The Hartford Financial Services Group, Inc. February 8, 2018 Fourth Quarter 2017 And Full Year 2017 Financial Results And 2018 Key Business Metrics Outlook On December 3, 2017, The Hartford entered into an agreement to sell its life and annuity run-off business (formerly known as Talcott Resolution). As a result, the assets and liabilities of this business have been accounted for as held for sale and its financial results are now included in discontinued operations for all periods presented. The change has the effect of reducing previously-reported core earnings.
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 news release issued on February 8, 2018, 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 news release issued on February 8, 2018 and The Hartford s Investor Financial Supplement for fourth quarter 2017 which is available at the Investor Relations section of The Hartford s website at https://ir.thehartford.com. 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 https://ir.thehartford.com. In addition, you may automatically receive email alerts and other information about The Hartford when you enroll your email address by visiting the Email Alerts section at https://ir.thehartford.com. 2
FY17 1 key financial highlights Core Earnings Property & Casualty Commercial Lines FY17 core earnings 2 of $1.0 billion, up 11% from FY16 3 principally due to a change to net favorable PYD 4, improved underlying Personal Lines auto results and higher Mutual Funds and Group Benefits earnings, partially offset by higher catastrophe losses and lower Commercial Lines underlying underwriting results Core earnings of $899 million, up $27 million from FY16, as a change to net favorable PYD and no net unfavorable PYD on A&E 5 was largely offset by higher CATs 6 Underlying combined ratio 2,7 of 92.5 increased 0.7 point versus 91.8 in FY16 due to 0.8 point increase in the expense ratio partially offset by 0.3 point reduction in the loss ratio Underlying combined ratio of 92.0 increased 2.6 points from FY16 primarily due to a 1.3 point increase in the expense ratio largely from variable compensation expenses and a 1.1 point increase in the loss ratio due to expected margin deterioration in workers' compensation and general liability Personal Lines Underlying combined ratio of 93.0 improved 2.4 points from FY16 reflecting a 4.2 point improvement in auto including lower marketing and operations expenses due to profitability improvement initiatives, partially offset by a higher homeowners underlying combined ratio Group Benefits Core earnings of $234 million, up 15% from FY16 primarily due to better group disability results Loss ratio of 76.1% improved 1.9 points and expense ratio increased 0.6 point to 25.7% BVPS and ROE BVPS, ex. AOCI, 2,8 of $35.29, decreased 22% from Dec. 31, 2016 primarily due to the loss on sale of Talcott Resolution and the charges from tax reform and the pension transfer ROE - Core earnings 2,9 of 6.7% compared with 5.2% for FY16 3 1. Full year 2017 (FY17) 2. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 3. Full year 2016 (FY16) 4. Prior accident year development (PYD) 5. Asbestos and Environmental (A&E) 6. Catastrophes (CATs) 7. Combined ratio before CATs and PYD 8. Book value per diluted share, excluding accumulated other comprehensive income 9. Return on equity
The Hartford's strong 2017 full year results versus February 2017 outlook contributed to higher variable compensation accruals Both Commercial Lines and Personal Lines 2017 combined ratios were worse than the outlook published in February 2017 due to higher catastrophe losses Excluding CAT losses, results were largely in line or better than original outlook Commercial Lines underlying combined ratio modestly higher than outlook primarily due to higher variable incentive compensation Personal Lines underlying combined ratio better than outlook due to personal auto P&C net investment income, before tax, excluding limited partnerships and other alternative investments (LPs), was also better than outlook Combined with LP investment income of $134 million, consolidated net investment income was up 1% over 2016, contributing to higher variable incentive compensation accruals Key business metrics: 2017 Outlook 2017 Actual Commercial Lines combined ratio 1,2 92.5-94.5 97.3 Commercial Lines underlying combined ratio 89.7-91.7 92.0 Personal Lines combined ratio 1 99.0-101.0 104.2 Personal Lines underlying combined ratio 93.2-95.2 93.0 P&C current accident year catastrophe loss ratio 1 3.5 7.9 P&C net investment income, before tax, excluding LPs $975 - $1,025 $1,062 1. 2017 outlook included total P&C catastrophe loss ratio of 3.5, or 2.3 points in Commercial Lines and 5.8 points in Personal Lines; actual catastrophes were 7.9 points, or 5.6 points in Commercial Lines and 12.3 points in Personal Lines 2. Commercial Lines outlook also included 0.5 point of unfavorable PYD from the accretion of discount on workers' compensation loss reserves; actual PYD was favorable 0.3 point 4
