The Hartford Insurance Group, Inc. · NYSE:HIG
The Hartford Insurance — The Hartford Financial Services Group — Investor Day (December 2005)
72 slides from The Hartford Insurance's investor day presentation, Dec 12, 2005
Slide 1: December 12, 2005 Investor Day
December 12, 2005 Investor Day The Hartford Financial Services Group, Inc.
Slide 2: Safe Harbor Statement
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-l
Slide 3: Today's Agenda
Today’s Agenda 9:45 – 10:00 Chairman’s Welcome Ramani Ayer Property Casualty Operations Outlook Dave Zwiener & 10:00 – 11:30 and Q/A Team 11:30 – 12:15 Networking Lunch Balcony 12:15 – 1:00 Corporate Finance Outlook and Q/A David Johnson 1:00 – 2:30 Life Operations Outlook and Q/A Tom Marra & Team 2
Slide 4: Ramani Ayer, Chairman and CEO
December 12, 2005 Investor Day The Hartford Financial Services Group, Inc. Ramani Ayer Chairman and Chief Executive Officer
Slide 5: 10 Year Anniversary on NYSE
10 Year Anniversary on NYSE 1995 – 2005 5
Slide 6: 10 Year Stock Appreciation
10 Year Stock Appreciation Over time, HIG stock has outperformed the S&P and peer group averages 375% 350% 350% 325% 300% 275% 250% 250% 225% 200% 200% 175% 150% 125% 100% 75% 7 5 6 7 8 99 00 3 4 5 02 1 95 99 00 02 03 1 98 J ul-9 J ul-0 J un-9 J an-9 J an-9 O ct-0 J un-0 J un-0 J an-0 Apr -0 Feb- Ma
Slide 7: Total Return to Shareholders
Total Return to Shareholders Since 12/15/95, HIG has generated a 16% compound annualized total return to shareholders Total Return through 11/30/05 Since 1 Year 3 Year 5 Year 12/15/95 HIG 37.4% 23.5% 6.2% 16.0% S&P 500 8.1% 12.1% 0.6% 9.1% Life Peers 33.0% 24.7% 8.5% 9.6% P&C Peers 21.7% 16.8% 8.2%
Slide 8: Long Term Performance: Net Income
Long Term Performance The Hartford has achieved over 15% annual growth in net income Net Income (millions) $3,000 CA GR $2,427 $2,500 15.8% $2,115 $2,000 $1,500 $1,332 $1,015 $1,000 $974 $1,000 $862 $559 $507 $500 ($99) ($91) $0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 9/30/05* -$500 * Base
Slide 9: Long Term Performance: Book Value Per Share
Long Term Performance The Hartford has achieved over 10% annual growth in book value per share Book Value Per Share, X-AOCI $50 $49.04 $43.55 % C AGR $40 10.3 $37.77 $36.67 $34.54 $31.35 $30 $26.42 $24.68 $22.26 $20 $18.83 $17.56 $10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 9/30/2005 9
Slide 10: 10 Years of Earnings Power
10 Years of Earnings Power Today, The Hartford has a diversified mix of property casualty insurance, life insurance and investment products Operating Income Growth Property Casualty Total HIG Life Operations Operations G R CA % 18 A GR A GR $2,518 % C 15 %C 23 $1,200 $1,318 $325 $478 (in millions) $
Slide 11: Life Operations Highlights
Life Operations Highlights The Hartford is well positioned to capitalize on the retirement security market Life Operations • A market leader in variable (in billions) Assets Under Management $300 annuities, group benefits, $271 variable life and Japan $249 $250 AGR $210 • Rapidly growing mutual $200
Slide 12: P&C Operations Highlights
P&C Operations Highlights Today, P&C ongoing operations are focused primarily on business insurance and personal lines Net Written Premium (in billions) • A market leader in small $11 business insurance $10.3 $10 $9.9 • Exclusive AARP $9 AGR $9.1 endorsement for personal C $8.5 6% lines auto and hom
Slide 13: A Look Ahead
A Look Ahead Our goals in 2006 and beyond are aligned with total shareholder returns 2006 Outlook • Operating income per share of $8.30 - $8.60 with growth in both property casualty and life • Strong book value growth and a 15%+ return on equity • Expected dividend increase to $500 million in 2006 •
Slide 14: Why Own The Hartford?
