Third Quarter 2012 Presentation The Hartford Financial Services Group, Inc. November 2, 2012
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 1995. 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 press release issued on November 1, 2012, our Quarterly Reports on Form 10-Q, our 2011 Annual Report on Form 10-K 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, including reconciliations to the most directly comparable GAAP financial measures, is provided in the press release issued on November 1, 2012 and The Hartford s Investor Financial Supplement for the third quarter of 2012 which is available at the Investor Relations section of The Hartford s website at ir.thehartford.com/financials.cfm. 2
Third Quarter 2012 Presentation The Hartford Financial Services Group, Inc. Liam E. McGee Chairman, President and Chief Executive Officer
Third Quarter 2012 Presentation The Hartford Financial Services Group, Inc. Christopher J. Swift Executive Vice President and Chief Financial Officer
Core earnings of $378 million in 3Q12 Core Earnings ($ in millions, except per diluted share amounts) 3Q11 3Q12 Net Income $60 $401 Income (loss) from discontinued operations 3 (2) Net realized capital gains, net of tax and DAC, excluded from core earnings 7 25 Core earnings 1 $50 $378 Core earnings per diluted share 1 $0.08 $0.78 Weighted average diluted shares 473.4 482.7 Certain Items Included in Core Earnings 3Q11 3Q12 DAC unlock charge $(207) $(23) CAY catastrophes (above)/below budget (62) 68 Favorable/(unfavorable) P&C PYD (2) 21 Commercial Markets re-estimation of CAY losses (31) (25) Restructuring and other charges 2 (23) (34) Items included in core earnings $(325) $7 Per diluted share 3 $(0.69) $0.01 3Q12 core earnings included certain items totaling $7 million, after tax, or $0.01 per diluted share: $23 million deferred acquisition costs unlock (DAC unlock) charge; $68 million current accident year (CAY) catastrophe losses below budget; $21 million favorable property and casualty prior year loss reserve development (PYD); $25 million re-estimation of CAY losses in Commercial Markets; and $34 million of restructuring and other expenses Limited partnerships and other alternative investments income was $18 million, after tax, in 3Q12 compared with $44 million, after tax, in 3Q11 5 1. Denotes financial measure not calculated based on generally accepted accounting principles 2. Includes 3Q11 assessment of $14 relating to Executive Life of New York liquidation 3. Based on diluted share count of 473.4 million and 482.7 million for 3Q11 and 3Q12, respectively
Book value per diluted common share rose 10% Book Value per Diluted Common Share BVPS ex AOCI $43.81 $44.31 $43.25 $2.37 $2.58 $2.70 AOCI $45.59 $4.68 $48.13 $6.78 $41.44 $41.73 $40.55 $40.91 $41.35 Return on Equity 3 Book value per diluted common share, including accumulated other comprehensive income (AOCI), rose 10% to $48.13 at September 30, 2012 from $43.81 at September 30, 2011 Book value per diluted common share, excluding AOCI, 1 was $41.35, essentially flat compared to September 30, 2011 The Allianz refinancing and warrant repurchase reduced 2012 shareholders equity by approximately $887 million, or $1.83 per diluted share 2 6.0% 4.9% 5.1% 5.6% 7.2% 3Q12 core earning ROE was 7.2% for the last 12 months, up from 6.0% for the 12 months ended September 30, 2011 6 1. Denotes financial measure not calculated based on generally accepted accounting principles 2. Based on diluted shares of 485.5 million as of Sep. 30, 2012
P&C Commercial core earnings of $160 million in 3Q12 Written Premium & Combined Ratio 1 $1,551 99.4% $1,482 101.1% $1,687 $1,516 $1,552 96.4% 94.5% 97.5% Written Premium Combined Ratio Standard Commercial Retention 2 & Renewal Written Pricing 82% 4% 7% 7% 83% 83% 5% 81% 8% 84% 3Q12 core earnings increased by $73 million versus 3Q11, primarily due to lower catastrophes Catastrophes were $7 million, after tax, in 3Q12 versus $60 million, after tax, in 3Q11 3Q12 PYD was unfavorable $10 million, after tax, but favorable $6 million, after tax, in 3Q11 Renewal pricing increases remain strong Standard commercial lines renewal written price increases up 8% over prior year and up 1 point sequentially Middle Market renewal pricing increased 11% in total and 15% in workers compensation 3Q12 combined ratio 1 improved 1.9 points from 3Q11 due to lower non-catastrophe property losses and favorable expenses, partially offset by lower CAY profitability in commercial auto 3Q12 included $39 million, before tax, of CAY prior quarter reserve strengthening compared with $47 million, before tax, in 3Q11 Policy Count Retention Renewal Written Pricing 7 1. Excludes catastrophes and prior year development (PYD) and is a financial measure not calculated based on generally accepted accounting principles 2. Standard Commercial represents Small Commercial and Middle Market segments; retention is policy count retention