2017 ROE - Core earnings improved 1.5 points from 2016; improvement understated due to timing of agreement to sell Talcott Resolution and other strategic actions ROE - Core earnings 1 was 6.7% versus 5.2% in 2016; adjusting beginning equity for loss on discontinued operations and tax and pension transfer charges 2, pro forma 4Q17 ROE - Core earnings was 7.8% 2017 P&C ROE - Core earnings of 11.1% up from 9.8% in 2016 primarily due to lack of A&E charge in 2017 and improved personal auto results 2017 Group Benefits ROE - Core earnings of 8.6% down from 10.6% in 2016 due to higher equity resulting from the Aetna acquisition, but limited additional earnings due to timing of acquisition ROE - Core Earnings 7.8% 6.9% 6.7% 5.9% 5.2% 5.1% 4Q17 Adjusted 2 Roll Forward of 2016 ROE - Core Earnings 5.2% 1.1% 1.2% 0.9% (1.8%) 0.1% 6.7% 5 1. ROE - Core earnings (core earnings last 12 months to stockholders' equity excluding AOCI) 2. Adjustment reduced 12/31/16 beginning equity by approximately $4.2 billion for loss on discontinued operations of $2.9 billion, pension transfer charge of $488 million and tax charge of $877 million 2016 Equity Adjustments A&E PL Auto CATs All Other 2017
The Hartford's 2018 outlook for key business metrics generates ROE - Core earnings range of 11% to 12% Better P&C combined ratio expected in 2018 due to: Lower CAY CATs of 3.6 points 1, down from 7.9 points in FY17 Commercial Lines expected to maintain strong margins, with potential improvement in some lines Personal Lines auto margins expected to improve further, driving additional progress in Personal Lines P&C net investment income, before tax, expected to decrease slightly due to projected LP return of 6% versus 11% in 2017 Group Benefits core earnings growth from acquisition Slight decrease in net income due to tax benefit in 2017 Lower tax rate due to U.S. corporate tax rate reduction Key Business Metrics: 2017 Actual 2018 Outlook Commercial Lines combined ratio 1,2 97.3 93.0-95.5 Commercial Lines underlying combined ratio 92.0 90.0-92.5 Personal Lines combined ratio 1 104.2 96.0-98.0 Personal Lines underlying combined ratio 93.0 90.5-92.5 P&C catastrophe loss ratio 1 7.9 3.6 P&C net investment income 3 $1,196 $1,125 - $1,175 Group Benefits net income 4 $294 $275 - $295 Group Benefits core earnings 4 $234 $310 - $330 1. 2018 outlook includes total P&C catastrophe loss ratio of 3.6 points or 2.6 points in Commercial Lines and 5.6 points in Personal Lines; actual catastrophes are likely to be different and will fluctuate quarterly due to seasonal variations. P&C CAT ratio equates to approximately $375 million, before tax, in 2018 or $75 million in 1Q18, $135 million in 2Q18, $110 million in 3Q18 and $55 million in 4Q18 2. Commercial Lines 2018 outlook includes 0.5 point of unfavorable PYD from the accretion of discount on workers' compensation loss reserves 3. Before tax and includes an estimated 6% return on LPs versus 11% in FY17; actual results are likely to be different and will fluctuate quarterly 4. Net income and core earnings include amortization of intangibles of $45 million to $50 million, after tax, and net income also includes integration costs of approximately $35 million, after tax 6
2017 capital management actions totaled $1.8 billion During 2017, The Hartford returned $1.4 billion to shareholders $1.028 billion equity repurchased (20.2 million shares for average price of $50.81 per share) Declared 9% increase in quarterly dividend to $0.25 per common share Paid $341 million of common dividends 2017 debt management: repaid $416 million of senior notes at maturity in March 2017 Total rating agency adjusted debt to capitalization ratio increased in 2017 to 28.8% due to net loss Expect to reduce leverage over time through increasing retained earnings and future debt repayment with long term goal to be in low to mid-twenties Refinancing of $320 million debt that matures in March 2018 Call of $500 million junior subordinated debt at par in June 2018 (previously announced) Repayment of 2019 debt maturity of $413 million Capital Management Actions ($ in billions)* $2.3 $0.3 $0.8 $1.3 $1.3 2015 2016 2017 27.0% Share Repurchases Repayment of Debt Dividends Paid on Common Stock * Total may not add due to rounding 25.3% $1.9 $0.3 $0.3 28.8% $1.8 $0.3 $0.4 $1.0 Rating Agency Debt to Capitalization Ratio 1 Low to Mid-20's 7 1. Total rating agency adjusted debt to capitalization ratio based on Moody's calculation 2015 2016 2017 Long Term
