Investor Day 2007 The Hartford Financial Services Group Life Operations Tom Marra President and Chief Operating Officer June 13, 2007 The Hartford Financial Services Group, Inc.
Our agenda today highlights topics of key investor interest Life Operations Strategic Overview...Tom Marra Presentations.. John Walters & Liz Zlatkus Individual Annuities Retirement Plans Mutual Funds International Operations Questions and Answers...Life Leadership Team The Hartford Financial Services Group, Inc. 1
Life operations has generated strong double digit growth in assets and earnings, as well as ROEs in the high teens Assets Under Management Core Earnings [1] ($ in billions) ($ in millions) $350 $300 $250 $210 19% CAGR $249 $277 $327 $1,500 21% CAGR $1,126 $1,200 $1,605 $200 $150 $165 $1,000 $761 $845 $100 $500 $50 $0 2002 2003 2004 2005 2006 $0 2002 2003 2004 2005 2006 ROE [1] 15.0% 15.2% 17.1% 15.3% 18.0% The Hartford Financial Services Group, Inc. 2
Our four point plan is a blueprint to continue to grow and diversify Life Operations 1Q07 Core Earnings Individual Annuity 43% Cornerstone Businesses 35% International 13% Fast Growers 9% 1. Maintain individual annuity leadership in the US 2. Expand cornerstone businesses Group Benefits Individual Life Institutional Solutions 3. Capitalize on international growth opportunities 4. Fuel fast growing businesses Mutual Funds Retirement Plans The Hartford Financial Services Group, Inc. 3
#1 Maintain Annuity Leadership: We are committed to being a leader in domestic annuities Over $115 billion in VA assets as of 3/31/07 History of successful product Innovation Largest wholesaling force in the industry Relationships with premier asset management firms Industry leading operating expense ratio at 17 bps Robust risk management capabilities The Hartford Financial Services Group, Inc. 4
#2 Expand Cornerstone Businesses: Provides risk diversification and a stable source of earnings Group Benefits #1 seller of fully insured group disability #3 seller of group life Individual Life #2 seller of variable life insurance 12th largest in individual life insurance sales in 2006 Institutional Solutions Group Top provider of corporate-owned life insurance #3 in structured settlement sales The Hartford Financial Services Group, Inc. 5
Group Benefits is a market leader delivering consistently profitable performance ($ in billions) $5 $4 $3 $2 $1 $0 ($ in millions) $400 Fully Insured Premiums $3.6 $3.7 $4.1 $2.3 $2.3 2002 2003 2004 2005 2006 Core Earnings & After-Tax Margin Core Earnings After-Tax Margin $300 $272 $303 $229 $200 $128 $149 $100 $0 2002 2003 2004 2005 2006 * Source: LIMRA 2006 data 8% 6% 4% 2% 0% Market leader in group life and group disability premium in force* #2 in group disability #4 in group life Balanced business portfolio sold through employers and association and affinity groups 44% group disability 45% group life 11% supplemental medical and other Expertise in underwriting, pricing and claims management drives financial discipline and profitable growth The Hartford Financial Services Group, Inc. 6
Group Benefits expansive distribution network serves all sizes of employers Under 500 Lives Premiums by Employer Size 500-5,000 Lives 23% 37% 40% Over 5,000 Lives Group Benefits distribution includes 38 sales offices with a sales force 163 strong Dedicated reps in each employer segment ensure superior service Effective cross-selling is deepening customer relationships In 2006, 42% of sales were made to existing customers Expanding presence in the voluntary or employee-paid market Represents 41% of 2006 employer market premiums The Hartford Financial Services Group, Inc. 7
($ in millions) $300 $200 $100 $0 $120 $70 $173 ($ in billions) $170 2002 2003 2004 2005 2006 $127 $196 Variable Sales 13% CAGR $131 $233 UL/Whole/Term/Other Life Insurance In Force 7% CAGR $140 $250 $151 Individual Life is outpacing industry growth through expanded product and distribution $284 $164 2002 2003 2004 2005 2006 #2 in variable life sales for 2006 Product breadth and innovation is contributing to sales growth Rolled out new Life Access rider in the first quarter of 2007 Term portfolio 2006 Strong universal life growth Increasing penetration in fast-growing bank and financial advisor markets Bank sales rose 49% in 2006 Life brokerage now generates 15% of sales, up from 9% in 2005 234 account executives provide support at the point of sale Leveraging PLANCO relationships The Hartford Financial Services Group, Inc. 8
