Ramani Ayer - The Hartford

Ramani Ayer
Chairman and Chief Executive Officer
Keefe, Bruyette & Woods, Inc.
2004 Insurance Conference
Wednesday, September 8, 2004
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 our 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 our quarterly report on
Form 10-Q filed on August 4, 2004 and the other filings we make with the Securities and
Exchange Commission. We assume no obligation to update this presentation, which speaks
as of today’s date.
The discussion in this presentation of The Hartford’s financial performance includes
financial measures that are not derived from generally accepted accounting principles, or
GAAP. Information regarding these non-GAAP financial measures is available in the
Investor Relations section of The Hartford’s website at www.thehartford.com.
2
Strongly Positioned for the Future
The Hartford Story
•
•
•
•
•
Balanced Portfolio and Winning Strategies
Great Execution Mindset Across the Board
Market Leadership in Key Franchise Businesses
Emerging Growth Businesses
Financial Discipline, Strong Capital Position
Enterprise Goals
• Double-digit diluted operating income per-share growth
• Operating return on equity of 13% to 15%
• Capital cushion and de-levering the balance sheet
3
HIG Growth in Revenues and AUM
Total Revenues
Operating Income [1]
($ Billions)
($ Millions)
1,485
13.9
15.3
16.0
16.4
18.7
845
9.0
1999
2000
2001
2002
Please see Appendix for footnotes.
2003
961
1,078
1,185
1,022
677
11.2
YTD
YTD
June 03 June 04
1999
4
2000
2001
2002
2003
YTD
YTD
June 03 June 04
HIG Shareholder Performance
Book Value Per Share [2]
Diluted Operating EPS [1]
$31.35
$5.42
$4.28
$3.14
1997
$3.48
1998
$4.47
$4.71
$22.26
$3.71
1999
$34.54
$37.77 $36.67
$40.26
$24.68 $26.42
$3.45
2000
Please see Appendix for footnotes.
2001
2002
2003
YTD
June
04
1997 1998 1999 2000 2001 2002 2003
5
June
04
Challenging and Dynamic Environment
Competition
PC Pricing
Legislation
Terrorism
Interest Rates
Tort Reform
Reinsurance
Markets
Equity Markets
New Products
6
Capital
Requirements
The Hartford – Ready for the Future
¾
Balanced Portfolio of Businesses
¾ Market Leadership in Key Franchises
• AARP Partnership
• Variable Annuities
• Group Benefits
• Small Commercial
• Variable Life
Sources of Earnings
June YTD Operating Income [3]
P&C
54%
Life
46%
¾ Unrelenting Focus on Customers,
Distribution, and Products
¾ Financial Strength and Discipline
¾ Emerging Strengths
•
•
•
Personal Lines
Mutual Funds
Japan
Please see Appendix for footnotes.
• Select Xpand
• 401(k)
7
Commercial
50%
Consumer
50%
Protection and Asset Accumulation Businesses
June 2004 YTD Operating Income [3]
Asset
Accumulation
38%
Protection
62%
Protection Business
Asset Accumulation
P&C
• Business Insurance
• Personal Lines
• Specialty Commercial
Life
• Group Benefits
Please see Appendix for footnotes.
•
•
•
•
•
8
Individual Annuities
Other Retail Products
Individual Life
Institutional Solutions
Japan
Protection Business Premiums
June 2004 YTD Earned Premiums
Protection Business
$6.3 Billion
P&C Company
• Business Insurance
• Personal Lines
• Specialty Commercial
Life Company
• Group Benefits
GBD
28%
Business Insurance
33%
9
Specialty
12%
Personal Lines
27%
Growth Track Record
Protection Premium Growth
CAGR 1998-2003*
P&C
¾ Leverage leadership positions
for growth
Life
12.4
11.0
7.9
?
