The Hartford Financial Services Group, Inc.

Transcription

1 The Hartford Financial Services Group, Inc. Ramani Ayer Chairman and Chief Executive Officer Sanford C. Bernstein s Strategic Decisions Conference June 1, 2005

2 Safe Harbor Statement Certain statements made in this presentation should be considered forwardlooking 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 Quarterly Report on Form 10-Q filed on May 2, 2005 and other filings we make with the 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, or GAAP. Information regarding these non-gaap financial measures is provided in the Investor Financial Supplement for the first quarter of 2005 and the Non-GAAP and Other Financial Measures section of The Hartford s website, both of which are available in the Investor Relations section of The Hartford s website at 2

3 The Hartford Overview Earnings are driven by a diversified portfolio of property casualty, life and investment businesses Long term goals are double digit growth in EPS and 13-15% ROE Diluted Operating EPS [1] 2005 Guidance $ $7.70 Book Value Per Share Excluding AOCI $4.47 $4.71 $5.42 $5.90 $34.54 $37.77 $36.67 $43.55 $45.60 $ Q Q05 Please see Appendix for footnotes. 3

4 Shareholder Returns The Hartford s total return exceeded the S&P 500 over the past 5 years Total Return Comparison as of 5/27/05 1 Year 3 Year 5 Year The Hartford (HIG) 15.2% 6.4% 6.4% S&P % 5.3% -1.2% 200% 150% 100% 50% 0% Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 The Hartford S&P 500 4

5 Financial Strength is Crucial The Hartford maintains AA ratings and a strong balance sheet Strong financial ratings A.M. Best A+ Fitch AA Standard and Poor s AA- Moody s Aa3 (percent) Financial Leverage Excluding AOCI [2] Enterprise Goal Low 20 s Maintain a capital cushion of $500 to $600 million Continuing to build equity and decrease leverage Q05 5

6 Strategic Challenges and Opportunities The Hartford s strategies and plans address key industry trends Asbestos and TRIA Property and casualty cycles Agency consolidation Regulatory scrutiny Aging demographics Volatile equity markets and low interest rates Product innovations Risk management and hedging 6

7 Asbestos Legislation Moves to the Floor Significant concerns remain with the Senate trust fund proposal Trust Fund Concerns Overall Funding and Sources Start-Up Provisions Sunset Provisions Finality/Exclusivity Level of Victim Compensation Medical Criteria Alternative Need for a National Solution Requires Proof of Physical Impairment and Exposure Toll Statute of Limitations for Unimpaireds Eliminate Jackpot Jurisdictions Prohibit Claims Consolidation Reasonable Awards Collateral Payments 7

8 Addressing the Risk of Terrorism TRIA must be extended until a long-term public-private partnership is created Losses from nuclear, biological, chemical, and radiological events are uninsurable The private market is ineffective The Hartford is monitoring and managing exposures while advocating long term solutions If no new legislation soon, then we must extend TRIA 8

9 Property and Casualty Pricing is Declining Competition remains largely rational in The Hartford s key lines Rates are easing but only after several years of strong price increases With favorable frequency, the margins between earned pricing and loss costs remain attractive in business insurance and personal lines Hartford Business Insurance Written Pricing Hartford Personal Lines Written Pricing Rate of Change 25% 20% 15% 10% 5% 0% -5% 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 Rate of Change 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 Middle Market Small Commercial Auto Pricing Home Pricing 9

10 P&C Underwriting Profit Likely to Peak in 2005 We expect a soft landing for business insurance and personal lines Drivers of a Soft Landing Rating agencies demand strong capital positions Low interest rates maintain focus on underwriting Accounting standards increase reserve transparency Market leaders are gaining share Better, more sophisticated, pricing and underwriting models 10

11 P&C Pricing Sophistication is on the Rise Focus on product development and pricing have positioned The Hartford for success Ability to write entire risk continuum Increased Market Opportunity Quicker Pricing Adjustment Greater Risk Dispersion Small Commercial Xpand product Enhanced segmentation Proprietary account scoring Agency Personal Lines Dimensions products Tiered pricing enables rapid price adjustment 11

