The Hartford Financial Services Group, Inc. May 2017 Overview of The Hartford Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
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 April 27, 2017, The Hartford s Quarterly Reports on Form 10-Q, The Hartford s 2016 Annual Report on Form 10-K, and other filings we make with the U.S. Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today s date. The discussion in this presentation of The Hartford s financial performance includes financial measures that are not derived from generally accepted accounting principles (GAAP). Information regarding these non-gaap financial measures, including reconciliations to the most directly comparable GAAP financial measures, is provided in the Appendix, the news release issued on April 27, 2017 and The Hartford s Investor Financial Supplement for first 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. Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 2
The Hartford has four primary focus areas in 2017 Maintain strong margins and underwriting discipline in Commercial Lines and Group Benefits Improve Personal Lines margins through continued pricing, underwriting and distribution initiatives Invest in long-term growth initiatives while completing 2017 equity repurchase plan Increase core earnings 1 and core earnings ROE 1, 2, excluding Talcott, while maintaining a strong balance sheet 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Return on equity Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 3
Our businesses have attractive characteristics and strong competitive advantages The Hartford s businesses have: Strong market positions Good margins and excess capital generation Low capital markets sensitivity Commercial Lines: Leader in the highly attractive small and middle market segments Personal Lines: 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 2016 Core Earnings 1 excluding Corporate and P&C Other 2 Mutual Funds 5% Group Benefits 12% Talcott Resolution 23% Commercial and Personal Lines 60% 1. Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 2. Corporate core losses, which included interest expense, were $202 million, and P&C Other core losses, which included prior accident year development (PYD) on asbestos and environmental (A&E), were $101 million in 2016 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 4
1Q17 1 financial highlights Core Earnings BVPS and ROE Commercial Lines Net income per diluted share of $1.00, up 27% from 1Q16 2 Core EPS 3,4 of $1.00, up 5% from 1Q16, as the 2% decline in core earnings 1 was more than offset by the 7% reduction in weighted average common diluted share outstanding due to repurchases BVPS, ex. AOCI 3,5 of $45.80, up 3% over March 31, 2016 Core earnings ROE, excluding Talcott of 8.6%; 10.0% excluding charge for A&E 6 PYD 7 in 2Q16 Underlying combined ratio 3,8 of 90.9, up 1.3 points from 1Q16, primarily due to higher commercial auto liability and general liability Written premiums grew 6% Personal Lines Group Benefits Capital Management Underlying combined ratio of 91.2, up 1.5 points from 1Q16, reflecting higher auto liability and weather and fire-related homeowner losses Auto losses have improved, adjusted for 2016 accident year prior quarter development in 2Q16 and 4Q16 Core earnings 3 of $40 million, down 17% from 1Q16, principally due to a state guaranty fund assessment; excluding the assessment, core earnings up 10% Loss ratio of 77.7% essentially flat with 1Q16 Repurchased 6.7 million shares for $325 million during 1Q17 and paid common dividends of $87 million Repaid $416 million in senior notes and issued $500 million of junior subordinated debt from Glen Meadow contingent capital facility 1. First quarter 2017 2. First quarter 2016 3.Denotes financial measure not calculated based on generally accepted accounting principles (GAAP) 4. Earnings per diluted share 5.Book value per diluted share, excluding accumulated other comprehensive income 6. Asbestos & Environmental 7. prior accident year development (PYD) 8. Combined ratio before catastrophes (CATs) and PYD Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 5
P&C ROEs impacted by Personal Lines and A&E in 2016; Focus on improved results in 2017 12.0% 10.7% 2016 Core Earnings ROE 1 10.3% 7.6% 5.1% 1. Denotes financial measure not calculated based on GAAP; Twelve month trailing core earnings return on equity (ROE), excluding AOCI, levered 2. Excludes unfavorable reserve development on A&E of $268 million, before tax Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 6