Reduction in U.S. corporate tax rate resulted in $877 million charge in 4Q17 and reclassification of AMT credit to current tax receivable Net deferred tax assets (DTA) of $1,164 million at Dec. 31, 2017, down from $2,999 million at Dec. 31 2016, primarily due to revaluation at lower U.S. corporate income tax rate and reclassification of alternative minimum tax (AMT) credit due to repeal and refund of corporate AMT AMT credit of $790 million at Dec. 31, 2017 accounted for as a current tax receivable due to new tax law; credit to be refunded by the end of 2022 2018 effective tax rate estimated in the high teens based on 2018 outlook; will vary based on portion of pre-tax income from municipal bonds Municipal bond income, taxed at 5.25%, is the company's only major preference item Most other items taxed at 21% rate Deferred Tax Assets (Liabilities) YE 2016 YE 2017 Tax discount on loss reserves $508 $461 Tax basis deferred policy acquisition cost 43 89 Unearned premium reserve and other underwriting related reserves 384 352 Investment-related items 458 194 Employee benefits 508 313 Alternative minimum tax (AMT) credit 1 640 General business credit carryover 99 4 Net operating loss carryover 1,458 710 Foreign tax credit carryover 56 26 Total deferred tax assets $4,154 $2,149 Total deferred tax liabilities $(1,155) $(985) Net deferred tax assets $2,999 $1,164 AMT credit as a tax receivable n/a $790 Net deferred tax assets and AMT $2,999 $1,954 1. AMT credits reclassified to tax receivable with value of $790 million at Dec. 31, 2017 8
4Q17 key financial highlights Core Earnings Property & Casualty Commercial Lines Personal Lines Group Benefits BVPS and ROE Core EPS 1,2 of $0.81, up from $0.77 in 4Q16 principally due to a 5% decrease in weighted average common diluted shares outstanding 4Q17 core earnings were essentially flat due to higher CAY CAT 3 losses offset by better Personal Lines results, before CATs, and higher Mutual Funds and Group Benefits earnings Core earnings of $240 million, down $35 million from 4Q16, due to higher CAY CATs and expenses, partially offset by lower CAY losses, before CATs, in Personal Lines and a change to net favorable PYD Underlying combined ratio of 93.2 increased by 0.1 point as lower loss ratio was offset by higher expense ratio principally due to variable compensation accruals Underlying combined ratio of 93.0 increased 4.8 points from 4Q16 primarily due to a higher expense ratio, higher policyholder dividend ratio, and lower workers' compensation and general liability margins, partially offset by better commercial auto margins Higher expense ratio due to variable compensation accruals Underlying combined ratio of 93.1 improved 8.7 points from 4Q16 due to better auto and homeowners underwriting results CAY loss ratio, before CATs, improved 5.1 points compared with 4Q16, adjusting for unfavorable CAY development for AY16 4 in 4Q16 and favorable CAY development for AY17 5 in 4Q17 Core earnings of $67 million, up 14% from 4Q16 due to better group disability results, partially offset by higher group life losses and increased variable compensation expenses Loss ratio of 76.1% improved 0.6 point from 4Q16 due to better group disability results, partially offset by group life, which had a favorable change in reserve estimate in 4Q16 BVPS, ex. AOCI, of $35.29, down 22% compared with Dec. 31, 2016 primarily due to FY17 net loss of $3.1 billion on sale of Talcott Resolution and the charges from tax reform and the pension transfer ROE - Core earnings of 6.7% improved 1.5 points compared with 5.2% in 4Q16, although 2017 ROE negatively impacted by higher beginning equity before 2017 net loss 9 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Earnings per diluted share 3. Current accident year (CAY) catastrophes (CAT) 4. Accident year 2016 (AY16) 5. Accident year 2017 (AY17)
4Q17 core EPS of $0.81 rose 5% over 4Q16 Core earnings of $293 million, essentially flat with $294 million in 4Q16 due to improved personal auto results, a change to net favorable PYD, and higher Mutual Funds and Group Benefits earnings, that were entirely offset by higher CAY CAT losses and higher expenses 4Q17 CAY CAT losses totaled $179 million, before tax, primarily due to California wildfires, compared with losses of $61 million, before tax, in 4Q16 4Q17 PYD was favorable $42 million, before tax, compared with unfavorable PYD of $48 million, before tax, in 4Q16 Core EPS of $0.81 increased 5% or $0.04 from 4Q16 due to the 5% decrease in weighted average common diluted shares outstanding due to share repurchases Core Earnings By Segment ($ in millions, except per share amounts) 4Q16 4Q17 