Disciplined underwriting and expense management are driving stable profit margins for Individual Life ($ in millions) $250 $200 $150 $100 $50 $0 Core Earnings & After-Tax Margin Core Earnings After-Tax Margin 6% CAGR $166 $170 $156 $145 $133 2002 2003 2004 2005 2006 25% 20% 15% 10% 5% 0% 2006 core earnings in Individual Life were 11% of total life earnings Disciplined and consistent underwriting process 65% of underwriters have over 10 years experience Audits of underwriting decisions by outside industry experts Industry leader in underwriting innovations Strong expense management The Hartford Financial Services Group, Inc. 9
A diversified product set in Institutional Solutions has driven double digit asset growth ($ in millions) Core Earnings $120 $99 $100 $88 $80 $72 [2] $68 $60 $57 $40 $20 $0 2002 2003 2004 2005 2006 ($ in billions) Assets Under Management $60 $51 $50 $43 $40 $38 $34 $30 $30 $20 $10 $0 2002 2003 2004 2005 2006 15% CAGR 15% CAGR Portfolio of products serving large institutional customers and high net worth markets Structured settlements Pension plan buy-outs Investor notes Corporate-owned life insurance, bank-owned life insurance Leverages our investment management and insurance capabilities Opportunistic growth with strict financial discipline Pension Protection Act of 2006 may generate additional opportunities The Hartford Financial Services Group, Inc. 10
#3 Capitalize on international growth opportunities 25% variable annuity market share based on assets under management in Japan One of the largest wholesaling forces in Japan annuity industry Japanese distribution partners provide access to over $4 trillion of client assets Launched operations in the U.K. in 2005 The Hartford Financial Services Group, Inc. 11
#4 Fuel Fast Growing Businesses: Mutual funds and retirement plans Mutual Funds Fastest growing non-proprietary mutual fund company to reach $40 billion in AUM One of the largest wholesaling forces in the country with relationships with 95,000 brokers Retirement Plans Top 10 in new 401(k) plans sold in 2006 Help 800,000 participants across 16,000 plans successfully plan for retirement The Hartford Financial Services Group, Inc. 12
The Hartford has the right senior management team to grow and diversify our life operations Tom Marra President & COO John Walters President U.S. Wealth Management Glenn Lammey EVP & CFO Hartford Life, Inc. Liz Zlatkus President International Wealth Management And Group Benefits Brian Murphy Individual Life Rob Arena Retail Products Dick Mucci Group Benefits Greg Boyko Hartford Life K.K. (Japan) Steve Joyce Institutional Solutions Jim Davey Retirement Plans Mike Kalen Hartford Life Limited (Europe) Maria Silvia Marques Icatu Hartford (Brazil) The Hartford Financial Services Group, Inc. 13
Investor Day 2007 The Hartford Financial Services Group John Walters President U.S. Wealth Management June 13, 2007 The Hartford Financial Services Group, Inc.
Variable Annuities The Hartford Financial Services Group, Inc. 15
Demographic trends and product innovation drove record industry VA sales in 2006 Industry VA net flows increased 50% in 2006 to $30 billion Industry concentration continued as the top 10 companies made up 74% of 2006 VA retail sales and 70% of 12/31/06 retail VA AUM The VA arms race has slowed from its frantic pace in 2002-2005 Total fees are becoming increasingly important The Hartford Financial Services Group, Inc. 16
Record industry variable annuity sales more than compensated for declines in fixed and equity indexed annuities $250 Industry Annuity Sales ($ in Billions) $200 $150 $100 $50 Traditional Fixed EIA Variable Annuity $89 $91 $102 $31 $42 $43 $2 $0 $0 $69 $47 $48 $115 $30 $3 $82 $120 $23 $4 $93 $150 $30 $5 $114 $173 $39 $5 $128 $205 $204 $205 $200 $171 $81 $65 $54 $41 $58 $23 $27 $14 $7 $12 $125 $128 $131 $107 $112 $219 $39 $25 $155 $0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Key VA Drivers Tax Deferral Death Benefits Living Benefits Lifetime GMWBs Source: VARDS, LIMRA The Hartford Financial Services Group, Inc. 17