P&C 1 The Hartford is a leading P&C insurer Strong Competitive Advantages Core Earnings ($ in millions) $1,095 $1,131 $184 $259 $872 $911 $872 $884 Leading Market Positions 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 (-$12) 2014 2015 2016 Underwriting Gain (Loss) and Fees, After-tax Net Investment Income, After-tax Net Written Premium ($ in millions) $10,244* $10,578* $10,568* $3,861 $3,918 $3,837 $6,381 $6,625 $6,732 2014 2015 2016 Commercial Lines Personal Lines Leading share in P&C Small Commercial #2 in Workers Compensation 2 #4 in Commercial Multi-Peril 2 #4 in Direct Personal Lines 2 #7 overall in P&C Commercial 2 1. Property & Casualty (P&C) includes Commercial Lines, Personal Lines and P&C Other Operations 2. Per A.M. Best, based on 2016 direct written premiums *Total Net Written Premium includes all other premiums in P&C Other Operations Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 7
Commercial Lines Continuing to deliver strong results Package Auto Diversified Premium Mix 2016 Earned Premium by Product Property 18% 10% Liability 9% 9% Bond Professional Liability 3% 3% 48% Workers Compensation Strong Underwriting and Profitability 93.4 92.6 92.8 91.5 90.0 89.4 2014 2015 2016 Combined Ratio Underlying Combined Ratio 2016 Written Premiums by Lines Distinctive Agent Relationships ($ in millions) $826 $42 Small Commercial (52%) $2,343 $3,521 Middle Market (35%) Specialty Commercial (12%) Other Commercial (1%) Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 8
Commercial Lines Leading Small Commercial underwriter Small Commercial Strong Profitability Expanding product and underwriting capabilities, including acquisition of Maxum Best in class technology, improving efficiency and customer/partner experience Leading choice among agents 87.0 88.4 89.0 90.3 86.6 86.6 2014 2015 2016 Combined Ratio Underlying Combined Ratio Net Written Premium New Business Premium ($ in millions) ($ in millions) +9% +11% $3,243 $3,388 $3,521 $521 $545 $576 2014 2015 2016 2014 2015 2016 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 9
Commercial Lines Improved Middle Market profitability Middle Market In an increasingly competitive environment, focused on underwriting discipline over growth Investing in technology and new industry verticals to further strengthen franchise Introduced multinational in 1Q17 Improved Underwriting - Discipline over Growth 97.5 97.3 97.4 94.5 91.4 91.5 2014 2015 2016 Combined Ratio Underlying Combined Ratio Net Written Premium ($ in millions) New Business Premium ($ in millions) $2,293 $2,364 $2,343 $458 $474 $459 2014 2015 2016 2014 2015 2016 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 10
Commercial Lines Strong Specialty Commercial results Specialty Commercial National Accounts market became more competitive in 2016 Financial Products focus shifted to private and mid-sized accounts over the past several years Bond is expanding into smaller and midsized accounts Improving Underwriting with Strong Results 100.2 98.8 99.7 89.9 94.5 2014 2015 2016 Combined Ratio Underlying Combined Ratio 88.0 Net Written Premium Earned Premium by Product ($ in millions) +2% 2016 FY Bond 5% Other 23% $811 $838 $826 Financial Products 30% 42% National Accounts 2014 2015 2016 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 11
Group Benefits A market leader in group life and disability that complements our P&C businesses Group Benefits Underwriting Complements The Hartford s Workers Compensation Expertise Leading Provider of Group Life and Disability Loss Ratio (Excluding Association Financial Institutions) 77.4 77.4 78.0 2014 2015 2016 Leader in Group Disability (in-force premium as of 12/31/16, per LIMRA) #4 Strong Market Position in Group Life (in-force premium as of 12/31/16, per LIMRA) #7 5.2% Strong Profitability Core Earnings Margin 5.6% 5.7% Growth Opportunities in the Voluntary and Small Case Market Premium 1 ($ in billions) $3.0 $3.1 $3.1 $1.4 $1.5 $1.5 $1.4 $1.4 $1.4 2014 2015 2016 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 2014 2015 2016 Disability Life Other 1. Fully insured ongoing premium, excluding buyout premiums, excluding Association Financial Institutions 12