Business
Insurance
¾ Develop new products with
state-of-the-art pricing
8.1
4.0
Personal
Lines
Hartford
Key Strategies
¾ Maintain disciplined
underwriting
Group
Benefits
¾ Excel in service, technology
and distribution
Industry
¾ Selectively acquire
* P&C Industry data is from AM Best. Life Industry data is from LIMRA’s US Group Disability
& Life 2003 annual results
10
Leveraging Leadership to Select Xpand
“New” Select Customer
Customer
Revenue
$5m
Select
Customer
$35 billion market
$10m
Select
Customer
Xpand
$22 billion market
$15m
$500M
Middle Market
$47 billion market
Distinctive Business Model
¾
¾
¾
¾
Leverages our premier market position with our top agents
Specialized business owners package
Dedicated specialists
Web-based submission tool
Early Results
¾ Select Customer 2Q net written premium grew 26% over prior year
11
Product Development – Personal Lines
Dimensions
Business Model
Number of Auto Quotes
¾ Broaden underwriting capability with
sophisticated pricing
¾ Leverage our premier market position with
our commercial agencies
¾ Electronic submission for ease of doing
business
80,000
60,000
40,000
Measures of Success
¾ Agency Personal Lines 2Q net written
premium grew 21% over 2003
¾ Homeowners Dimensions now available in 25
states; Auto Dimensions in 37 states
Jul-04
May-04
Mar-04
Jan-04
Nov-03
Sep-03
Jul-03
0
May-03
20,000
12
Underwriting Discipline
P&C
Life
Business Insurance
Combined Ratio [4]
Group Benefits
Loss Ratio [5]
Catastrophe Ratio
Combined Ratio excatastrophes
101.2%
98.7%
97.0%
82.6%
82.2%
80.6%
78.5%
75.5%
95.7%
91.1%
2000
2001
Please see Appendix for footnotes.
2002
2003
2004 (6/04
YTD)
2000
13
2001
2002
2003
2004 (6/04
YTD)
Outstanding Service & Technology
P&C Company
¾ Personal Lines
•
•
First P&C Company to receive Purdue University’s “Center of Excellence” Certification
recognizing customer satisfaction and operating efficiency
Agency personal lines quote-to-issue (QTI) makes it easy to do business with The Hartford –
10,585 agents use the system
¾ Small Commercial
•
•
100% of business handled in 3 service centers with 62% of small commercial policyholders
serviced directly by the center
Enhanced state-of-the-art web submission tool aggressively being rolled out and well received
by agents
Life Company
¾ Group Benefits
•
•
8 out of 10 employers indicate Employer View® helps them manage their group benefits and
over 10,000 customers access the site
PRISM platform enhances broker service in the small business market
14
Distribution Partnerships Drive Growth
Partner with Winning
Agents
Increase Local Market
Presence
P&C
P&C
• 28 offices as of September 2004
• Up 18% from 2002
• National Client Practices
• Top 500 Program
• Hartford Partner Program
Life - GBD
Life - GBD
• National Client Practices
• 219 VIP Brokers
• 138 Field Sales Reps as of
September 2004
•Up 48% from 2002
15
Life - Asset Accumulation Businesses
June 2004
Assets Under Management
$190.8 Billion
Institutional
Solutions
25%
Japan
5%
Other Retail Products
15%
16
Individual Annuities
55%
Amount of money in savings is vast
Source: Federal Reserve Flow of funds and Merrill Lynch segmentation estimates
17
*in Billions
Demographics Will Fuel Growth
$Billions of HIG Retail Products Sales
$80.0
$70.0
$64.0
Millions of Individuals Turning 60
?
22.4
20.1
17.6
$60.0
$50.0
8.9
9.5
25
20
15
13.5
$40.0
$30.0
22.7
10.8
10
$22.4
$20.0
5
$10.0
$4.1
$0.0
0
1986-90 1991-95 1996-00 2001-05 2006-10 2011-15 2016-20 2021-25
Source: US Census Bureau
18
The Hartford has a strong reputation
76%
67%
61%
Favorable
Don't Know
30%
23%
11%
Affluent Boomers
Financial Advisers
Insurance Agents
Source: Penn, Schoen & Berland Associates
Are you very favorable, somewhat favorable, somewhat unfavorable, or very unfavorable
toward The Hartford?