We remain number one in the industry for retail variable annuity assets under management as of 3/31/07 ($ in Billions) Hartford Life MetLife AXA Equitable AIG SunAmerica Prudential Lincoln National ING John Hancock Pacific Life Ameriprise $50 $48 $48 $81 $79 $73 $69 $64 $99 $115 Top 10 = 70% As of 3/31/07 Source: VARDS, Hartford The Hartford Financial Services Group, Inc. 18
The introduction of new lifetime income benefits in August 2006 has driven a resurgence in deposits and improved net flows Hartford Variable Annuity Deposits Hartford Variable Annuity Net Flows ($ in Billions) $4.0 ($ in Millions) $3.0 $3.1 $3.2 $2.7 $3.1 $3.3 -$200 -$500 $2.0 $1.0 -$800 -$828 -$638 -$696 -$583 $0.0 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 -$1,100 -$988 1Q 06 2Q 06 3Q 06 4Q 06 1Q 07 75% of sales from new contracts elect living benefits of which 2/3 are electing Lifetime Income Builder II / Lifetime Income Foundation Increasing wholesaler tenure contributes to momentum Continuing to invest resources to focus on asset retention The Hartford Financial Services Group, Inc. 19
The VA industry bull case : Sales could double by 2011 with net flow up 3-4 times current level Why we believe this may happen: 5%+ income for life with inflation protection Comparable fixed income products at 4.5% - 6.0% yield Expanding financial advisor penetration Declining expenses make VA s more competitive What would prevent this from happening? Longer term interest rates over 7% or below 3% Weak equity markets Tax/regulatory developments Industry risk capacity New capital markets developments The Hartford Financial Services Group, Inc. 20
The Hartford is committed to being a leader in the annuity industry Continue to deliver strong investment performance results Committed to providing strong consumer value Unparalleled distribution Investing in product development and service capabilities Industry leading risk management capabilities The Hartford Financial Services Group, Inc. 21
Mutual Funds The Hartford Financial Services Group, Inc. 22
The Hartford Mutual Funds shareholder value proposition is the foundation on which our fund family was built Deliver strong net investment performance to shareholders Offer broad range of investment solutions Partner with premier money management firms to provide differentiated investment solutions to shareholders Focus on shareholder value ongoing evaluation of managers and management of expenses From The Hartford, a Company the financial advisors clients know and trust The Hartford Financial Services Group, Inc. 23
The Hartford Mutual Funds is the fastest growing retail-oriented fund family to reach $40 billion in AUM* Mutual Fund Asset Growth $41 Billion in assets as of 3/31/07 Launch Fund Family Invest in Franchise Keys to Long Term Growth ($ in Billions) $45 $40 $35 $30 $25 $20 $15 $10 Launch of first 7 funds 7/96 Begin to leverage VA success Launch of 44 new funds Fortis acquisition Internalized transfer agent function Creation of investment research group Hired chief investment strategist Created Hartford Mutual Fund brand campaign Dedicated mutual fund wholesalers Maintain strong performance results Focus on shareholder value Invest in wholesaling franchise Leverage expanded number of producers Expand presence in wrap programs Continue to invest in innovative product development and branding $5 Build out HIMCO s investment management capabilities $0 Jun. '96 Dec. '96 Jun. '97 Dec. '97 Jun. '98 Dec. '98 Jun. '99 Dec. '99 Jun. '00 Dec. '00 Jun. '01 Dec. '01 Jun. '02 Dec. '02 Jun. '03 Dec. '03 Jun. '04 Dec. '04 Jun. '05 Dec. '05 Jun. '06 Dec. '06 *Strategic Insight, May 2007 The Hartford Financial Services Group, Inc. 24
The Hartford has provided our mutual fund shareholders with outstanding long-term performance Percent of retail assets in the top 2 Lipper quartiles as of 3/31/07 Wellington Managed Assets HIMCO Managed Assets 100% 88% 99% 100% 80% 78% 80% 70% 68% 60% 60% 58% 40% 40% 20% 20% 0% 0% 1 Year 5 Year 10 Year 1 Year 5 Year 10 Year Assets ($ in Billions) $32.3 $30.9 $25.3 Assets ($ in Billions) $ 8.4 $1.8 $1.5 Total Hartford Mutual Fund Assets 100% 97% 86% 80% 75% 60% 40% 20% 0% 1 Year 5 Year 10 Year Assets ($ in Billions) $40.7 $32.7 $26.8 The Hartford Financial Services Group, Inc. 25