Personal Lines The Hartford is a leading direct personal lines insurer with a 30+ year partnership with AARP Net Written Premium by Distribution Market Leading Position Other Agency AARP Agency 10% 14% 2016 FY 75% 1% Other AARP Direct Major Direct Personal Lines Company (per A.M. Best, 2016) #4 Focused on AARP Membership for Growth Focused on Improving Margins in 2017 & 2018 The Hartford s personal lines business is focused on AARP members, with the goal of increasing its penetration of this 38 million member association Opportunity to further penetrate AARP membership ~38M ~3M 95.5 90.6 97.0 92.0 104.8 95.4 AARP Policies Policies in force AARP Members 2014 2015 2016 Combined Ratio Underlying Combined Ratio Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 13
Personal Lines Focused on initiatives to restore auto profitability Personal auto results deteriorated as 2014-2016 auto frequency and severity were higher than expected Increased miles driven due to strong employment and lower gas prices combined with greater distracted and highway driving are all key drivers Unfavorable auto PYD in 2016 for accident year 2015 increased the full year 2015 accident year auto loss ratio by approximately 5.4 points; the unfavorable PYD was largely for the second half of 2015, when the company's frequency trends deteriorated Auto liability severity trends emerged in fourth quarter 2016 were higher than the trends observed in the first nine months of 2016 Multiple auto profitability initiatives launched since 3Q15, which have impacted new business and renewal retention Reduced agency appointments Increased prices and accelerated rate filings Decreased FY16 marketing spending by about 35% versus FY15 1Q17 net written premiums decreased 7% Auto losses have improved, adjusted for 2016 accident year prior quarter development in 2Q16 and 4Q16 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. Underlying auto combined ratio of 96.6, up 0.4 points over 1Q16 as reported, prior to the impact of unfavorable 1Q16 development in 2016 Adjusting 1Q16 loss ratio for 6.1 points of development recorded during 2Q16 and 4Q16, 1Q17 auto loss ratio improved 2.6 points Auto frequency moderated considerably and severity returned to more historical levels Expense ratio down 3.1 points due to reduced acquisition expenses Expect auto loss ratio to improve 2 to 3 points for the remainder of 2017, consistent with Feb. 2017 full year outlook 14
Personal Lines Auto profitability initiatives taking hold in the book, laying foundation for improved results in 2017 Increased Rate Actions Underwriting Actions Impact on New Business 13 21 27 37 30 37 28 44 21 Auto New Written Premium ($ in millions) $101 $96 $111 $114 $110 $83 $70 (62%) $48 $42 Number of Rate Filings AARP Direct AARP Agency Other Agency Other Policy Count Retention Underlying Combined Ratio 85% 86% 86% 86% 86% 86% 86% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 85% 83% 82% 81% 80% 79% 80% 78% 79% 78% 81% 80% 76% 78% 77% 78% 78% 79% 78% 74% 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 AARP AARP Agency Other Agency 1. Includes policies that are available to renew on either a six or twelve month policy term. The policy retention represents the percentage of policies that renewed since the last policy term and is not annualized 1 99.2 99.0 98.4 97.1 104.4 99.0 103.9 2013 2014 2015 2016 Underlying Combined Ratio (2013-2015 as developed 1 through Dec. 31, 2016) Underlying Ratio (as originally reported) 1. As developed combined ratio takes into account impact of prior accident year development since accident year-end 15
Talcott Resolution Effectively and efficiently running off annuity blocks and returning capital to the holding company Capital Self-sufficiency and Generation Focused on running off annuity blocks effectively and efficiently, while maintaining Talcott Resolution s capital self-sufficiency Annuity assets under management decreasing steadily through runoff Talcott Resolution legal entities are separate from P&C and other businesses $1.75 billion of dividends paid in 2015-2016 $600 million expected in 2017, $300 million received in January Individual Annuity Contract Count 813 139 674 (in thousands) 731 128 603 (20%) 665 648 121 119 544 529 2014 2015 2016 1Q17 Variable Annuity Fixed Annuity Annuity Asset Under Management 1 Talcott Resolution Return of Capital ($ in billions) $15.2 $40.9 $7.6 Individual Variable Annuity Individual Fixed Annuity Institutional Annuity 2 1. As of Mar 31, 2017; excludes assets associated with reinsured businesses and Private Placement Life Insurance business 2. Includes Structured Settlements, Terminal Funding, Investment Contracts and $5.3 billion of HIG Pension ($ in millions) $1,469 $1,000 $750 $300E $300 2014 2015 2016 2017 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 16