19
…and a head start serving Boomers
• 2.5 million auto and home policies
• 1.7 million annuity policies in force
• 2.5 million mutual fund accounts
• 734,921 individual life policyholders
20
Leadership in Variable Annuities
YTD 6/04 Market Share of Industry VA Sales
12.72%
Hartford
9.79%
TIAA-CREF
7.36%
Met Life
7.10%
Equitable
6.89%
AIG/SunAmerica
5.62%
ING
5.41%
Pacific Life
4.93%
Lincoln National
4.80%
Prudential
Manulife
4.54%
Source: VARDS (Ranked by New Sales) YTD 3/04
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The Hartford
#1
Since 1993
Powerhouse in Distribution
YTD 6/04 Variable Annuity Sales ($ in Millions)
Regional B/D Channel ($1,296)
Bank Channel ($3,000)
1.
2.
3.
4.
5.
Hartford
Pacific Life
Equitable
Nationwide
AIG/Sun America
1.
2.
3.
4.
5.
32.1%
13.3%
7.7%
6.2%
5.0%
Wirehouse Channel ($1,163)
1.
2.
3.
4.
5.
Hartford
Equitable
Manulife
ING
Travelers
Hartford
Lincoln National
MetLife
ING
Equitable
18.3%
15.8%
14.7%
7.1%
4.9%
Independent Channel ($3,112)
16.7%
12.8%
9.7%
9.4%
8.4%
1.
2.
3.
4.
5.
Source: VARDS
22
Hartford
Prudential
Pacific Life
Manulife
ING
14.9%
9.7%
9.0%
8.5%
8.0%
New Products/Markets: $7.7B Sales June YTD
Hartford Life
Variable Annuities
Hartford Life
Variable Annuities
in Japan
$3.0 billion in sales
June YTD +133%
Hartford Life
401(k)
Hartford Life
Mutual Funds
$1.3 billion in sales
June YTD +55%
$3.4 billion in sales
June YTD +68%
23
Individual Life Positioned for Growth
Individual Life Sales
•
($millions)
•
•
$98
$76
#1 Seller of Variable Universal Life
products*
Revamped Product Portfolio
Broadened Distribution
Hartford
$196 Million
Universal Life/
Other
Brokers, Bankers
and CPAs
71%
GA and
Independent
14%
Co Owned
15%
Variable Life
•
YTD June '03
YTD June '04
*Source: (Tillinghast Value – 2004)
24
Three years of Dalbar Service
Awards
Product & Service Competitive Advantages
• Continuous Product Innovation
–
–
–
–
August 2002: Principal First Rider
May 2004: Quantum Life and TIPS Mutual Fund
June 2004: Mutual Fund “Fund of Funds”
3rd Quarter: Japan Fixed Annuity
• Service Excellence
– Eight consecutive annuity DALBAR Awards
– Three Individual Life DALBAR Awards for outstanding service
• Economies of Scale
– Second Quarter 2004 individual annuity expense ratio is 18.3 basis points
25
8
$130
AGR
C
%
$137
$143
26
$ in Billions
%
Asset Accumulation Businesses AUM
$176
$191
$151
Japan
Institutional Solutions
$135
Mutual Funds/401(k)
Individual Annuity
1999
2000
2001
2002
2003
2Q 03
26
2Q 04
Strongly Positioned for the Future
The Hartford Story
•
•
•
•
•
Balanced Portfolio and Winning Strategies
Great Execution Mindset Across the Board
Market Leadership in Key Franchise Businesses
Emerging Growth Businesses
Financial Discipline, Strong Capital Position
Enterprise Goals
• Double-digit diluted operating income per-share growth
• Operating return on equity of 13% to 15%
• Capital cushion and de-levering the balance sheet
27
APPENDIX
[1]
In order to provide a consistent basis of comparison, this excludes the impact of realized
gains and losses, goodwill amortization of $1, $5,$8, $25, and $52 for 1997-2001, equity
gain on HLI initial public offering of $368 in 1997, tax benefits of $26, $130, $76 and $30
for 2000-2003, September 11, 2001 terrorist attack and restructuring charge of $440 and
$11 in 2001, Bancorp Services litigation charges of $11 and $40 in 2002 and 2003, the
asbestos reserve addition of $1,701 and severance charges of $27 in 2003 and the change
in reinsurance ceded, net of $118 in 2004.
[2]
Excludes accumulated other comprehensive income.
[3]
Excludes the 2004 change in reinsurance ceded, net of $118.
[4]
2001 excludes WTC and 2004 excludes the effect of the first quarter reserve actions.
[5]
Group Benefits total loss ratio excluding buyouts.
28
29