The Hartford s increasing scale benefits our mutual fund shareholders Asset Weighted Expense Ratios* 1.50% 1.45% 1.40% 1.30% 1.36% 1.35% 1.29% 1.27% 1.20% 1.20% 1.10% 1.00% 2002 2003 2004 2005 2006 2007E *Based on Class A fiscal year expenses. 2007 is estimated. The Hartford Financial Services Group, Inc. 26
Over the next year, we are committed to expanding one of the largest wholesaling organizations in the industry Number of Wholesalers 200 150 120 Dedicated Mutual Fund Wholesalers Director Variable Annuity/Mutual Fund Dual Wholesalers Mutual Fund Sales 120 152 27 155 30 Mutual Fund Sales ($ in Billions) $12 $10 $8 100 90 98 $6 50 125 125 $4 $2 0 2001 2002 2003 2004 2005 2006 $0 The Hartford Financial Services Group, Inc. 27
We have significantly increased the number of Hartford Mutual Fund producers Annual Producer Trends 70,000 60,000 50,000 CAGR = 16% 50,201 52,040 64,580 +14% 46,768 40,000 39,958 41,462 41,664 40,958 30,000 20,000 30,940 16,779 24,100 27,507 31,272 36,265 34,504 40,430 10,000 0 22,916 18,929 14,161 15,858 13,955 15,775 6,454 6,338 2001 2002 2003 2004 2005 2006 1Q 06 1Q 07 New Producers Existing Producers The Hartford Financial Services Group, Inc. 28
with strong sales results across all major channels Independent Regional Broker/Dealers ($ in Billions) $4.0 $3.0 $2.0 $1.0 $2.2 +75% $3.9 $0.8 +28% $1.0 ($ in Billions) $4.0 $3.0 $2.0 $1.0 $1.7 +62% $2.7 +18% $0.9 $1.1 $0.0 2005 2006 1Q 06 1Q 07 $0.0 2005 2006 1Q 06 1Q 07 Bank Wirehouse ($ in Billions) $2.0 $1.5 $1.0 $0.5 +142% $0.7 $1.7 $0.4 +46% $0.6 ($ in Billions) $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 +131% $1.2 $2.7 +62% $0.6 $1.0 $0.0 $0.0 2005 2006 1Q 06 1Q 07 2005 2006 1Q 06 1Q 07 The Hartford Financial Services Group, Inc. 29
Mutual fund wrap programs account for more than 25% of our sales Wrap Program Relationships AG Edwards Morgan Stanley Banc of America Multi-Financial Securities Corp. Citicorp Investment Services National Planning Corporation Citigroup Global Markets, Inc. Piper Jaffray & Co. Commonwealth Financial Network Prudential Fidelity Strategic Advisor Raymond James Financial Network Investment RBC Dain Rauscher, Inc. FSC Securities Royal Alliance H&R Block Stifel Nicolaus Harris Direct SunAmerica Securities Hefren-Tillotson Suntrust Investment Hilliard Lyons UBS Financial Linsco Private Ledger Uvest Investment Services Merrill Lynch Wells Fargo Morgan Keegan & Company, Inc. The Hartford Financial Services Group, Inc. 30
Expanding HIMCO capabilities will enable us to provide broad investment solutions to clients Hartford Investment Management Company (HIMCO) is the asset management subsidiary of The Hartford Over $135 billion in assets under management, of which over $80 billion is managed for The Hartford s insurance accounts Over 350 employees, including 138 dedicated investment professionals covering fixed income, equity and alternative markets 42 portfolio managers averaging 18 years of experience 49 research analysts averaging 13 years of experience HIMCO has traditionally been focused on fixed income products, and is actively expanding their equity management capabilities HIMCO will continue to opportunistically enhance its equity expertise to complement current Wellington solutions within The Hartford s mutual fund and annuity products The Hartford Financial Services Group, Inc. 31
We are well positioned to rapidly expand our Mutual Fund business Investments in wholesaling, brand, product expansion and service capabilities have driven 64% asset growth over the past two years Despite this tremendous growth, we are still a small player in the $10+ trillion U.S. mutual fund market How will we reach $100 Billion in AUM? Deliver strong performance results across a broad range of differentiated investment solutions Leverage our expanded relationships to achieve better diversification and continued growth Continue to invest in our wholesaling organization The Hartford Financial Services Group, Inc. 32