Institutional block has very long duration contracts and is sensitive to interest rate and credit risk Terminal Funding Agreements 17% HIG Pension 35% $15.2 billion as of March 31, 2017 $2.6B $5.3B Investment Contracts 1% $0.2B $7.1B Structured Settlements 47% Structured Settlements Long duration structured payout annuities contracts Liability Duration: 12.4 Implied Crediting Rate: 5.8% Number of Annuitants: 43,000 Weighted Average Life of Payout: 25.3 years Terminal Funding Agreements Defined benefit pension deferred/payout annuity contracts Liability Duration: 8.3 Implied Crediting Rate: 5.9% Number of Annuitants: 73,000 Weighted Average Life of Payout: 13.8 years Investment Contracts Guaranteed Investment Products (GIPs) and Consumer Notes GIP Liability Duration: 2.1 GIP Average Crediting Rate: 4.4% GIP Number of Cases: 16 GIP Weighted Average Life of Payout: 2.3 years HIG Pension Servicing fees on HIG pension plan assets Number of Contracts: 3 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 17
We are investing for long-term growth and shareholder value creation Product: Expanding our product and risk appetite to be a broader, deeper risk player Customer-centric Capabilities: Enhancing our operations, becoming an easier company for agents and customers Talent: Be a destination of talent needed for long-term success by attracting and retaining the best Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 18
Product and distribution initiatives to drive long-term growth Commercial Lines Extending industry capabilities in energy, construction, auto parts manufacturing and hospitality Expanding Small Commercial product and underwriting capabilities to larger accounts and broader coverages, including the acquisition of Maxum Specialty Insurance Group Rolling out a new risk management platform for National Accounts, allowing customers better access to claim data and other information needed by risk managers Expanded underwriting capabilities through partnership with AXA to help U.S. customers with their international insurance needs Personal Lines Focused on expanding our customer and product penetration of AARP Narrowing agency channel to focus on those agents who value our AARP product and service capabilities Group Benefits Enhanced product suite with the new voluntary offerings and the upcoming launch of a more complete accident and health offering Further penetrating the small case market by adding dental and vision coverages; announced renewal rights agreement with AIG for its small-case group benefits policies in Oct. 2015 Participating in 10 private exchanges and pursuing more Mutual Funds Added to product lineup through partnership with Schroders and acquisition of Lattice Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 19
Investing in customer-centric capabilities and technology Investing in market-leading systems to provide superior operational support Policy administration system Claims system Significant technology investments to improve efficiency and customer/partner experience Digitizing key customer and agent interactions enabling multi-channel interaction Integrating data and analytics in the underwriting and claims process Predictive analytics Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 20
Talent Attracting, developing and retaining talent needed for long-term success Investing in our employees and working to attract, retain and develop the best talent in the industry to support our expansion into new industry verticals Investing in contemporary work practices Expanding in key locations across the US, enabling career growth within major cities 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 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 Ensure an inclusive work environment by leveraging eight employee diversity resource groups Competitive compensation and benefits All employees participate in a bonus plan tied to performance Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 21