12 P&C Agencies are Consolidating The Hartford has built capabilities to address the changing needs of our agencies Shelf space will be difficult to maintain for marginal players as distribution consolidates Technology, underwriting, service and speed matter most 50,000 45,000 40,000 35,000 Number of U.S. Independent Insurance Agencies 46,000 44,000 42,000 40,000 39,000 30% 20% 10% 27% Determining Factor for Favorite Carrier Status 18% 14% 11% 9% 30, % Technology Underwriting Field Service Speed Products Source: Future One Agency Management Survey, 2004 Source: Celent Independent Producer Survey, Feb

13 P&C Agents Need to Lower Costs of Doing Business Significant investments in technology and service drive ease of doing business Personal Lines QTI Technology Quick quote-to-issue for new customers ExpressWay Integrates QTI with agency management systems for easy, rapid quoting Business Insurance Small Commercial Service Centers Centralized service centers improve customer satisfaction and retention E-Submission Electronic applications integrate with account scoring to speed underwriting and quoting 13

14 P&C Agents Value Local Market Expertise The Hartford has increased field presence while broadening our product offering Built competitive advantage by coupling national capabilities with expanded local knowledge and presence Offering a broad product portfolio for business insurance and personal lines Service centers Regional offices Branch offices 14

15 Personal Lines Direct Marketing Is Growing The Hartford is the exclusive provider of auto and home insurance to AARP members th largest direct program in the country with $2.2 billion in written premiums in 2004 Current AARP contract extends until 2010 AARP has a growing base of 35 million members Award winning service center 15

16 Property & Casualty Summary The Hartford has repositioned our business to focus on competitive strengths 82% of net written premium is business insurance and personal lines Specialty lines complement middle market business insurance Exited reinsurance and international property and casualty P&C Net Written Premium (In Billions) 10 8 $7.3 $9.9 18%, Specialty 6 46%, Business Insurance %, Personal Lines

17 Demographic Trends Will Fuel Retirement Savings The Hartford s life operations offers an array of asset accumulation products for retail and institutional markets Assets Accumulation Businesses Assets Under Management as of March 31, 2005 $212 Billion Institutional Solutions 24% Japan 8% Individual Annuities 52% Other Retail Products 16% 17

18 Growth is Slowing in the $1.1 Trillion VA Industry The Hartford s leadership advantages will continue to drive profitability and growth Industry leading distribution World class asset management Award winning service Scale Product innovation Risk management expertise The Hartford s Variable Annuity Market Share 14% 12% 10% 8% 8.4% 8.1% 13.2% 13.0% 13.4% 12.0% 11.4% 12.7% 10.6% 11.8% 12.0% 8.6% 10.1% 6% 4% 2% 0% 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q 03 3Q 03 4Q 03 1Q 04 2Q 04 3Q 04 4Q 04 1Q 05 Source: VARDS, quarterly sales includes internal exchanges 18

19 Variable Annuity Competition Hinges on Guarantees The Hartford s newest product offers basic protection at a reasonable price Withdrawal Rate Reset Revocable Required Asset Allocation Transfer Restrictions Cost Principal First 7% Yes, every 5 years No No No 50 bps Principal First Preferred 5% No Yes, after 5 years No Yes, but not currently enforced 20 bps Advantages of Principal First Preferred Provides customers with basic principal protection at a lower cost Simple to explain and understand Product design reduces capital requirements and risk 19

20 Other Annuity Trends With product innovation, risk management and hedging, Hartford is planning ahead Variable annuity arms race: What s next? Implications of the new reserve and capital formulas will vary by company (C3 Phase 2) Hedging and risk management expertise is required for today s product guarantees Scale continues to be critical Suitability and compliance focus is increasing Low interest rates continue to challenge fixed annuities and spreads Potential annuity tax legislation may fuel growth 20

21 Retail Distribution and Money Management Drive Industry Mutual Fund and 401(k)s The Hartford is leveraging PLANCO to grow in mutual funds and 401k AUM has grown 27% annually since wholesalers dedicated to mutual funds in 2005 Achieving scale efficiencies (In Billions) $10 $8 $6 $4 $2 401(k) Assets Under Management $2.3 $2.6 $3.4 $5.2 $7.3 (In Billions) $30 $25 $20 $15 $10 $5 $10.4 Mutual Funds Assets Under Management $15.5 $14.1 $20.3 $25.2 $ $