Retirement Plans The Hartford Financial Services Group, Inc. 33
401(k) Our $26 billion Retirement Plans business is comprised of 401(k), 403(b) and 457 Top 10 within 401(k) industry in new plans in 2006 Advisor support network totaling 450 staff Industry leading service provider Expanding into mid market (500-999 employees) and emerging market (2-10 employees) segments 457 Hartford is a top 5 industry provider in 457 assets under management Continue to focus on increasing ongoing contributions Outstanding service has helped us retain 96% of cases over the last five years 403(b) Essentially a start-up business focusing on K-12, Healthcare and other Not-for- Profit segments New product introduced September 2006 Expanded distribution with a newly formed national sales team We are investing heavily in service capabilities to support all three platforms The Hartford Financial Services Group, Inc. 34
The Hartford s 401(k) franchise has been one of our fastest growing businesses this decade 401(k) Deposits 401(k) Assets ($ in Billions) $4.5 $4.0 $3.5 $3.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.5 $0.6 CAGR = 34% $1.8 $1.3 $0.9 $2.5 $3.2 $3.9 ($ in Billions) $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $2.0 $2.2 CAGR = 31% $5.2 $3.4 $2.6 $7.3 $9.8 $13.2 $0.0 1999 2000 2001 2002 2003 2004 2005 2006 $0.0 1999 2000 2001 2002 2003 2004 2005 2006 The Hartford Financial Services Group, Inc. 35
The Hartford has targeted the fastest growing segments of the 401(k) space Industry 401(k) Assets $2,506 Billion* The Hartford 401(k) Assets $11.5 Billion* $345 B $2.6 B $0.3 B $0.1 B 3%1% 14% 11% $267 B 23% 5% $117 B $1,424 B 56% 14% $353 B 73% $8.5 B Number of Employees Hartford Market Share Micro Small <99 100 499 2.45% 0.97% The Hartford s targeted segments Mid 500 999 0.28% Large 1,000 4,999 0.04% *As of 12/31/06 Source: Cerulli Associates Mega 5,000+ 0.00% The Hartford Financial Services Group, Inc. 36
We believe the K-12, Healthcare and other Not-For-Profit segments of the 403(b) market offer attractive opportunities for growth Industry 403(b) Assets $680 Billion* The Hartford 403(b) Assets $872 Million* $95 B 14% $25 B 4% 32% $215 B $71 M 8% 14% $124 M 5% $42 M 50% 73% $345 B $635 M *As of 12/31/06 Source: Retirement Resources Inc. K-12 Healthcare Other Not-For-Profit Higher Education The Hartford s targeted segments The Hartford Financial Services Group, Inc. 37
Our differentiated service and distribution models, coupled with attractive product solutions will drive strong growth Service Service continues to be a key focus and is one of The Hartford s core competencies Primary reason plan sponsors change providers is poor service The Hartford is the only provider to receive the DALBAR award for retirement plan service for four consecutive years Heavily investing in our service infrastructure to raise the bar for our competitors Distribution Financial advisor model presents significant advantage to The Hartford Allows us to leverage the reach and penetration we have established through our annuity and mutual businesses Leader in providing educational resources both in the field and at the plan sponsor level Product No gap product solution through mid market segment Attractive open architecture approach Pending Regulations Positions Us Well IRS putting more fiduciary responsibility on 403(b) plan sponsors Will create consolidation activity Our institutional pricing ability makes us very competitive 401(k) 403 (b) The Hartford Financial Services Group, Inc. 38
We are well positioned for continued growth in U.S. Wealth Management We are making significant investments in: Distribution Product development Infrastructure We are dedicated to providing a platform that delivers strong investment returns for clients We have a broad range of solutions to capture the aging demographic opportunities We have unparalleled distribution reach 1,500 selling agreements across all channels 700 field staff 6 million customers The Hartford Financial Services Group, Inc. 39
Investor Day 2007 Capitalizing on International Growth Opportunities Liz Zlatkus President International Wealth Management and Group Benefits June 13, 2007 The Hartford Financial Services Group, Inc.