The Hartford continues to return significant capital to shareholders $1.3 billion equity repurchase plan for 2017 Through Apr. 25, 2017, share repurchases total 8.6 million shares for $417 million; approximately $883 million remaining under the current plan The board also declared a quarterly dividend of $0.23 per share of common stock, paid on Jan. 3, 2017 An increase of $0.02 per share, or 10%, over the prior year quarterly dividend 2017 debt management plans: Repaid $416 million of senior notes at maturity in March Exercised put option on the Glen Meadow contingent capital facility and issued $500 million of junior subordinated debt Intend to call the 8.125% $500 million junior subordinated bond redeemable at par in June 2018 Capital Management Actions ($ in billions) $1.6 $1.6 $1.6 $0.3 $0.3 $0.3 1 $1.3 $1.3 $1.3 2015 2016 2017E Dividends Paid on Common Stock Share Repurchases 1. Reflects estimated dividends for the year at the current quarterly dividend rate of $0.23 per share and year-end 2016 shares outstanding Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 22
The Hartford is growing book value per share Our goal is to generate average total value creation of at least 9%, as measured by common dividends paid plus growth in book value per diluted share, excluding AOCI For the 12 months ended Dec. 31, 2016, total value creation was 5.3% Growing book value per diluted share combined with dividends is the key driver of shareholder value creation over time Book Value Per Diluted Share ex. AOCI 1 $40.71 $43.76 $45.24 2014 2015 2016 1. Denotes financial measure not calculated based on GAAP; Book value per diluted share, excluding accumulated other comprehensive income Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 23
The Hartford s operating and financial leverage has improved and the balance sheet is strong Reducing Leverage Ratio Over Time Rating Agency Adjusted Debt Ratio 1 Financial Strength Recognized in 2015 Hartford Fire Insurance Company 27.0 25.8 Low 20s A.M. Best May 1, 2015 Dec. 31, 2015 Dec. 31, 2016 Target 1. Based on Moody s methodology Company Debt Ratings Hartford Financial Services Group Senior Debt Ratings Standard & Poor s April 17, 2015 Moody s Standard & Poor s Baa2 BBB+ Senior debts are on stable outlook for both Moody s and Standard &Poor s Moody s April 23, 2015 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 24
Appendix - Discussion and reconciliation of GAAP to non-gaap financial terms Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
Discussion of non-gaap financial measures The Hartford uses non-gaap financial measures in this presentation to assist investors in analyzing the company's operating performance for the periods presented herein. Because The Hartford's calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing The Hartford's non-gaap financial measures to those of other companies. Definitions and calculations of other financial measures used in this presentation can be found below and in The Hartford s Press Release, dated April 27, 2017, for the period ended March 31, 2017 and The Hartford's Investor Financial Supplement for first quarter 2017, which are available on The Hartford's website, https://ir.thehartford.com. Book value per diluted share excluding accumulated other comprehensive income ("AOCI ): Book value per diluted share excluding AOCI is a non-gaap financial measure based on a GAAP financial measure. It is calculated by dividing (a) common stockholders' equity excluding AOCI, after-tax, by (b) common shares outstanding and dilutive potential common shares. The Hartford provides book value per diluted share excluding AOCI to enable investors to analyze the company s stockholders equity excluding the effect of changes in the value of the company s investment portfolio and other assets due to interest rates, currency and other factors. The Hartford believes book value per diluted share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in market value. Book value per diluted share is the most directly comparable GAAP measure. A reconciliation of book value per diluted share, including AOCI to book value per diluted share, excluding AOCI is set forth below. Mar 31 2017 As of Mar 31 2016 Dec 31 2016 As of Dec 31 2015 Dec 31 2014 Book value per diluted share, including AOCI $45.25 $44.90 $44.35 $42.96 $42.84 Less: Per diluted share impact of AOCI ($0.55) $0.63 ($0.89) ($0.80) $2.13 Book value per diluted share, excluding AOCI $45.80 $44.27 $45.24 $43.76 $40.71 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 26