22 Japan has Tremendous Growth Potential Exporting The Hartford s variable annuity business model brings success in Japan Distribution of Targeted Retail Assets by Firm $7 Trillion Mega Banks 35% Mega Bank Affiliated Securites Firms 4% Assets under management reached $17.6 billion in the first quarter The Hartford s 53 distribution partners control almost 60% of the targeted retail assets Top 10 Regional Banks 9% Large Securities Firms 10% Others 24% Trust Banks 18% Wholesaling model well received Two fixed annuities products are now offered through 24 distribution partners 22

23 Life Insurance Sales Growth Varies by Channel The Hartford is well positioned in banks and brokers, the highest growth channels Industry and Hartford 2004 Sales Growth by Channel* Total 6% 21% Banks 54% 48% Stockbroker 4% 4% Brokerage 10% 19% Hartford Life ** Industry Career & Other 0% 0% 10% 20% 30% 40% 50% 60% * Source: LIMRA U.S. Individual Life Insurance Sales Surveys ** Hartford Life Sales Offices 23

24 Universal Life Sales Outpacing Industry Growth We have broadened our product portfolio while maintaining our #1 position in variable life sales in Total Industry Hartford Life WL 25% UL 38% Term 22% VL 15% UL 26% WL 18% Term 6% VL 50% *Source: LIMRA International, % of annualized premium 24

25 Service Excellence Can Provide Differentiation The Hartford is a recognized industry leader in service quality DALBAR: - Annuity 9 in a row - Mutual Funds 2 in a row - 401(k) 2 in a row - Individual Life 7 in a row Rated by DALBAR as #1 Website for Professionals 25

26 Group Benefits Remains Competitive but Rational The acquisition of CNA s group business secured a market leading position Fully-Insured Disability Inforce Premiums (in Millions) Market Rank Premium Share UnumProvident 1 $ 2, % Hartford Life 2 1, % MetLife 3 1, % Standard % CIGNA % (in Millions) Group Life Inforce Premium Market Rank Premium Share MetLife 1 $ 4, % Prudential 2 2, % UnumProvident 3 1, % CIGNA 4 1, % Aetna 5 1, % Hartford Life 6 1, % Formidable market position #2 in group disability #6 in group life Expanded, strengthened distribution Exceptional customer satisfaction Superior financial discipline Successful CNA integration Source: LIMRA, full year 2004 premiums 26

27 Life Summary: A Dynamic and Diversified Business The Hartford is investing in new products and markets while leveraging capabilities in established lines Market leader in variable annuities, group benefits and variable life Growing domestically in 401(k) and retail mutual funds Expanding internationally with annuities in Japan (In Millions) 1,200 1, Life Operating Income $1,122 $ % 401(k) and Mutual Funds Individual Life Institutional International 20% Group Benefits 43% Individual Annuity 27

28 The Hartford The Hartford is maintaining industry leadership in key markets while developing new growth opportunities for the future Balanced Portfolio of Businesses Market Leadership in Key Franchises AARP Partnership Variable Annuities Group Benefits Small Commercial Variable Life Unrelenting Focus on Customers, Distribution, and Products Financial Strength and Discipline Emerging Growth Businesses Personal Lines Mutual Funds Japan Select Xpand 401(k) 28

29 The Hartford Financial Services Group, Inc. Ramani Ayer Chairman and Chief Executive Officer Sanford C. Bernstein s Strategic Decisions Conference June 1, 2005

30 Footnotes ($ in millions) [1] In order to provide a consistent basis of comparison, this excludes the impact of realized gains and losses, goodwill amortization of $52 in 2001, tax benefits of $130, $76, $30 and $216 for , September 11, 2001 terrorist attack of $440 and restructuring charge of $11 in 2001, Bancorp Services litigation charges of $11 and $40 in 2002 and 2003, and the asbestos reserve addition of $1,701 and severance charges of $27 in [2] Includes 75% equity credit on the equity units excludes the impact of the CNA transaction. 29