Agenda International Strategy and Japan...Liz Zlatkus Achieving Long-term Growth in Japan Greg Boyko Products and Services...Dave Levenson Distribution and Branding...Kazuhiko Sunagawa The Hartford Financial Services Group, Inc. 41
The Hartford s International strategy is to leverage our expertise in significant markets meeting our target criteria The Hartford s international strategy is to provide savings, wealth creation and financial protection solutions in significant international markets where The Hartford s competitive advantages can be leveraged. Primary characteristics of our target markets: Aging demographic trends Significant financial assets Third party distribution channels Favorable regulatory and tax environments The Hartford Financial Services Group, Inc. 42
In just over two years, International has more than quadrupled its contribution to Hartford Life s earnings 2004 Hartford Life earnings Q1 2007 Hartford Life earnings 3% 13% 13% International All Other The Hartford Financial Services Group, Inc. 43
Demographic trends are creating a need for our products the world is aging rapidly Life Expectancies Percent of Population over 60 64.7 74.7 77.3 82.4 83.5 78.3 81.9 88.3 16% 10% 26% 17% 31% 25% 21% 34% 28% 26% 37% 48% World U.S. U.K. Japan 2005 2050 World U.S. U.K. Japan 2005 2025 2050 Fertility rate decreases as well as increases in life expectancy Japan has the world s largest proportion of elderly people Source : United Nations Population Division: World Population Prospects: The 2004 Revision The Hartford Financial Services Group, Inc. 44
The Hartford s survey indicated aging consumers are becoming anxious about retirement with the Japanese most concerned Level of concern about having enough money in retirement Extremely/Very Concerned 28% 31% 58% Somewhat Concerned 33% 39% 42% Japan UK US Not concerned 9% 27% 33% 0% 20% 40% 60% 80% Source: The Hartford International Survey of Attitudes Towards Retirement Planning, September 2006 The Hartford Financial Services Group, Inc. 45
Aging populations will place a strain on public and corporate pensions, yet consumers still are relying on them 4.0 3.0 2.0 1.0 0.0 Worker-to-Retiree Ratios* 2000 2010 2020 2030 2040 U.S. U.K. Japan The Hartford survey results indicated the importance of government / public pension income in retirement 72% of US respondents ranked government income as important 64% of UK respondents ranked government income as important * Ratio of Workers (aged 15-59) to Retirees (60 and over) Source: Watson Wyatt Aging Vulnerability Index, 2003 68% of Japan respondents ranked government income as important The Hartford Financial Services Group, Inc. 46
Although there is little confidence that government income will be enough Level of Confidence That Government/State Sponsored Pension Plan Will Provide Sufficient Income to Maintain Current Standard of Living Not too / Not at all Confident 50% 77% 89% Somewhat Confident 9% 16% 31% Japan UK US Extremely / Very Confident 2% 7% 19% 0% 20% 40% 60% 80% 100% Source: The Hartford International Survey of Attitudes Towards Retirement Planning, September 2006 The Hartford Financial Services Group, Inc. 47
Personal assets in Japan continue to be highly liquid with over $6 trillion, or 51%, in cash Japanese Household Financial Asset Distribution Other 4.6% Insurance & Annuities: 26.6% Stocks 10.7% Insurance & Annuities 26.6% Cash & Deposits 51.3% Mutual Funds 4.0% Bonds 2.8% Source: Bank of Japan The Hartford Financial Services Group, Inc. 48
Hartford Life s international markets Japan Hartford Life Insurance K.K. Wholly-owned subsidiary Products: Variable Annuities Fixed Annuities Europe Hartford Life Limited Wholly-owned subsidiary Ireland back-office U.K. sales branch Products: Unit-Linked Investment Bond Pension product Brazil Icatu-Hartford Joint venture Products: Life Pension Capitalization The Hartford Financial Services Group, Inc. 49
Investor Day 2007 Achieving Long-term Growth in Japan Greg Boyko President and CEO Hartford Life Japan June 13, 2007 The Hartford Financial Services Group, Inc.
The Hartford successfully exported its US expertise and market leadership position in VAs to Japan Launched in December 2000 Wholly-owned subsidiary Number one ranking in VA assets under management in Japan* 54 active distributors Over 470,000 policyholders $33 billion in total AUM at March 31, 2007 We achieved our targeted returns and turned cash positive in 2006 *Source: Hoken Mainichi Shimbun The Hartford Financial Services Group, Inc. 51
Growth in Japan assets under management translates into earnings growth Japan Annuities Total AUM Japan Core Earnings ($ billions) $40 $30 $20 $10 $0 $6.2 CAGR = 72% $14.6 $26.1 $31.3 $28.2 + 16% 2003 2004 2005 2006 Q1 2006 $32.8 Q1 2007 ($ millions) $300 $250 $200 $150 $100 $50 $0 $7 $40 $120 CAGR = 213% [4] $267 [3] $48 2003 2004 2005 2006 Q1 2006 +27% $61 Q1 2007 The Hartford Financial Services Group, Inc. 52
The Hartford is Japan s variable annuity industry leader The Hartford Mitsui Sumi Met Life ING Tokyo Fire & Marine Sumitomo Life ManuLife ALICO Mitsui Life T&D Financial Life Daiichi Life VA Assets Under Management as of March 31, 2007 Top 5 = 75% Share of AUM 24.7% 14.4% 12.7% 11.8% 11.7% 6.5% 4.3% 4.2% 4.2% 2.0% Source: Hoken Mainichi Shimbun 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 (Trillion Yen) The Hartford Financial Services Group, Inc. 53
The Hartford has delivered strong investment returns to our Japanese policyholders The Hartford s VA products utilize a balanced portfolio of assets 1% Japan equity Japan bond Global equity Global bond Other 42% 18% 27% 12% Full year 2005 investment performance of 20.4% before contract fees Full year 2006 investment performance of 6.6% before contract fees Despite market volatility in Q1 2007, investment returns for the quarter were 0.7% before contract fees The Hartford Financial Services Group, Inc. 54