Discussion of non-gaap financial measures continued Core Earnings: The Hartford uses the non-gaap measure core earnings as an important measure of the company s operating performance. The Hartford believes that the measure core earnings provides investors with a valuable measure of the performance of the company s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain realized capital gains and losses, certain restructuring charges, pension settlements, loss on extinguishment of debt, reinsurance gains and losses on business disposition transactions, income tax benefit from reduction in valuation allowance, discontinued operations, and the impact of Unlocks to deferred policy acquisition costs ("DAC"), sales inducement assets, unearned revenue reserves and death and other insurance benefit reserve balances. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the effects of DAC) that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives and net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Net income (loss) is the most directly comparable U.S. GAAP measure. Core earnings should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of the company s business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) and core earnings when reviewing the company s performance. Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 27
Discussion of non-gaap financial measures continued A reconciliation of net income (loss) to core earnings for years ended December 31, 2016, December 31, 2015 and December 31, 2014 as well as for the three months ended March 31, 2017 and 2016 can be found in the tables set forth below. A reconciliation of net income (loss) to core earnings for individual reporting segments can also be found in the tables below. Twelve Months Ended Dec 31, 2016 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $1,007 ($22) ($529) $230 $78 $244 ($112) $896 Less: Unlock benefit (charge), before tax - - - - - (2) - (2) Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax 15 2 (70) 41 - (140) (104) (256) Less: Loss on reinsurance transactions, before tax - - (650) - - - - (650) Less: Income tax benefit (expense) (5) - 292 (15) - 3 194 469 Core earnings (losses) $997 ($24) ($101) $204 $78 $383 ($202) $1,335 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Twelve Months Ended Dec 31, 2015 Group Benefits Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 28 Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $1,003 $187 ($53) $187 $86 $430 ($158) $1,682 Less: Unlock benefit, before tax - - - - - 80-80 Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax (9) 4 3 (12) - (165) 14 (165) Less: Restructuring and other costs, before tax - - - - - - (20) (20) Less: Loss on extinguishment of debt, before tax - - - - - - (21) (21) Less: Net reinsurance gain on dispositions, before tax - - - - - 28-28 Less: Income tax benefit (expense) 2 (2) 1 4-13 103 121 Less: Income from discontinued operations, after-tax 7 - - - - 2-9 Core earnings (losses) $1,003 $185 ($57) $195 $86 $472 ($234) $1,650
Discussion of non-gaap financial measures continued Twelve Months Ended Dec 31, 2014 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $983 $207 ($108) $191 $87 ($187) ($375) $798 Less: Unlock charge, before tax - - - - - (95) - (95) Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax (29) (4) 3 16-37 6 29 Less: Restructuring and other costs, before tax - - - - (6) - (70) (76) Less: Net reinsurance gain on dispositions, before tax - - - - - 23-23 Less: Pension settlement, before tax - - - - - - (128) (128) Less: Income tax benefit (expense) 10 1 - (5) 2 (28) 68 48 Less: Income (loss) from discontinued operations, after-tax 6 - - - - (557) - (551) Core earnings (losses) $996 $210 ($111) $180 $91 $433 ($251) $1,548 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 29
Discussion of non-gaap financial measures continued Three Months Ended Mar 31, 2017 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $ 231 $ 33 $ 24 $ 45 $ 23 $ 68 $ (46) $ 378 Less: Unlock benefit, before tax - - - - - 18-18 Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax 11 2 4 7 - (43) (1) (20) Less: Income tax benefit (expense) (4) (1) (1) (2) - 10-2 $ 224 $ 32 $ 21 $ 40 $ 23 $ 83 $ (45) $ 378 Three Months Ended Mar 31, 2016 ($ in millions) Commercial Lines Personal Lines P&C Other Ops Group Benefits Mutual Funds Talcott Resolution Corporate Consolidated Net income (loss) $ 225 $ 23 $ 17 $ 50 $ 20 $ 17 $ (29) $ 323 Less: Unlock benefit, before tax - - - - - 13-13 Less: Net realized capital gains (losses) including DAC, excluded from core earnings, before tax (32) (5) (3) 2 - (106) (4) (148) Less: Income tax benefit (expense) 11 2 1 - - 33 26 73 $ 246 $ 26 $ 19 $ 48 $ 20 $ 77 $ (51) $ 385 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 30
