4Q21 Webcast Transcript

Contents

Table of Contents

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ4 2021 EARNINGS CALL FEB 04, 2022

Call Participants

EXECUTIVES

Beth A. Costello

Executive VP & CFO

Christopher Jerome Swift

Chairman & CEO

Douglas Graham Elliot

President

Susan Spivak Bernstein

Senior Investor Relations Officer

ANALYSTS

Andrew Scott Kligerman

Crédit Suisse AG, Research Division

Charles Gregory Peters

Raymond James & Associates, Inc.,

Research Division

Elyse Beth Greenspan

Wells Fargo Securities, LLC, Research

Division

Gary Kent Ransom

Dowling & Partners Securities, LLC

Joshua David Shanker

BofA Securities, Research Division

Michael David Zaremski

Wolfe Research, LLC

Tracy Dolin-Benguigui

Barclays Bank PLC, Research Division

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ4 2021 EARNINGS CALL FEB 04, 2022

Presentation

Operator

Good morning, and welcome to the Fourth Quarter 2021 The Hartford Earnings Webcast. [Operator Instructions] Please note, this event is being recorded.

I would now like to tuthe conference over to Susan Spivak, Senior Vice President, Investor Relations. Please go ahead.

Susan Spivak Bernstein

Senior Investor Relations Officer

Thank you, Andrew. Good morning and thank you for joining us today for our call and webcast on fourth quarter 2021 earnings. Yesterday, we reported results and posted all of the earnings-related materials on our website.

For the call today, in order of speakers will be Chris Swift, Chairman and CEO of The Hartford; Beth Costello, Chief Financial Officer; and Doug Elliot, President. Following their prepared remarks, we will have a Q&A period.

A few final comments before Chris begins. Today's call includes forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance, and actual results could materially differ. We do not assume any obligation to update information or forward-looking statements provided on this call. Investors should also consider the risks and uncertainties that could cause actual results to differ from these statements. A detailed description of those risks and uncertainties can be found in our SEC filings.

Our commentary today include non-GAAP financial measures. Explanations and reconciliations of these measures to the comparable GAAP measure are included in our SEC filings as well as in the news release and financial supplement.

Finally, please note that no portion of this conference call may be reproduced or rebroadcast in any form without The Hartford's prior written consent. Replays of this webcast and an official transcript will be available on The Hartford's website for 1 year.

I'll now tuthe call over to Chris.

Christopher Jerome Swift

Chairman & CEO

Good morning, and thank you for joining us today. In 2021, The Hartford delivered strong financial performance across the organization as we continue to execute on our strategy and realize the growing benefits of investing in our businesses. At our Investor Day in November, we shared our road map for maximizing shareholder value and demonstrated how we are executing in a more consistent and sustainable way. Our targeted priorities will continue to produce results that drive profitable growth, enable market-leading ROEs and deliver consistent capital generation while at the same time sustaining our top-quartile ESG performance.

As evidence of our ability to drive profitable growth, core earnings were up 10% in the fourth quarter to $697 million, and full year core earnings grew to $2.2 billion. Book value per diluted share, excluding AOCI, was up 8% from year-end 2020. And the core earnings ROE of 12.7% for the second consecutive year.

During the quarter, we also returned $620 million to shareholders through share repurchases and common dividends, bringing total capital retufor 2021 to $2.2 billion. These strong results are the product of an extremely attractive portfolio of businesses and target investments over the last several years to generate strong, sustainable cash flow. Going forward, we will continue to prioritize investments for future organic growth, along with dividends and share repurchases, in our capital allocation decisions.

The Hartford's businesses have distinct advantages of their own and complement each other extremely well, sharing deep underwriting and risk management expertise, tools, insights and distribution. Across the portfolio of businesses, we will continue to invest in claims, analytics, data science and digital capabilities to ensure superior performance. All the businesses possess exceptional talent that fully embrace The Hartford's winning behaviors and passion for execution.