Initial approach to the untapped Japanese market resulted in unprecedented success in a short period of time Initial focus on product and building distribution Started with one product, one distributor First mover advantage Benefited from financially weak domestic players Began efforts to build brand awareness Leveraged bank deregulation in 2002 to expand distribution and product lineup The Hartford Financial Services Group, Inc. 55
In 2006, product introductions accelerated and domestic competitors emerged, but The Hartford maintained a 16% market share Increasingly varied product designs Market no longer moving in concert Demand for shorter deferral periods and profit lock in Japan financial services sector recovered Emerging domestic players, increased competition 2005 VA Bank Sales 2006 VA Bank Sales The Hartford Foreign Competitors 31% 37% 32% Domestic Competitors Domestic Competitors 51% 16% 33% The Hartford Foreign Competitors The Hartford Financial Services Group, Inc. 56
Superior capabilities in each facet of our business are the keys to long-term leadership in Japan Service & Technology Infrastructure Asset Retention Accelerate Promotion & Branding Diversify Product Portfolio Know Customers, Distributors, Competitors Capture New & Regain Key Distributors Financial Strength Compliance & Risk Management Hire, Develop, & Retain Talent The Hartford Financial Services Group, Inc. 57
Deposit growth is back Japan Variable Annuity Deposits by Quarter ($ billions) $2,500 $2,256 $2,000 $1,500 $1,000 $500 $1,226 $1,184 $1,167 $1,678 $0 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 The Hartford Financial Services Group, Inc. 58
Future Japan market deregulation will provide additional opportunity Full liberalization of insurance sales by banks Expected as soon as December 2007 Presents opportunity for broader product and rider lineup Japan Post privatization Post Office AUM of over $3 trillion represents great opportunity Keen competition from domestic and international players All 38 life insurance companies invited to submit product proposals Post Office likely to start selling variable annuities in early to mid 2008 The Hartford Financial Services Group, Inc. 59
In a market already poised to potentially triple in the next three years Total industry variable annuity assets have the potential to reach $250 to $400 billion by 2010 almost triple March 2007 assets ($ billions) $150 $125 $100 $75 VA Industry in Japan Assets Under Management 84% CAGR $69 $93 $108 $126 $50 $25 $11 $17 $26 $37 $49 Source: Hoken Mainichi Shimbun $0 Mar. 2003 Sep. 2003 Mar. 2004 Sep. 2004 Mar. 2005 Sep. 2005 Mar. 2006 Sep. 2006 Mar. 2007 The Hartford Financial Services Group, Inc. 60
The Hartford is well positioned to take advantage of the growing Japanese market We are focused on delivering on all facets of our business to ensure long-term success We are regaining our momentum in Japan アダージオ 3WIN The Hartford Financial Services Group, Inc. 61
Investor Day 2007 Enhancing Our Products and Services in Japan Dave Levenson Chief Operating Officer Hartford Life Japan June 13, 2007 The Hartford Financial Services Group, Inc.
Japan deposits growth is back at The Hartford driven by the launch of Adagio 3Win Japan Variable Annuity Deposits by Quarter ($ Millions) $2,500 $2,256 $2,000 $1,678 $1,500 $1,226 $1,184 $1,167 $1,000 $500 $0 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 } Adagio 3Win accounted for 31% of deposits The Hartford Financial Services Group, Inc. 63
Adagio 3Win The Hartford now has two viable VA products to serve different segments of the Japanese market Launched February 2007 Appeals to customers seeking shorter deferral periods and the ability to lock in investment gains Product features Stable asset growth Lock-in of gains Full principal protection アダージオ 3WIN Adagio V3 15 and 10 year versions -10 year version launched September 2006 Appeals to customers seeking withdrawal benefits over a longer investment time horizon The Hartford Financial Services Group, Inc. 64
The Hartford will continue to expand and diversify our product portfolio Continuous product development to meet increasingly fragmented needs in the annuity market Look to leverage our expertise and distribution for other investment product opportunities The Hartford Financial Services Group, Inc. 65
The Hartford s wholesaling capabilities are a competitive strength in Japan The Hartford has one of the largest, most highly-trained wholesaling forces deployed across Japan Increasing wholesalers by 25% during 2007 Establish new associate wholesaler team Surveying distributors and customers to hear their feedback and find ways to improve our service Increased monitoring of competitor activities The Hartford Financial Services Group, Inc. 66
Investments in service & technology will make The Hartford even more customer-friendly Investments being made in technology to improve service and manage costs Imaging system Enhanced call center tools E-business platform makes ease of doing business critical differentiator Account look-up capabilities Electronic statements online We align with our distributors business model, processes and workflows to make it easier for them to do business The Hartford Financial Services Group, Inc. 67
Investor Day 2007 Growing Our Distribution and Brand in Japan Kazuhiko Sunagawa Chief Marketing Officer Hartford Life Japan June 13, 2007 The Hartford Financial Services Group, Inc.