Discussion of non-gaap financial measures continued Core earnings per diluted share: Core earnings per diluted share is calculated based on the non-gaap financial measure core earnings. It is calculated by dividing (a) core earnings, by (b) diluted common shares outstanding. The Hartford believes that the measure core earnings per diluted share provides investors with a valuable measure of the company's operating performance for the same reasons applicable to its underlying measure, core earnings. Net income (loss) per diluted common share is the most directly comparable GAAP measure. Core earnings per diluted share should not be considered as a substitute for net income (loss) per diluted share and does not reflect the overall profitability of the company's business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) per diluted share and core earnings per diluted share when reviewing the company's performance. A reconciliation of net income (loss) per diluted common share to core earnings per diluted share for the three months ended March 31, 2017 and 2016 is provided in the table below. PER SHARE DATA Diluted earnings (losses) per common share: Three Months Ended Mar 31 Mar 31 2017 2016 Net income per share $1.00 $0.79 Less: Unlock benefit (charge), before tax 0.05 0.03 Less: Net realized capital losses including DAC, excluded from core earnings, before tax Less: Income tax benefit (expense) on items excluded from core earnings (0.05) (0.36) - 0.17 Core earnings per share $1.00 $0.95 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 31
Discussion of non-gaap financial measures continued Core earnings margin: The Hartford uses the non-gaap measure core earnings margin to evaluate, and believes it is an important measure of, the Group Benefits segment's operating performance. Core earnings margin is calculated by dividing core earnings by revenues, excluding buyouts and realized gains (losses). Net income margin is the most directly comparable U.S. GAAP measure. The Company believes that core earnings margin provides investors with a valuable measure of the performance of Group Benefits because it reveals trends in the business that may be obscured by the effect of buyouts and realized gains (losses). Core earnings margin should not be considered as a substitute for net income margin and does not reflect the overall profitability of Group Benefits. Therefore, the Company believes it is important for investors to evaluate both core earnings margin and net income margin when reviewing performance. A reconciliation of net income margin to core earnings margin for the twelve months ended December 31, 2016, December 31, 2015 and December 31, 2014 as well as for the three months ended March 31, 2017 and 2016 is set forth below. Three Months Ended Mar 31 2017 Mar 31 2016 Twelve Months Ended Dec 31 2016 Dec 31 2015 Dec 31 2014 Net income margin 4.9% 5.7% 6.3% 5.4% 5.5% Less: Effect of net capital realized gains, net of tax on after-tax margin 0.6% 0.2% 0.6% (0.2%) 0.3% Core earnings margin 4.3% 5.5% 5.7% 5.6% 5.2% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 32
Discussion of non-gaap financial measures continued Return on Equity Core Earnings: The Company provides different measures of the return on stockholders' equity ( ROE ). ROE - Core earnings is calculated based on non-gaap financial measures. ROE - Core earnings is calculated by dividing (a) core earnings for the prior four fiscal quarters by (b) average common stockholders' equity, excluding AOCI. ROE - Net income is the most directly comparable U.S. GAAP measure. ROE - Net income is calculated by dividing (a) net income for the prior four fiscal quarters by (b) average common stockholders' equity, including AOCI. ROEs at the segment level and for consolidated, excluding Talcott Resolution, represent a levered view of ROE as debt financing and related interest expense are attributed to the businesses consistent with the overall average debt to capitalization ratios of the consolidated entity. The Company excludes AOCI in the calculation of ROE - core earnings to provide investors with a measure of how effectively the Company is investing the portion of the Company's net worth that is primarily attributable to the Company's business operations. The Company provides to investors return-on-equity measures based on its non-gaap core earnings financial measures for the reasons set forth in the Core Earnings discussion above. Reconciliations of ROE Net Income (Loss) to ROE Core Earnings at a segment and consolidated level as well as on a consolidated level, excluding Talcott Resolution and