Why Own The Hartford? The Hartford is well positioned for profitable growth in today’s challenging markets • Industry leading market positions and targeted growth strategies • Excellent brand awareness from consumers and small business owners • Experienced management team with aligned long term ince
Slide 15: Property Casualty Operations
December 12, 2005 Investor Day Property Casualty Operations Dave Zwiener President & C.O.O. Property & Casualty
Slide 16: Agenda
Agenda • Ongoing Operations 2005/2006 Guidance • 2006 Business Unit Guidance and Key Drivers – Business Insurance – Specialty Commercial – Personal Lines • Q&A 16
Slide 17: Ongoing Operations vs. P&C Industry
Ongoing Operations vs. P&C Industry • Net written premium growth is expected to slow for the P&C industry into 2006 • The Hartford’s Ongoing P&C operations are well positioned to continue to outperform the industry as a whole HIG Ongoing P&C Net Written Premium HIG Ongoing P&C Combined Ratio 16% Gro
Slide 18: 2005/2006 Guidance Ongoing Operations
2005/2006 Guidance Ongoing Operations 2005 2006 • Net Written Premium: Up mid single digit Up mid single digit • Combined Ratio*: High 80s Low 90s • Net Invest. Income**: Up high single digit Up mid single digit • Catastrophe Ratio: 3-4% 3% • ROE: >20% >20% • Capital Generation: > than P&C needs > t
Slide 19: 2006 Guidance by Business Unit
2006 Guidance by Business Unit Net Written Premium Growth Compared to Full Year 2005 Combined Ratio* Business Ins. High-single digit Low 90s Middle Market Low-single digit Small Commercial Low-double digit Personal Lines Mid-single digit High 80s Auto Mid-single digit Home Low-double digit Specialty
Slide 20: 2006 Execution
2006 Execution • Strong financial performance in 2006 centers on: – Broadened risk appetite and product enhancements – Continued focus on strong customer retention – Increased new business generation 20
Slide 21: Business Insurance Opportunities
Business Insurance Opportunities • Broadened appetite/products – New sophisticated pricing capability for Small Commercial – Industry-tailored product offerings in Middle Market • Retention – Improved renewal automation – Increased utilization of service centers • New business generation – Significa
Slide 22: Business Insurance Challenges
Business Insurance Challenges • Small commercial remains an attractive segment for many players • Increased competition from regional carriers • Margin will be put to work to secure renewals early • Rising loss costs as favorable frequency no longer offsets severity increases • Easing of underwritin
Slide 23: State of the Market Commercial Lines
State of the Market Commercial Lines Industry Commercial Lines Rate Changes by Line 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% -20% 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 Commercial Auto Wo
Slide 24: Business Insurance New Business and Retention
Business Insurance New Business and Retention Business Insurance – New Written Premium • Strong increase in new (millions) business generation as 17% $300 $290 $287 $296 $295 $294 $294 more sales reps are added $280 $275 $260 • Expect to improve retention $240 above current levels $220 $200 Mar-04 J
Slide 25: Specialty Commercial
Specialty Commercial • HIG Specialty Commercial writes Net Written Premium Mix YTD September 30, 2005 (Total $1.4 billion) business in a limited number of lines Other 8% Property Professional 13% Liability 19% • Focus is on Casualty profitability, not Bond 12% 48% growth 25
Slide 26: Specialty Commercial
Specialty Commercial • Will selectively write business where pricing and risk quality meet our standards • Lines of business, such as D&O/E&O, are complementary to Middle Market and Small Commercial offerings • Premium expected to contract in 2006 vs. 2005 • Emphasis is on renewing the inforce book
Slide 27: Personal Lines Opportunities
Personal Lines Opportunities • Broadened appetite/products – Next generation release of Dimensions – Greater breadth of covered products to round out accounts • Retention – Higher retention of AARP customers through improved first call resolution – Continued investment in service capabilities • J.D.