Change 2 Commercial Lines $274 $282 3% Personal Lines (14) (46) NM P&C Other Operations 15 4 (73)% Group Benefits 59 67 14% Mutual Funds 17 37 118% Sub-total $351 $344 (2%) Corporate (57) (51) 11% Core earnings $294 $293 % Net realized capital gains (losses), 1 after tax (134) 59 NM Loss on reinsurance transaction, after tax (650) NM Integration and transaction costs, aftertax (17) NM Income tax benefit (expense) 355 (893) NM (Loss) income from discontinued operations, after-tax 54 (3,145) NM Net losses $(81) $(3,703) NM Core earnings per diluted share $0.77 $0.81 5% Net loss per share $(0.22) $(10.37) NM Wtd. avg. diluted shares outstanding 3 383.8 363.9 (5)% Wtd. avg. common shares outstanding 3 376.6 357.0 (5)% 10 1. Net realized capital gains (losses), after tax and deferred acquisition costs (DAC), excluded from core earnings 2. The Hartford defines increases or decreases greater than or equal to 200%, or changes from a net gain to a net loss position, or vice versa, as NM or not meaningful 3. In millions
Commercial Lines: Underlying combined ratio up 4.8 points largely due to higher expense and policyholder dividends ratios Combined ratio of 89.9 in 4Q17, 1.4 points better than 4Q16, reflecting: A change to net favorable PYD of 2.0 points due to favorable workers' compensation frequency trends versus net unfavorable PYD of 1.2 points in 4Q16, and; Net favorable 4Q17 CAY CAT losses of 1.2 points, including reinsurance recoveries and favorable CAY prior quarter loss development, compared with 1.9 points of CAY CAT losses in 4Q16 Underlying combined ratio increased 4.8 points from 4Q16 due to: 2.1 point increase in expense ratio largely due to higher variable compensation expenses and technology costs 1.2 point increase in policyholder dividends ratio 1.5 point increase in CAY loss ratio, before CATs due to workers' compensation and general liability partially offset by auto Written premiums up 4% over 4Q16 Small Commercial up 4% Middle Market up 3% Specialty Commercial up 3% Standard Commercial 1 renewal written price increases averaged 2.9% 4.1% Small Commercial, excluding Maxum 0.9% Middle Market $1,664 $200 $607 Commercial Lines Combined Ratio 2 91.3 96.0 94.6 3.1 5.1 3.7 $1,821 $232 108.6 15.5 89.9 32.4 33.3 33.0 34.4 34.5 55.6 57.3 57.8 58.6 57.1 (3.2) CAY CATs and PYD Expense Ratio CAY Losses and LAE 3 Before CATs Commercial Lines Written Premiums 4 $1,706 $1,702 $1,727 $192 $201 $206 $592 $566 $584 $628 $846 $986 $936 $905 $882 11 1. Standard Commercial includes Small Commercial and Middle Market 2. Combined ratio includes policyholder dividends ratio 3. Loss adjustment expense 4. Commercial Lines written premiums include immaterial amounts from Other Commercial Small Commercial Middle Market Specialty Commercial
Personal Lines: Personal auto results continued to improve while homeowners experienced large CAT losses Core losses of $46 million compared with core losses of $14 million in 4Q16 principally due to higher CAY CAT losses in homeowners: CAY CATs of $200 million, before tax, in 4Q17 primarily from California wildfires, compared with $28 million, before tax, in 4Q16 Combined ratio of 112.5 rose 5.8 points due to: 19.2 point increase in CAY CATs 1.8 point increase in expense ratio due to planned increased marketing expenses Partially offset by favorable PYD of 2.8 points, primarily in homeowners, compared with unfavorable PYD of 2.1 points in 4Q16 due to auto liability Underlying combined ratio improved 8.7 points to 93.1 due to improved auto results and lower weather and water losses Written premiums down 8% from 4Q16 due to the continued impact of profitability improvement initiatives on new business and retention levels 106.7 5.0 22.3 79.4 $892 $265 Personal Lines Combined Ratio 112.5 99.3 101.4 104.0 8.1 8.8 9.1 19.3 22.3 22.5 22.9 24.1 69.0 70.1 72.0 69.1 CAY CATs and PYD Expense Ratio CAY Losses and LAE Before CATs Written Premiums $889 $925 $924 $244 $287 $288 $823 $245 $627 $645 $638 $636 $578 Auto Homeowners 12
Personal Lines auto: Improved results due to benefit of profitability improvement initiatives and moderating loss trends 4Q17 auto combined ratio of 101.7 decreased 16.4 points from 4Q16 due to improvements in CAY loss ratio, before CATs, and a change to net favorable PYD, partially offset by higher expense ratio 4Q17 underlying auto combined ratio of 101.7 improved 11.9 points over 4Q16 as reported and CAY loss ratio, before CATs, improved 5.1 points after adjusting both periods for CAY prior quarter development 4Q16 included 5.9 points of unfavorable CAY prior quarter development and 4Q17 included 2.1 points of favorable CAY prior quarter development FY17 underlying combined ratio of 99.7 improved 4.2 points