Group Benefits core earnings of $23 million in 3Q12 Fully Insured Premium & Loss Ratio 1 $1,000 $995 $954 $950 $926 80.1% 80.5% 83.0% 78.6% 79.3% 70% $91 Fully Insured Premium $78 $228 $66 Loss Ratio Fully Insured Ongoing Sales 1 & Persistency 71% 63% 51% 62% $55 Core earnings increased 15% to $23 million in 3Q12 from $20 million in 3Q11 Fully insured premium declined 7% versus 3Q11 Persistency decreased by 8 points from 3Q11 but increased by 11 points from 2Q12 as efforts to improve price and business mix continue Sales decreased 40% reflecting the competitive environment and efforts to improve profitability 3Q12 loss ratio of 79.3% improved 0.8 points versus 3Q11, driven by improving long-term disability (LTD) terminations LTD claims incidence was stable year-over-year and sequentially, but remain elevated Termination rates improved year-over-year, but remain below 2009 levels Profitability improvement initiatives continue Increasing rate where appropriate and managing the book through segmentation Sales Persistency 8 1. Excludes buyout premiums
Consumer Markets core earnings of $93 million in 3Q12 Written Premium and Combined Ratio 1 $964 95.5% $858 $861 92.4% 88.8% $950 $960 91.3% 93.3% Written Premium Combined Ratio Auto New Business Premium & Auto Policy Count Retention $80 $77 83% 83% $86 $85 $84 84% 84% 85% Core earnings of $93 million in 3Q12 compared with core losses of $10 million in 3Q11 CAY catastrophes included $16 million, after tax, from 3Q12 events, which was entirely offset by favorable development on first half 2012 catastrophes 3Q11 catastrophe losses totaled $73 million, after tax Written premium was flat compared with 3Q11 New business growth up 9% Policy retention improved by 2 points to 85% for auto and 3 points to 87% for home AARP Agency written premium rose 95%; this product is distributed in over 6,000 agent locations 3Q12 combined ratio 1 of 93.3%, improved 2.2 points from 3Q11 due principally to homeowners Homeowners combined ratio 1 improved 7 points compared with 3Q11 Auto combined ratio 1 was essentially flat versus 3Q11 New Business Premium Policy Count Retention 9 1. Excludes catastrophes and PYD and is a financial measure not calculated based on generally accepted accounting principles
Mutual Funds core earnings of $18 million in 3Q12 Mutual Funds Core Earnings & Assets Under Management ($ in billions) $24 $82.8 $24 $85.5 $92.4 $20 $20 $20 $20 $86.2 $88.1 $18 $18 $18 $18 Non-Proprietary Mutual Funds Deposits By Fund Type 1 ($ in billions) $4.3 $0.4 $0.8 $3.0 Core Earnings $2.3 $0.5 $0.9 $0.9 $2.7 $0.5 $0.9 $0.8 $1.3 $1.2 AUM ($billions) $2.5 $2.6 $0.4 $0.5 $1.1 $1.0 Equity Fixed Income Multi-Asset/Balanced 3Q12 core earnings of $18 million versus $24 million in 3Q11; decrease in core earnings reflects: Lower fee income based on average assets under management (AUM) during the quarter although quarter end AUM was up 6% Increased expenses for expanded distribution and marketing AUM of $88.1 billion increased 6% from 3Q11, reflecting favorable market performance and lower negative net flows 3Q12 Non-proprietary Mutual Funds net flows totaled $(0.4) billion compared with $(2.4) billion in 3Q11 Deposits of $2.6 billion decreased from $4.3 billion in 3Q11, which included $1.5 billion of purchases from one institutional client for investment only mutual funds Continue to market Wellington Management as sole sub-advisor Expanded customer awareness of The Hartford s fixed income funds and strong performance generated the best quarterly fixed income sales since 2010 10 1. Deposits may not add up due to rounding
Runoff Operations core earnings, ex DAC unlock, of $168 million in 3Q12 DAC unlock Life Other Operations Core Earnings, Ex. DAC Unlock $181 $169 $162 $7 $11 $10 $4 $73 $70 $74 $90 $92 $96 $162 $147 $11 $8 $5 $68 $75 $78 $72 ($5) ($10) ($8) US Annuity International Institutional PPLI $(126) $44 $192 $(125) $(11) P&C Other Operations Core Earnings(Losses) $9 $16 $20 $21 3Q12 Life Other Operations core earnings of $147 million, excluding DAC unlock charge Life Other Operations core earnings declined 13% versus 3Q11 due to U.S. variable annuity outflows and lower alternative investment yields U.S. variable annuity AUM flat at $66.7 billion compared with 3Q11 Market appreciation offset by $10.2 billion of U.S. variable annuity surrenders over the past 12 months 3Q12 DAC unlock charge included in core earnings of $11 million versus $126 million in 3Q11 3Q12 charge comprised of $24 million for market and $(35) million for assumption changes PYD, incl. A&E 11 $(14) $(14) $(4) $(4) $(34) $(1) P&C Other Operations core earnings were $21 million, improved from 3Q11 core earnings of $9 million, which included unfavorable development of $12 million, after tax, on environmental exposures