Slide 28: Personal Lines Challenges
Personal Lines Challenges • Margins, especially in auto, remain very attractive • Competition will intensify, as carriers utilize margin to: – Increase direct advertising to consumers – Secure renewals and reduce shopping behavior • Reinsurance costs could move sharply higher 28
Slide 29: Personal Lines State of the Market
Personal Lines State of the Market Personal Lines Industry Written Pricing and Loss Costs 12% Personal Auto Market 15% Homeowners Market 10% 10% 8% 6% 5% Percent Change Percent Change 4% 0% 2% -5% 0% -2% -10% -4% -15% -6% -8% -20% -10% -25% 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04
Slide 30: Personal Lines New Business and Distribution
Personal Lines New Business and Distribution Personal Lines Agency Sales Reps • 32% increase in sales reps 120 102 expected to drive significant rise 100 in Agency new business 80 77 32% 63 premium in 2006 60 40 • Reps will also be focused on 20 identifying new appointment candidates 0 Dec-04 Dec-05
Slide 31: Summary
Summary • Expect to continue to outperform the P&C industry in 2006 - Focused on products/appetite expansion, retention and new business generation • Will generate strong Ongoing P&C ROE and capital in excess of P&C requirements HIG Ongoing P&C Combined Ratio versus HIG Ongoing P&C Net Written Premi
Slide 32: P&C Team
P&C Team David Zwiener Judith Blades Jonathan Bennett President & Sr. Executive Vice President, Executive Vice President, Chief Operating Officer Property Casualty Personal Lines Dana Drago Michael Dury Robert Paiano Executive Vice President, Senior Vice President, Senior Vice President, 32 Field, S
Slide 33: Q&A
A THE | [ARTE IRD Q&A 33
Slide 34: David Johnson, Chief Financial Officer
December 12, 2005 Investor Day The Hartford Investor Day Financial Services Conference Group, Inc. David Johnson Chief Financial Officer
Slide 35: Agenda
Agenda • Financial Overview – 2005 & 2006 • Capital Management • GMWB Hedging Update • Japan Fixed Annuity Update • 2006 Investor Calendar • Q&A 35
Slide 36: Financial Overview
Financial Overview Diluted Operating EPS Guidance Assumptions 2005 • Assumes no additional provision for regulatory $9.00 $8.30 - $8.60 charges or accruals; additional accruals are likely • HartRe and other 4th quarter reserve reviews in $8.00 $7.30 - $7.60 P&C’s Other Operations produced no signifi
Slide 37: Capital Management
Capital Management Financial Leverage X-AOCI [1] • For 2006, we’ve revised our capital 35% margin target to $1 billion in excess 31.9% Enterprise Goal of rating agency minimums 29.5% Low 20’s 30% 28.1% • Expect to have this margin at year- end 2005 even after contributing an 25% additional $300 mill
Slide 38: Capital Management
Capital Management BVPS + Cumulative Dividends [1] $60.00 Criteria for capital deployment: $57.01 GR $55.00 %C A $50.81 • Invest in growth at 13-15% ROE 10 $50.00 • Maximize growth in book value $45.00 $43.66 $43.03 per share and dividends $39.59 $40.00 $35.77 • Price-to-book multiple influences $35
Slide 39: GMWB Hedging Update
GMWB Hedging Update • Hedge effectiveness to-date Actual GAAP Volatility continues to be very good (millions) Liability Change and Net Realized • Expect $15 - $20 million after- 60 Gain/(Loss) tax capital loss from an update 40 to the GMWB liability model in 20 the 4th quarter 0 • Evolving enhanceme
Slide 40: Japan Fixed Annuity Update
Japan Fixed Annuity Update Japan GAAP Volatility • Economic hedge program in place (millions) 30 consistent with the U.S. program 20 • Assets marked-to-market, however, 10 liability book value basis results in volatility - 3Q04 4Q04 1Q05 2Q05 3Q05 • FASB Fair Value Option would (10) potentially prov
Slide 41: 2006 Investor Calendar
2006 Investor Calendar January 2006 February 2006 March 2006 Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa First Quarter 1 2 3 4 5 6 7 1 2 3 4 1 2 3 4 8 9 10 11 12 13 14 5 6 7 8 9 10 11 5 6 7 8 9 10 11 • Early January – Possible 8K Release & 15 16 17 18 19 20 21 12 13 14 15 16 17 18
Slide 42: Q&A
A THE | [ARTE IRD Q&A 42
Slide 43: Life Operations
December 12, 2005 Investor Day Life Operations Tom Marra President & C.O.O. Hartford Life
Slide 44: Agenda
Agenda • 2005 Review • Outlook by Segment - Competitive Environment - Business Initiatives - 2006 Guidance • Summary • Questions & Answers 44