over FY16 as a result of: Multiple profitability improvement initiatives since 2015 resulted in better underwriting results Auto frequency trends continued to moderate and declined from 2016; severity trends remained consistent with historical levels Auto written premiums down 8% versus 4Q16 Renewal written pricing up 1.7 points to 11.3% New business premiums down 27% to $35 million Policy count retention down 3 points to 80% Automobile Underlying Combined Ratio Automobile New Business Premiums and Renewal Written Price Increases 11.8% 11.3% 10.3% 10.4% 9.6% $48 $42 4Q16 4Q17 Change Underlying combined ratio as reported 113.6 101.7 (11.9) pts Adjusted for prior quarter development: Loss ratio on reported basis 92.1 79.0 2016 accident year development adjustment (5.9) 2017 accident year development adjustment 2.1 Loss ratio as adjusted 86.2 81.1 (5.1) pts Expense ratio 21.5 22.8 1.3 pts Underlying combined ratio with adjusted loss ratio 107.7 103.9 (3.8) pts $38 $37 $35 13 New Business Premiums Renewal Written Price Increases
Personal Lines homeowners: Results impacted by higher CAY CATs; underlying combined ratio improved 1.9 points from 4Q16 due to lower weather and water losses 4Q17 homeowners combined ratio was 137.4, an increase of 56.5 points over 80.9 in 4Q16 due to a 63.8 point increase in CAY CATs CATs primarily related to major wildfires in Northern and Southern California 4Q17 underlying combined ratio of 72.8 improved 1.9 points compared with 4Q16 primarily due to lower weather and water losses Homeowners written premiums were down 8% versus 4Q16 due to impact of auto profitability improvement initiatives on new business Renewal written price increases averaged 9.0%, up 0.5 point New business premiums declined 25% Policy count retention remained flat at 83% Homeowners Underlying Combined Ratio 74.7 25.1 78.9 25.6 Loss Ratio 77.6 25.3 78.9 25.3 49.6 53.3 52.3 53.6 Expense Ratio 72.8 27.1 45.7 Homeowners Renewal Written Price Increases and Policy Count Retention 83% 82% 83% 83% 83% 8.5% 8.9% 9.1% 8.5% 9.0% Policy Count Retention Renewal Written Price Increases 14
Group Benefits: Core earnings up 14% from 4Q16 reflecting improved long-term disability recovery and incidence trends Core earnings of $67 million, up $8 million from 4Q16 primarily due to lower group disability losses Due to timing of acquisition and intangible amortization, the Aetna acquisition did not have a material impact on 4Q17 core earnings 5.2% core earnings margin versus 6.5% in 4Q16 due to the Aetna U.S. group life and disability business acquisition, which increased premiums but not core earnings Loss ratio of 76.1% improved 0.6 point from 4Q16 Group life loss ratio increased 9.6 points to 80.2 from 70.6 in 4Q16 which was low due to favorable changes in reserve estimates Group disability loss ratio of 72.9 improved 11.1 points from 4Q16 due to favorable incidence trends, continued strong recoveries and modest price increases 4Q17 expense ratio decreased 0.2 points to 25.0% from 25.2% Fully insured ongoing premiums up 47% reflecting the Nov. 1 acquisition of the Aetna book Fully insured ongoing sales of $103 million, up 140% from 4Q16 due to one large case sale in 4Q17 Core Earnings and Core Earnings Margin 1 $66 $67 $59 $61 $53* 6.5% Core Earnings Core Earnings Margin State Guaranty Fund Assessment ($13 million, after tax) $788 $805 $802 $803 76.7% $40 5.8% 77.7% * 6.7% 76.1% 7.2% 74.7% 5.2% * 1Q17 core earnings and core earnings margin results exclude State Guaranty Fund Assessment Fully Insured Ongoing Premiums 2 & Loss Ratio +47% including acquisition $1,161 76.1% 1. Denotes financial measure not calculated based on GAAP 2. Excludes buyout premiums Premiums Loss Ratio 15
Mutual Funds: Core earnings rose to $37 million due to higher investment management fees and a state tax benefit Core earnings of $37 million, up $20 million from 4Q16 due to higher asset management fees from increased assets under management (AUM) and a $7 million state income tax benefit Asset management fees rose 19% to $179 million Total segment AUM of $115.4 billion, up 18% from 4Q16 due to positive net flows and market appreciation Mutual Funds segment AUM before life and annuity run-off business 1 increased 22% to $99.1 billion Life and annuity run-off business AUM 2 increased 2% reflecting market appreciation, largely offset by continued runoff of the variable annuity book Performance remains strong as 60%, 63% and 68% of funds outperformed peers on a 1-, 3- and 5-year basis 3, respectively; 54% of funds rated 4 or 5 stars by Morningstar as of Dec. 31, 2017 $(509) $97.5* $16.0 $81.5 Mutual Fund Net Flows $1,333 $1,314 $16.1 $16.1 $767 Mutual Funds Segment AUM 4 ($ in billions) $103.2* $107.7* $111.7* $16.1 $(169) $115.4* $16.3 $87.1 $91.6 $95.6 $99.1 16 1. Includes Mutual Fund AUM (mutual funds sold through retail, bank trust, registered investment advisor and 529 plan channels) and exchange-traded products (ETP) 2. Consists of mutual fund assets held in separate accounts supporting variable insurance and investment products 3. Hartford Mutual Funds (HMF) and ETPs on Morningstar net of fees basis at Dec. 31, 2017 4. Includes Mutual Fund, ETP and life and annuity run-off AUM as of end of period Mutual Fund Segment AUM Before Life and Annuity Run-off Life and Annuity Run-off Business Held for Sale AUM *Total segment AUM including ETP AUM of $209 million, $278 million, $325 million, $409 million and $480 million in 4Q16, 1Q17, 2Q17, 3Q17 and 4Q17 respectively
Corporate: Lower core losses due to a state tax benefit Core losses of $51 million decreased $6 million compared with 4Q16, principally due to a state income tax benefit of $5 million Net loss of $4.1 billion in 4Q17 compared with net income of $13 million in 4Q16 primarily due to 4Q17 $3.1 billion loss on discontinued operations and $867 million of income tax expense due to the change in the U.S. corporate tax rate Corporate Core Losses $(57) $(52) $(58) $(68) $(51) Net income (losses) $13 $22 $(435) $21 $(4,064) Less: $0 Net realized capital gains (losses), excluded from core earnings, before tax (96) (1) (1) 2 (1) Pension settlement, before tax (750) Income tax benefit (expense) 112 262 (2) (867) (Loss) income from discontinued operations, after tax 54 75 112 89 (3,145) Core losses $(57) $(52) $(58) $(68) $(51) 17
Total net investment income down 4%, primarily due to lower, but still strong, LP income Total investment income down 4% over 4Q16 primarily due to lower LP income and non-routine items, partially offset by higher asset levels LP income was $29 million, before tax, compared with $46 million, before tax, in 4Q16 7.3% annualized yield on LPs in 4Q17 compared with 12.2% in 4Q16 Invested assets and net investment income exclude Talcott Resolution as a result of reclassification to discontinued operations Annualized investment yield, before tax, was 3.8% for 4Q17 down from 4.3% in 4Q16 Annualized investment yield, excluding LPs 1, before tax, was 3.7% in 4Q17, down 0.3 points compared with 4Q16 Average yield declined largely due to lower non-routine items and the impact of the Aetna assets being recorded at market yields in accordance with purchase accounting $412* $46 $410* $58 $395* $39 $404* $48 $394* $29 $381 $369 $372 $375 $384 4.3% 4.0% 3.7% Total Net Investment Income Fixed Maturities and Other 4.2% LPs Annualized Investment Yield, Before Tax 4.1% 4.1% 3.8% 3.8% 3.8% 3.5% 3.5% 3.4% 3.8% 3.7% 3.3% * Total includes investment expenses of $15, $17, $16, $19 and $19 in 4Q16, 1Q17, 2Q17, 3Q17 and 4Q17 respectively 1. Denotes financial measure not calculated based on GAAP 18
Investment portfolio: Well-diversified and high quality portfolio with strong credit performance Fixed maturities portfolio weighted average credit rating of A+ as of Dec. 31, 2017, consistent with prior quarter 4.6% rated below investment grade (BIG) as of Dec. 31, 2017, down 1.2 points from 5.8% as of Dec. 31, 2016 Impairment losses, including mortgage loan loss reserves, of $5 million, before tax, in 4Q17 versus $7 million, before tax, in 4Q16 Duration increased from year end 2016 due to recent trade activity within the Aetna group benefits insurance portfolio which had a duration of 7 years at year end Municipal bond exposure at 28% of total portfolio at Dec. 31, 2017 and 25% of net investment income in FY17 Municipal bond income taxed at 5.25%, same effective rate as under prior tax law Investment Portfolio Composition Investment by Sector (%) Dec. 31, 2016 Dec. 31, 2017 Fixed maturities, AFS 1 82% 82% Equity securities, AFS 2% 2% Mortgage loans 7% 7% LPs 4% 4% Short-term and other investments 5% 5% Total Investments ($ in billion) $39.8 $45.1 Portfolio duration (in years) 5.0 5.2 Fixed Maturities, AFS Dec. 31, 2016 Dec. 31, 2017 % Investment grade 94.2% 95.4% % BIG 5.8% 4.6% Average credit quality 2 A+ A+ Total ($ in billion) $32.2 $37.0 1. Includes securities that have the fair value option 2. Average credit ratings are based on the midpoint of the applicable ratings among Moody s, S&P, Fitch and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used 19