GAAP and statutory variable annuity impacts Consolidated GAAP Basis (pre-tax) $ in millions 4Q11 1Q12 2Q12 3Q12 (Increase) decrease in GMWB net liability $237 $788 $(438) $665 Increase (decrease) in fair value of hedge assets 1 (645) (2,011) 1,082 (560) Net realized gains (losses) $(408) $(1,223) $644 $105 (Increase) decrease in SOP 03-1 reserves included in core earnings (22) 162 (194) (34) Net GAAP impact $(430) $(1,061) $450 $71 Ending GMWB & SOP 03-1 reserves at end of period $3,466 $2,422 $3,044 $2,403 Consolidated Statutory Basis (pre-tax) $ in millions (Increase) decrease in VACARVM liability $756 $1,766 $(1,284) $517 Increase (decrease) in fair value of hedge assets (649) (1,949) 1,056 (521) Net U.S. statutory impact $107 $(183) $(228) $(4) Total statutory VA reserves 2,3 $4,477 $2,681 $3,965 $3,560 Market Levels at End of Quarter S&P 500 1258 1408 1362 1441 10 Year Treasury 1.88% 2.21% 1.67% 1.65% Yen/$ 76.9 82.3 79.8 77.9 1. HLIKK (Japan) hedges added in 4Q11; change in value included in GAAP but HLIKK is not a U.S. statutory entity 2. 4Q11 through 3Q12 include Retirement reserves of $32, $33, $34 and $57, respectively, and HLIKK JGAAP reserves of $776, $746, $746 and $859; reserves are net of cash surrender value in the separate account 3. 4Q11 through 3Q12 include US VA reserves of $1,286, $525, $887 and $628, respectively 12
Capital resources totaled $18 billion at September 30, 2012 $ in billions 1Q12 2Q12 3Q12 U.S. statutory surplus at the beginning of the quarter $14.8 $15.2 $15.4 P&C statutory earnings 0.3 0.1 0.2 Life statutory earnings (ex. variable annuity and credit) 0.1 - (0.1) Variable annuity surplus impacts (0.1) 0.1 - Investment and credit related impacts 0.1 0.1 0.1 Other Items 0.2 0.2 (0.1) Subtotal $0.6 $0.5 $0.1 Net (dividends to) contributions from holding company (0.2) (0.2) (0.2) Net change to U.S. statutory surplus during the quarter 1 $0.4 $0.2 $(0.1) Capital resources at end of quarter: 1Q12 2Q12 3Q12 U.S. P&C insurance subsidiaries $7.7 $7.7 $7.7 U.S. life insurance subsidiaries 7.5 7.7 7.6 Total U.S. statutory surplus at the end of the quarter $15.2 $15.4 $15.3 Japan HLIKK (JGAAP) 1.2 1.3 1.3 Total insurance company capital resources $16.4 $16.7 $16.6 Holding company cash and short term investments 1.5 1.3 1.4 Total capital resources at the end of the quarter $17.9 $18.0 $18.0 13 1. Totals may not add up due to rounding
Expense Reduction Target $850 Million Expense Reduction Target $165 $450 $135 $100 Expense reduction target of $850 million, before tax, comprised of: $450 million direct expense associated with businesses being sold; $165 million for other expenses for businesses being sold; $100 million related to placing U.S. Annuity into runoff; and $135 million incremental prior efficiency commitment Expect to achieve run rate savings of $800 million to $825 million by year-end 2013 Prior Expense Commitment Divested Direct Annuity Runoff Commitment Divested Other 14
2012 core earnings Net Income $396 Loss from discontinued operations (4) Net realized capital losses, net of tax and DAC, excluded from core earnings Loss on extinguishment of debt (587) Core earnings 1 $1,109 Weighted average diluted shares 486.1 Core earnings per diluted share 1 $2.28 Certain Items Included in Core Earnings 2012 YTD DAC unlock benefit 42 CAY catastrophes above budget (36) Favorable P&C PYD 8 Restructuring and other charges (71) Items included in core earnings $(57) Per share $(0.12) 15 Core Earnings 2012 Core earnings for the first nine months YTD of 2012 totaled $1.1 billion including certain items such as DAC unlock benefit and catastrophes above budget of $(57) million, or $(0.12) per diluted (122) share 1. Denotes financial measure not calculated based on generally accepted accounting principles 2. Excludes DAC unlock charge, PYD and expected restructuring charges of $45-$50 million; includes budgeted catastrophes of $68 million, before tax Excluding these items, core earnings were $1.2 billion Current 4Q12 core earnings outlook of $375 to $400 million, or $0.77 to $0.82 per diluted share 2 No loss estimate for Sandy in current outlook This totals $1.5-$1.6 billion compared with our December 2011 outlook for 2012 core earnings of $1.6-$1.7 billion
Third Quarter 2012 Presentation Questions & Answers The Hartford Financial Services Group, Inc.