A&E, for the last twelve months ended March 31, 2017 and December 31, 2016 are set forth below. Return on Equity - Last Twelve Months Ended March 31, 2017 P&C Group Benefits Mutual Funds Talcott Resolution Consolidated excluding Talcott Consolidated excluding Talcott and A&E Consolidated Net income (loss) 4.5% 10.8% 32.2% 3.4% 6.5% 8.0% 5.4% Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax 0.0% 2.5% 0.0% (1.2%) (0.5%) (0.5%) (0.7%) Less: Loss on reinsurance transactions, before tax (7.7%) 0.0% 0.0% 0.0% (5.8%) (5.7%) (3.7%) Less: Income tax benefit (expense) 3.2% (0.9%) 0.0% (0.3%) 3.7% 3.7% 2.3% Less: Impact of AOCI, excluded from Core ROE (0.6%) (1.1%) 0.0% (0.6%) 0.5% 0.5% (0.1%) Core earnings (losses) 9.6% 10.3% 32.2% 5.5% 8.6% 10.0% 7.6% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 33
Discussion of non-gaap financial measures continued Return on Equity - Last Twelve Months Ended December 31, 2016 P&C P&C excluding A&E Group Benefits Mutual Funds Talcott Resolution Consolidated excluding Talcott and A&E Consolidated Net income (loss) 4.3% 6.4% 11.2% 31.7% 2.5% 8.3% 5.2% Less: Net realized capital gains (losses) after DAC, excluded from core earnings, before tax (0.6%) (0.6%) 2.2% 0.0% (2.2%) (1.1%) (1.5%) Less: Loss on reinsurance transactions, before tax (7.9%) (7.9%) 0.0% 0.0% 0.0% (6.0%) (3.8%) Less: Income tax benefit (expense) 3.5% 3.4% (0.8%) 0.0% 0.0% 4.4% 2.7% Less: Impact of AOCI, excluded from Core ROE (0.6%) (0.5%) (0.9%) 0.1% (0.4%) 0.7% 0.2% Core earnings (losses) 9.9% 12.0% 10.7% 31.6% 5.1% 10.3% 7.6% Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 34
Discussion of non-gaap financial measures continued Underlying combined ratio: Represents the combined ratio before catastrophes and prior accident year development (PYD) (also referred to as Current Accident Year (CAY) combined ratio before catastrophes) and is a non-gaap financial measure. Combined ratio is the most directly comparable GAAP measure. The combined ratio is the sum of the loss and loss adjustment expense ratio (also known as a loss ratio), the expense ratio and the policyholder dividend ratio. This ratio measures the cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates a positive underwriting result. A combined ratio above 100 indicates a negative underwriting result. The underlying combined ratio represents the combined ratio for the current accident year, excluding the impact of current accident year catastrophes. The company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year loss and loss adjustment expense reserve. A reconciliation of the combined ratio to the underlying combined ratio for individual reporting segments for the twelve months ended December 31, 2016, December 31, 2015 and December 31, 2014 as well as for the three months ended March 31, 2017 and 2016 can be found in the tables set forth below. Three Months Ended Twelve Months Ended Mar 31 2017 Mar 31 2016 Dec 31 2016 Dec 31 2015 Dec 31 2014 Commercial Lines Combined ratio 96.0 91.1 92.8 92.6 93.4 Impact of catastrophes and PYD on combined ratio 5.1 1.5 3.4 2.7 1.9 Underlying combined ratio 90.9 89.6 89.4 90.0 91.5 Small Commercial Combined ratio 91.7 89.4 90.3 89.0 88.4 Impact of catastrophes and PYD on combined ratio 4.4 2.7 3.7 2.4 1.4 Underlying combined ratio 87.3 86.7 86.6 86.6 87.0 Middle Market Combined ratio 100.4 98.3 97.4 97.3 97.5 Impact of catastrophes and PYD on combined ratio 6.6 6.3 5.9 5.9 3.0 Underlying combined ratio 93.8 92.0 91.5 91.4 94.5 Specialty Commercial Combined ratio 101.3 76.5 88.0 89.9 99.7 Impact of catastrophes and PYD on combined ratio 3.8 (17.8) (6.5) (8.9) (0.5) Underlying combined ratio 97.5 94.3 94.5 98.8 100.2 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 35
Discussion of non-gaap financial measures continued Three Months Ended Mar 31 2017 Mar 31 2016 Twelve Months Ended Dec 31 2016 Dec 31 2015 Dec 31 2014 Personal Lines Combined ratio 99.3 99.9 104.8 97.0 95.5 Impact of catastrophes and PYD on combined ratio 8.1 10.1 9.4 4.9 4.9 Underlying combined ratio 91.2 89.7 95.4 92.0 90.6 Automobile Combined ratio 97.5 106.6 111.6 99.4 98.4 Impact of catastrophes and PYD on combined ratio 0.9 10.4 7.7 0.4 1.3 Underlying combined ratio 96.6 96.2 103.9 99.0 97.1 Homeowners Combined ratio 103.4 84.7 89.3 92.1 90.0 Impact of catastrophes and PYD on combined ratio 24.5 9.6 13.4 15.3 13.6 Underlying combined ratio 78.9 75.1 75.9 76.8 76.4 Copyright 2017 by The Hartford. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford. 36