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THE HARTFORD FINANCIAL SERVICES GROUP, INC. FQ4 2021 EARNINGS CALL FEB 04, 2022

I am incredibly proud of the resiliency demonstrated by our team, especially over the last 2 years. This speaks to our character, focus on continuous improvement and commitment to all our stakeholders.

Let's now tuto highlights from the quarter, which illustrate how our business strategy translates into financial performance. In Commercial Lines, the positive momentum continued with stellar margins in double-digit top line growth, reflecting higher new business levels, continued strong retention and solid renewal price increases. Looking ahead to 2022, we expect strong growth and earned pricing to continue to exceed loss cost trends in most lines, resulting in further margin improvement.

Personal Lines delivered solid operating performance in a dynamic market environment. I am pleased with the progress being made as we advance the rollout of our new Prevail product and platform that provides a more contemporary experience to our unique AARP customers in the 50-plus age segment. We are closely watching the impact of inflation on loss costs and responding with underwriting and pricing actions. We anticipate slightly higher underlying combined ratio in 2022.

Turning to Group Benefits. Earnings continued to be impacted by the ongoing pandemic with elevated life and disability claims. Despite pandemic headwinds, performance across Group Benefits remained solid and key business metrics demonstrate our market leadership position. Fully insured ongoing premium was up 5% in the quarter, reflecting increased sales as well as growth in new premium from existing customers. Persistency was above 90% and increased 1 point over prior year.

In 2021, our sales growth benefited from the initial expansion of paid family medical leave in several states. Adjusting for that onetime lift, we are off to a good start with January '22 sales being on par with prior year. For the full year, we are expecting premium growth in the 2% range compared to 2021.

Within our long-term disability book, claim recoveries remain strong. Claim incidents and short-term disability is highly elevated due to COVID, while long-term disability incidence rates have shown modest signs of increases as we have been experiencing and, in turn, will be incorporated into future pricing assumptions.

The Omicron variant has driven the most recent surge in cases. Initial effects of Omicron are more impactful for short-term disability, but the lag between infection and in death makes it challenging to predict future mortality. Estimates of expected cases vary widely as do perspectives on the final resolution of COVID as an endemic virus.

For 2022, we are estimating between $125 million and $225 million of pretax losses due to the broad effects of the pandemic, including short-term disability and excess mortality, which we expect to impact results primarily in the first part of the year. Our excess mortality estimates are based on the best data we can gather regarding COVID trends and reflect our optimism for the remainder of the year. This optimism is principally due to the population continuing to get boosted and the Omicron being less lethal. In addition, as advanced therapeutics make their way to the market and into the hands of the medical community, there is an expectation of fewer deaths for those who contract the virus.

Though uncertainty remains, I am encouraged as we progress through 2022 the pandemic will shift to a regional endemic state with more treatment options available. Excluding any pandemic-related effects for both life and disability, we expect the core earnings margins to be between 6% and 7%, consistent with our long-term margin outlook for this business.

Turning to the macroeconomic environment for 2022. I am optimistic the business environment will be one in which The Hartford will prosper. We expect that consumer capacity to spend will remain strong, which will drive economic growth. The U.S. unemployment rate has fallen to 3.9% and is likely to fall below pre-pandemic levels of 3.5% by year-end, and we are seeing signs of increases to workforce participation.

In 2022, we expect inflation to be challenging in the first half of the year. However, as supply chains gradually improve, consumption transitions from goods to services and interest rates rise, we believe core inflation in the second half of the year will decline to the 3% range. Lower unemployment and mid-single-digit GDP growth is supportive of our employment- centric workers' compensation and Group Benefits businesses. An expanding economy is also a catalyst for growth across Commercial Lines, particularly in Small Commercial with higher new business formation.

While monetary policy normalization may lead to volatility in the capital markets, our well-diversified and high-quality investment portfolio is constructed to withstand this market dynamic. With a favorable macroeconomic backdrop, profitable growth, expanding margins in P&C and Group Benefits and proactive capital management, we are well

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