experience Driving efficiency through a culture of continuous improvement Employees submitted approximately 9,000 ideas in 2014 and 1H15 resulting in nearly $30 million in identified improvements Integrating data and analytics in the underwriting and claims process Copyright 2015 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 PILLARS OF PROFITABLE GROWTH Talent Attracting, developing and retaining great talent Investing in our employees and working to attract, retain and develop the best talent in the industry Expanded training programs in 2014 Focus on employee engagement and improvement, which drives improved productivity Achieved top quartile employee engagement scores benchmarked against U.S. companies for the last three years on our annual employee survey Striving for a diverse and inclusive environment A diverse and multigenerational workforce is more engaged and productive Focus on attracting Millennials to the insurance industry Created an inclusive community environment with various employee diversity resource groups Competitive compensation and benefits All employees participate in a bonus plan tied to performance Copyright 2015 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 The Hartford: Has a portfolio of businesses with attractive characteristics and strong competitive advantages Is delivering profitable growth through a clear strategic plan Has a solid financial foundation and generating significant excess cash flow Is continuing on the path to superior shareholder return Copyright 2015 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 STRONG FINANCIAL FOUNDATION AND EXCESS CAPITAL GENERATION The Hartford s operating and financial leverage has improved and the balance sheet is strong Reducing Leverage Ratio Over Time Moody s Adjusted Debt Ratio Financial Strength Recognized in Recent Upgrades Hartford Fire Insurance Company Low 20s A.M. Best May 1, 2015 Dec. 31, 2014 Sept. 30, 2015 Target Strong Life Company RBC Levels 2014 Year-End RBC Ratios 516% Standard & Poor s April 17, % Hartford Life and Accident Hartford Life Insurance Company (Talcott Resolution) Moody s April 23, 2015 Copyright 2015 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 STRONG FINANCIAL FOUNDATION AND EXCESS CAPITAL GENERATION Reserve adequacy position strengthened over the past several years Total recorded net reserves, excluding asbestos and environmental (A&E), were 3.5% above the actuarial indication at year end 2014 Reserve position has improved consistently from 1.8% in 2011 Recorded Net Reserves Above Actuarial Indication 2.6% 1.8% 3.5% Annual ground-up A&E reserve study performed during second quarter 2015 Reserve strengthening of $198 million, before tax, in 2015 was down from $239 million in 2014 Asbestos reserve strengthening reflected lower than projected improvement in new mesothelioma claims for a small number of peripheral accounts, less than 20 out of more than 1, Prior Year Development (Last twelve months, $ in millions) $86 o Remaining accounts have largely trended in line with reserve assumptions $46 $140 $239 $198 ($25) 3Q13 3Q14 3Q15 A&E All Other Copyright 2015 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 STRONG FINANCIAL FOUNDATION AND EXCESS CAPITAL GENERATION The Hartford generates strong operating free cash flow $3.0 billion cash flow to the holding company in 2014, including Japan annuity business sale proceeds of $1.5 billion Approximately $2.2 billion in expected cash flows to the holding company in holding company cash needs of approximately $680 million, including interest expense and common dividends Estimated 2015 holding company cash uses of about $2.6 billion, including $1.2 billion for share repurchases and $0.8 billion for debt Strong holding company resources of approximately $2.1 billion at Sept. 30, 2015 $3.0 $0.4 $1.5 Actual and Estimated Sources of Holding Company Cash ($ in billions) $2.2 $1.9 $0.3 $0.3 $1.0 $0.5 $1.1 $0.9 $ E 2016E Other sources Talcott Resolution dividends Talcott Resolution sale proceeds (Japan) P&C, Group Benefits, Mutual Funds Copyright 2015 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 STRONG FINANCIAL FOUNDATION AND EXCESS CAPITAL GENERATION The Hartford continues to return significant capital to shareholders $5.8 billion in capital management $4.4 billion for equity repurchases $1.4 billion for debt management Capital Management Actions ($ in billions) Equity repurchases $2.7 billion as of Oct. 23, 2015, leaving approximately $1.7 billion under current plan to be used through the