The Hartford s distribution is growing; our partners manage over $4 trillion in client assets 1Q 2007 Variable Annuity Sales by Channel Hartford Life Japan has a strong and diverse base of distribution partners Securities Firms Mega Banks Other and Shinkin Banks [5] 11% 7% 11% 27% 44% Regional Banks 54 active bank and securities firm distribution partners 9 distributors launched in 2007 Including 2 nd and 3 rd largest securities firms - Daiwa Securities and Nikko Cordial Securities Trust Banks Distribution partners manage over $4 trillion in client assets, representing over 30% of all available distribution The Hartford Financial Services Group, Inc. 69
The Hartford s aided brand awareness in our target market has almost tripled in just two years Growing Aided Awareness of The Hartford in Japan 50% 41.4% 40% 36.3% 30% 20% 15.1% 18.8% 19.8% 23.6% 22.5% 10% 0% Jan 2005 May 2005 Sep 2005 Jan 2006 May 2006 Sep 2006 Jan 2007 Source: Surveys conducted by The Hartford s advertising agency in Japan. Based on people aged 50 and older. The Hartford Financial Services Group, Inc. 70
In addition, our other promotional campaigns are contributing to growth in brand awareness Advertising campaigns using popular Japanese singer Hikawa Kiyoshi Sports marketing arrangement with Chiba Lotte Marines professional baseball team Aggressive media relations campaign The Hartford Financial Services Group, Inc. 71
The Hartford retirement survey showed a greater need for credible financial planning advice in Japan What or who do you rely on for credible financial advice? Japan US UK 35% 18% 33% 16% 40% 46% 15% 38% 26% 17% 18% 19% 11% 13% 7% 7% 2% 4% News Media Fin. Plnr. / Tax Acct. Bank Rep Securities Firm Ins. Agent Don't Know Where to Turn Source: The Hartford International Survey of Attitudes Towards Retirement Planning, September 2006. Multiple answers allowed. The Hartford Financial Services Group, Inc. 72
Resulting in a lack of confidence in financial planning abilities and low tolerance for risk Confidence in Financial Planning Tolerance for Risk 80% 70% 74% 80% 70% 72% 60% 50% 40% 30% 30% 34% 60% 50% 40% 30% 44% 48% 20% 20% 10% 10% 0% US UK Japan 0% US UK Japan Not too Confident Not at all Confident Completely Risk Averse/ Accept Minimal Gain Fairly Risk Averse/ Accept Small Gain Source: The Hartford International Survey of Attitudes Towards Retirement Planning, September 2006 The Hartford Financial Services Group, Inc. 73
The Hartford s goal is to be a thought leader in Japan on financial education Hartford Life Japan promotes financial and retirement education through: Publications about annuities and investing Educating the media and other stakeholders Public opinion surveys about retirement and investing Seminars for college students, customers and the public The Hartford Financial Services Group, Inc. 74
International markets are a key component to the growth and diversification of The Hartford Demographic shifts around the globe are creating an increased need for retirement products in both Japan and the UK The Hartford believes superior capabilities in all facets of our business are the key to long-term growth in Japan We believe our capabilities will enable us to remain a leading player in the Japanese market for the long-term The Hartford Financial Services Group, Inc. 75
Life Operations Question and Answer The Hartford Financial Services Group, Inc. 76
Footnotes [1] In order to provide a consistent basis of comparison, Life Core Earnings and ROE exclude tax benefits of $76, $30 and $190 for 2002-2004 and Bancorp Services litigation charges of $11 and $40 in 2002 and 2003. [2] Excludes $40 Million associated with Bancorp litigation. [3] 2006 core earnings include a $53m favorable adjustment for the unlock of death benefits & amortization of deferred acquisition costs. [4] CAGR excludes 2006 DAC adjustment. [5] "Other" includes former long-term credit banks, former "city banks," government-affiliated banks, insurance agents and leasing firms. The Hartford Financial Services Group, Inc. 77