Slide 45: 2005 Review
2005 Review Assets Under Management Operating Income * (In billions) (In millions) $400 $1,250 16% $1,000 10% $893 $300 $271 $815 $233 $750 $200 $500 $100 $250 $0 $0 9/30/04 9/30/05 YTD 9/30/04 YTD 9/30/05 *2004 before $190 million of favorable tax-related items • Assets under management for variabl
Slide 46: Life Insurance Industry Overview
Life Insurance Industry Overview • Industry environment remains challenging - Intense competition driven by slowing industry growth and huge consumer demand for guarantees - New capital and reserve requirements - Low long term interest rates • Industry fundamentals create opportunities - Demographic
Slide 47: Life Earnings Diversification
Life Earnings Diversification Operating Income by Major Business Line Year to Date – 9/30/2005 Japan 9% Group Benefits Retail 19% Products 48% Individual Life 13% Institutional Solutions 11% 47
Slide 48: 2006 Market Assumptions
2006 Market Assumptions U.S. equity markets 9% total return - 7.2% stock appreciation, 1.8% dividends - Base of S&P 1229 – September 30, 2005 level Retail products 8% weighted return before fees Separate account growth Hartford Life Japan 4.9% weighted return before fees Separate account growth - Ye
Slide 49: Retail Products Group Industry Environment
Retail Products Group Industry Environment Projected US Population Ages 65 and Older • Intense competition and consumer demand driving (Millions) 90 variable annuity guarantees 80 20.9 • New product features require 70 9.6 15.4 enhanced risk and capital 60 management capabilities 50 7.3 40 • Demogra
Slide 50: Individual Annuity Opportunities
Individual Annuity Opportunities Operating Expenses Per Account • Meet consumer demand for lifetime income protection through new Lifetime Income Hartford Life Builder product Annuity Hartford Life Annuity • Continue product Operating innovation across the annuity product line Expenses Operating Exp
Slide 51: Individual Annuity Outlook
Individual Annuity Outlook ($ in millions) 2005 2006 Variable Annuity - Sales $11,100 - $11,200 $10,000 - $11,000 - Net Flows ($900) - ($800) ($3,700) - ($2,700) Fixed Annuity - Sales $260 - $290 $300 - $700 - Net Flows ($1,800) - ($1,700) ($1,300) - ($900) Individual Annuity - Return on Assets Low
Slide 52: Mutual Funds Outlook
Mutual Funds Outlook • Continue maturation process of 90 wholesalers dedicated to Mutual Funds Assets Under Management during 2005 - Productivity improving as wholesalers ($ billions) gain experience $30 21% $27.5 $22.7 • Maintain strong performance results $20 - 76% of funds are in 1st or 2nd quart
Slide 53: 401(k) Outlook
401(k) Outlook • Increase productivity of expanded distribution Assets Under Management ($ billions) • Further penetrate the 75,000 advisors $10 $9.2 who are selling Hartford investment 42% products $6.5 - Current penetration at 2,500 advisors $5 • Leverage success in small case 401(k) market to exp
Slide 54: Institutional Solutions Group
Institutional Solutions Group • ISG includes institutional investment Assets Under Management products, Government, and PPLI ($ billions) $60 10 % • Expand distribution within investment $54.2 $50 $49.2 banks, corporations, consultants, and $25.4 pension plan sponsors $40 $24.4 $30 • Customize produ
Slide 55: Individual Life Industry vs. Hartford
Individual Life Industry vs. Hartford Average Annual Sales Growth Rate Product Mix Industry = 3% Hartford = 16% Industry vs. Hartford $14 $300 100% 6% $12.4 $11.7 $11.7 22% 23% 23% $12 $250 18% 80% $10 $200 27% 25% 26% 27% Hartford ($m) Industry ($b) 60% $8 $150 $6 40% $100 28% 34% 37% $4 20% 50% $2
Slide 56: Individual Life Outlook
Individual Life Outlook • Enhance penetration of core distribution channels (banks and wirehouses) where market growth is fastest – Fully optimize competitive advantage provided by point of sale model utilizing over 210 distribution executives nationwide – Streamline sales process including leveragi
Slide 57: Group Benefits Industry Environment
Group Benefits Industry Environment Group STD and LTD Total Annual U.S. Wages2 8% After-Tax Margins1 $6,000 9% Wages & Salary Accruals (Billions) 6% 8% $5,000 Increase vs Prior Year 7% 4% $4,000 6% 5% $3,000 2% 4% $2,000 3% 0% 2% $1,000 2000 2001 2002 2003 2004 1% -2% $0 0% LTD STD 2000 2001 2002 20
Slide 58: Group Benefits Outlook