end of 2016 Debt management Repaid $806 million of maturing debt through Sept. 30, 2015 Expect to repay an additional $625 million by year-end 2016 $0.3 $0.3 $0.2 $1.8 $0.8 $1.2 $0.3 $0.5 $1.4 Increased quarterly dividend by 17% to $0.21 per share of common stock in 3Q E 2016 E Dividends paid on common stock Amount spent on debt repayment or reduction Share repurchases Copyright 2015 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 STRONG FINANCIAL FOUNDATION AND EXCESS CAPITAL GENERATION Capital Management Priorities Going forward, The Hartford s priority for its excess capital is to invest in the businesses, organically or through acquisitions, to drive profitable growth Investment opportunities must meet financial and strategic targets In the absence of attractive opportunities to redeploy excess capital in the businesses, management will continue to return capital to shareholders Common Dividend Share Repurchases Acquisitions Excess Capital Priorities Debt Repayment Investing in our Businesses Copyright 2015 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 The Hartford: Has a portfolio of businesses with attractive characteristics and strong competitive advantages Is delivering profitable growth through a clear strategic plan Has a solid financial foundation and generating significant excess cash flow Is continuing on the path to superior shareholder return Copyright 2015 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 CREATE TOTAL SHAREHOLDER RETURN The Hartford generated total shareholder return in excess of peers and the market % Total Shareholder Return 1 7/27/15 Dividend increased from $0.18 to $ % /30/14 Dividend increased from $0.15 to $ % /26/13 Dividend increased from $0.10 to $ % S&P P&C The Hartford S&P Source: Bloomberg; Total shareholder return, assuming dividends reinvested in security 12/31/12 10/16/15 12/31/13 12/31/14 12/31/14 10/16/15 The Hartford 102% 17% 14% S&P P&C Index 60% 19% 5% S&P 500 Index 47% 16% 0% Copyright 2015 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 CREATE TOTAL SHAREHOLDER RETURN The Hartford continues to trade at a discount compared with peers 1 Price to Book Value 2 vs. Peers 1.2x 1.0x 1.3x 0.6x HIG Peers YE 2012 Current 1. ACE, Allstate, AIG, Cincinnati Financial, Hanover, Progressive, Travelers 2. Book value per share, excluding accumulated other comprehensive income (AOCI), at June 30, Denotes financial measure not calculated based on generally accepted accounting principles; Stock prices as of Oct. 23, 2015 Copyright 2015 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 CREATE TOTAL SHAREHOLDER RETURN The Hartford s P&C, Group Benefits and Mutual Funds businesses are generating double-digit ROEs The Hartford is focused on creating shareholder value through profitable growth in the P&C, Group Benefits and Mutual Funds businesses These businesses are generating ROEs in the low double-digit range Talcott Resolution, generating mid singledigit ROEs, reduces our consolidated ROE Its impact on ROE will continue to decline as the business runs off We expect to continue to run off Talcott organically, but will evaluate opportunities 7.4% Core Earnings ROE % 12.1% 11.9% 3.8% 8.4% 4.7% 9.1% Q15 Consolidated P&C, Group Benefits, Mutual Funds & Corporate Talcott 5.9% month trailing core earnings return on equity, unlevered Copyright 2015 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 CREATE TOTAL SHAREHOLDER RETURN The Hartford is now growing book value per share With the financial and strategic transformation essentially complete, The Hartford is now growing shareholders equity through net income in excess of dividends and share repurchases LTM core earnings was essentially equal to net income LTM cash flow to the holding company represents 127% of net income Book Value Per Diluted Share ex. AOCI $39.30 $40.71 $ Q15 Core Earnings and Net Income, (LTM) ($ in millions) $1,631 $1,643 $1,548 $1,419 $798 $ Q15, LTM Core earnings Net income Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 32

33 The Hartford s Primary Goals Achieve profitable growth in our P&C, Group Benefits and Mutual Funds businesses Generate excess capital to invest in the businesses and return to shareholders Create shareholder value by improving core earnings ROE 1, 2 and by growing book value per share 1, 3 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Return on equity 3. Book value per diluted share, excluding accumulated other comprehensive income Copyright 2015 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 33