Book value per diluted share, ex. AOCI, of $35.29 Book value decreased compared with Dec. 31, 2016 due to the 2017 net loss of $3.1 billion: $37.11 BVPS at Dec. 31, 2017, down 16% $35.29 BVPS, ex. AOCI, at Dec. 31, 2017, down 22% 4Q17 share repurchases totaled $53 million for 0.9 million shares (average of $55.70 per share) $1.028 billion repurchased under 2017 equity repurchase plan which was suspended in October as a result of the decision to acquire Aetna's U.S. group life and disability business Common shares outstanding and dilutive potential common shares decreased 5% from Dec. 31, 2016 due to share repurchases During 4Q17, $83 million of common dividends were paid to shareholders, for a total of $341 million in 2017 Book Value Per Diluted Share, ex. AOCI $45.24 $45.80 $45.50 $45.72 $45.24 $35.29 Roll Forward of Dec. 31, 2016 Book Value Per Diluted Share, ex. AOCI $(7.89) $(2.41)$(1.34)$(0.94) $(0.65) $2.79 $0.49 $35.29 20 Dec. 31, 2016 Talcott Impact Tax Charge Pension Transfer Dividends Paid Net Impact of Share Repurchases Core Earnings All Other Dec. 31, 2017
APPENDIX
A&E reserve strengthening in 4Q17 covered by reinsurance agreement with National Indemnity Company (NICO) As a result of the comprehensive annual review of A&E reserves completed in 4Q17, A&E adverse development of $285 million, before tax, was incurred and has been ceded under the adverse development cover (ADC) treaty with NICO Asbestos PYD of $183 million, before tax, in 2017 primarily because mesothelioma claim filings have not declined as much as anticipated for a small percentage of defendants in specific, adverse jurisdictions Environmental PYD of $102 million, before tax, in 2017 primarily due to increased cleanup costs associated with superfund sites and sediment in waterways and adverse legal rulings, particularly in the Pacific Northwest region The ADC treaty provides $1.5 billion of coverage for unfavorable loss reserve development $1.215 billion remains under this agreement U.S. A&E Net Reserves Liability FY 2015 FY 2016 FY 2017 Beginning net reserves $2,127 $2,121 $1,655 Paid losses and loss adjustment expenses (220) (518) (204) Incurred losses and loss adjustment expenses 214 268 Reclassification of allowance to non-a&e within P&C Other Operations Reclassification of U.K. A&E reserves to liabilities held for sale (sale of business closed in 2017) 30 1 (246) Ending net reserves $2,121 $1,655 $1,452 Asbestos Net and Gross Survival Ratios 1 FY 2015 FY 2016 FY 2017 2 1 year net 10.4 8.3* 8.2 3 year net 8.7 7.6* 7.5* 1 year gross 9.0 8.5* 9.2 3 year gross 7.8 7.4* 9.0* 1. Includes claims in P&C Ongoing Operations; net survival ratio is the quotient of the net carried reserves divided by the average annual payment amount and is an indication of the number of years that the net carried reserve would last (i.e., survive) if the future annual claim payments were consistent with the calculated historical average 2. In 2017, the net survival ratio has been affected by the adverse development cover (ADC) with NICO, reducing the survival ratio as the company paid losses during the period that will be reimbursed in the future under the ADC 22 * These survival ratios presented exclude the 2Q16 payment related to the PPG Industries Inc. (PPG) settlement of $315 million
Talcott Resolution supplemental data Dec 31 2017 Sept 30 2017 Jun 30 2017 THREE MONTHS ENDED YEAR ENDED Mar 31 2016 Dec 31 2017 Dec 31 2016 FULL SURRENDER RATES [1] Variable Annuity 5.8% 5.8% 7.3% 7.8% 6.7% 7.4% 7.7% 6.7% 6.7% 7.1% Fixed Annuity and Other 4.9% 6.3% 6.0% 5.8% 4.2% 5.4% 5.1% 4.4% 5.8% 4.8% CONTRACT COUNTS (in thousands) Variable Annuity 494 505 516 529 544 557 571 587 Fixed Annuity and Other 113 115 117 119 121 123 125 127 [1] Represents annualized surrenders (full contract liquidation excluding partial withdrawals) divided by a two-point average of annuity account values. Dec 31 2017 VARIABLE ANNUITY DEATH AND LIVING BENEFITS S&P 500 index value at end of period 2,674 2,519 2,423 2,363 2,239 2,168 2,099 2,060 Total account value with guaranteed minimum death benefits ( GMDB ) [5] $ 40,823 $ 40,707 $ 40,668 $ 40,948 $ 40,698 $ 41,696 $ 41,738 $ 42,500 Gross net amount at risk ("NAR") $ 2,929 $ 2,984 $ 3,056 $ 3,131 $ 3,298 $ 3,404 $ 3,885 $ 4,262 NAR reinsured 81% 80% 80% 80% 79% 79% 75% 73% Contracts in the Money [3] 14% 14% 17% 17% 28% 31% 48% 56% % In the Money [3] [4] 26% 28% 22% 22% 14% 13% 10% 9% Retained NAR [2] $ 567 $ 584 $ 610 $ 634 $ 704 $ 730 $ 965 $ 1,149 Net GAAP liability for GMDB benefits $ 190 $ 160 $ 159 $ 162 $ 163 $ 175 $ 178 $ 184 Total account value with guaranteed minimum withdrawal benefits ( GMWB ) $ 17,843 $ 17,948 $ 18,058 $ 18,302 $ 18,290 $ 18,869 $ 18,952 $ 19,384 Gross NAR $ 159 $ 165 $ 177 $ 187 $ 203 $ 195 $ 240 $ 267 NAR reinsured 43% 42% 41% 41% 39% 38% 35% 34% Contracts in the Money [3] 4% 5% 5% 6% 7% 7% 10% 11% % In the Money [3] [4] 19% 19% 17% 17% 13% 12% 10% 10% Retained NAR [2] $ 91 $ 96 $ 104 $ 111 $ 124 $ 121 $ 155 $ 177 Net GAAP liability for non-lifetime GMWB benefits $ 23 $ 27 $ 64 $ 84 $ 153 $ 238 $ 296 $ 254 Net GAAP liability for lifetime GMWB benefits $ 219 $ 200 $ 197 $ 195 $ 191 $ 156 $ 156 $ 150 [2] Policies with a guaranteed living benefit also have a guaranteed death benefit. The net amount at risk ( NAR ) for each benefit is shown. These benefits are not additive. When a policy terminates due to death, any NAR related to the GMWB is released. Similarly, when a policy goes into benefit status on a GMWB, its GMDB NAR is released. [3] Excludes contracts that are fully reinsured. [4] For all contracts that are in the money, this represents the percentage by which the average contract was in the money. 