Group Benefits Outlook • Expand and strengthen distribution channel – Grow sales force by 10% to 165 reps in 2006 – Increase productivity of small case acquisition process through technology installed during 2005 – Leverage producer development programs • Utilize superior claim management capabiliti
Slide 59: Japan VA Industry Environment
Japan VA Industry Environment Japan VA Industry Total Assets Hartford Life Japan VA Assets ($ billions) ($ billions) $75 $70.8 $25 R R $21.9 CAG CAG $20 % 96% $53.2 114 $16.5 $50 $15 $38.5 $11.1 $28.2 $10 $8.1 $25 $18.4 $5 $4.8 $0 $0 Sep. 2003 Mar. 2004 Sep. 2004 Mar. 2005 Sep. 2005 Sep. 2003 Mar. 2
Slide 60: Japan VA Competition
Japan VA Competition Japan VA Assets Under Management Sept. 30, 2005 Sept. 30, 2004 Market Share Market Share Hartford 30.6% 28.9% Mitsui Sumitomo Met Life 14.5% 16.3% ING Life 14.3% 10.6% Sumitomo Life 8.3% 8.1% Manulife 6.5% 5.0% Mitsui Life 5.6% 6.8% Alico Japan 4.8% 6.1% T&D Financial 4.3% 4.6%
Slide 61: Japan Opportunities
Japan Opportunities • Launched new variable annuity product (Adagio V3) on November 7th 2005 – Provides consumer with enhanced liquidity and new fund allocations • Increase penetration with existing distributors • Leverage variable annuity momentum, identifying other investment product opportunities
Slide 62: Japan Outlook
Japan Outlook (Millions) 2005 2006 Variable Annuity Sales (Yen) ¥1,177,000 - ¥1,199,000 ¥990,000 - ¥1,210,000 Sales (Dollars) $10,700 - $10,900 $9,000 - $11,000 Net Flows (Yen) ¥1,100,000 - ¥1,122,000 ¥880,000 - ¥1,100,000 Net Flows (Dollars) $10,000 - $10,200 $8,000 - $10,000 Fixed Annuity Sales (Y
Slide 63: The Retirement Challenge
The Retirement Challenge • The leading edge of the 77 million baby boomers will reach age 60 next year • They face uncertain financial security for their impending retirement - Uncertain future of Social Security - Decline of traditional defined benefit pension plans - Potential lack of retiree medi
Slide 64: Hartford Life 2006 Summary
Hartford Life 2006 Summary • Leverage leadership positions in Variable Annuities, Japan, Group Benefits, and Variable Life • Exploit growth opportunities in - 401(k) - Mutual funds - Retirement security • Maintain financial and risk management discipline • Achieve double digit earnings growth • Prod
Slide 65: The Hartford Life Management Team
The Hartford Life Management Team Tom Marra Greg Boyko Mike Kalen President & COO Executive VP & Director Executive VP & Director Hartford Life International Division Individual Life Division Dick Mucci John Walters Liz Zlatkus Executive VP & Director Executive VP & Director Executive VP & CFO Group
Slide 66: Q&A
A THE | [ARTE IRD Q&A 66
Slide 67: Ramani Ayer, Chairman and CEO
December 12, 2005 Investor Day The Hartford Financial Services Group, Inc. Ramani Ayer Chairman and Chief Executive Officer
Slide 68: Appendix
A THE | [ARTE IRD APPENDIX
Slide 69: 1995-2005 Consolidated Operating Income Reconciliation
THE HARTFORD FINANCIAL SERVICES GROUP, INC. 1995-2005 CONSOLIDATED OPERATING INCOME RECONCILIATION YEAR ENDED DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Net Income $ 559 $ (99) $ 1,332 $ 1,015 $ 862 $ 974 $ 507 $ 1,000 $ (91) $ 2,115 Less: Net realized capital gains (losses) 67 5
Slide 70: 1995-2005 Book Value Per Share Reconciliation
THE HARTFORD FINANCIAL SERVICES GROUP, INC. 1995-2005 BOOK VALUE PER SHARE RECONCILIATION DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Book Value Per Share $ 20.08 $ 19.23 $ 25.78 $ 28.25 $ 25.17 $ 32.98 $ 36.71 $ 42.06 $ 41.07 $ 48.40 Less: Per share impact of accumulated other co
Slide 71: 2001-2005 Financial Leverage Reconciliation
THE HARTFORD FINANCIAL SERVICES GROUP, INC. 2001-2005 FINANCIAL LEVERAGE RECONCILIATION Dec. 31, Dec. 31, Dec. 31, Dec. 31, Sept. 30, 2001 2002 2003 2004 2005 DEBT Short-term debt (includes current maturities of long-term debt) $ 599 $ 315 $ 1,050 $ 621 $ 620 Senior notes 1,965 2,266 2,638 2,584 2,3
Slide 72: 1995-2005 Ongoing P&C Premium Reconciliation
THE HARTFORD FINANCIAL SERVICES GROUP, INC. 1995-2005 ONGOING PROPERTY & CASUALTY PREMIUM RECONCILIATION YEAR ENDED DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Ongoing Operations [2] Written Premiums $ 5,670 $ 5,688 $ 5,771 $ 6,119 $ 6,354 $ 6,958 $ 7,569 $ 8,527 $ 9,051 $ 9,904 C
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