23 Mar 31 2017 Sept 30 2017 Dec 31 2016 Jun 30 2017 Sept 30 2016 Mar 31 2017 Jun 30 2016 AS OF Dec 31 2016 Sept 30 2016 Jun 30 2016 Mar 31 2016
Catastrophe reinsurance program as of January 1, 2018 The principal property catastrophe reinsurance program and certain other reinsurance programs include a provision to reinstate limits in the event that a catastrophe loss exhausts limits on one or more layers under the treaties In addition, covering the period from Jan. 1, 2018 to Dec. 31, 2018, the company has an aggregate loss treaty [2] in place which provides one limit of $200 million for one year period of aggregate qualifying property catastrophe losses in excess of a net retention of $825 million, compared to $200 million of limit that attached at $850 million for the Jan. 1, 2017 to Dec. 31, 2017 treaty Primary catastrophe treaty reinsurance coverages as of January 1, 2018: Coverage Property losses arising from a single catastrophe event [1],[2] Property catastrophe losses from a Personal Lines Florida hurricane Workers compensation losses arising from a single catastrophe event [4] Effective for the period 1/1/2018 to 1/1/2019 6/1/2017 to 6/1/2018 1/1/2018 to 12/31/2018 % of layer(s) reinsurance Per occurrence limit Retention 89% $850 $350 90% $102 [3] $31 80% $350 $100 [1] Certain aspects of our principal catastrophe treaty have terms that extend beyond the traditional one year term. While the overall treaty is placed at 89%, each layer's placement varies slightly [2] $100 million of the property occurrence treaty can alternatively be used as part of the Property Aggregate treaty; in 2017, $50 million could be used [3] The per occurrence limit on the Florida Hurricane Catastrophe Fund (FHCF) treaty is $102 million for the 6/1/2017 to 6/1/2018 treaty year based on the company's election to purchase the required coverage from FHCF. Coverage is based on the best available information from FHCF, which was updated in January 2018 [4] In addition to the limit shown, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of a $30 million per event limit in excess of a $20 million retention 24
Impact of reclassification of FASB accounting on consolidated balance sheet Based on changes in accounting guidance on the accounting for the impacts of tax reform that the Financial Accounting Standards Board (FASB) could issue later this month, there may be a change to the accounting for the loss on sale of Talcott Resolution The FASB may require or permit us to retrospectively reclassify a net amount of $88 million from retained earnings to AOCI of which $193 million is related to Talcott Resolution Since this reclassification would change equity ex-aoci, which is the basis for determining the loss on sale, the new accounting guidance would reduce the reported loss on sale by $193 million. If the guidance is applied retrospectively, we would reduce the 2017 loss on sale in our 10K. Alternatively, the FASB may allow prospective treatment (e.g. adjust the loss on sale in 1Q18) or give companies the option of whether to reclassify stranded tax effects out AOCI at all This potential change in accounting guidance has no impact on the economics of the transaction Year ended 12/31/2017 Reclass of stranded tax impacts for ex-talcott AOCI Reclass of stranded tax impacts for Talcott AOCI Adjustment to loss on sale Year ended 12/31/2017 as adjusted All other assets $60,324 $60,324 Assets held for sale 164,936 193 165,129 Total assets $225,260 - - $193 $225,453 All other liabilities $49,324 $49,324 Liabilities held for sale 162,442 162,442 Total liabilities $211,766 - - - $211,766 Stockholders' equity, ex-aoci 12,831 105 (193) 193 12,936 AOCI 663 (105) 193 751 Total stockholders' equity $13,494 - - $193 $13,687 Total liabilities and equity $225,260 - - $193 $225,453 Year ended 12/31/2017 Reclass of stranded tax impacts for ex-talcott AOCI Reclass of stranded tax impacts for Talcott AOCI Adjustment to loss on sale Year ended 12/31/2017 as adjusted Loss from discontinued operations, after tax $(2,869) 193 $(2,676) Net loss $(3,131) 193 $(2,938) 25