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Press Release: The Hartford Announces Fourth -7-

· 02/04/2021 16:15
Three Months Ended Twelve Months Ended ---------------------- ----------------------- Dec 31 Dec 31 Dec 31 Dec 31 2020 2019 Change 2020 2019 Change --------------------------- ------ ------ ------ ------- ------ ------ PER SHARE DATA Diluted earnings per common share: Net income available to common stockholders per share(1) $1.47 $1.49 (1)% $4.76 $5.66 (16)% --------------------------- ------ ------ ------ ------- ------ ------ Adjustment made to reconcile net income available to common stockholders per share to core earnings per share Net realized capital losses (gains), excluded from core earnings, before tax (0.28) (0.17) (65)% 0.05 (1.07) NM Loss on reinsurance transactions, before tax -- -- --% -- 0.25 (100)% Restructuring and other costs, before tax 0.05 -- 100% 0.29 -- NM Loss on extinguishment of debt, before tax -- -- --% -- 0.25 (100)% Integration and transaction costs associated with an acquired business, before tax 0.03 0.06 (50)% 0.14 0.25 (44)% Change in deferred gain on retroactive reinsurance, before tax 0.59 0.04 NM 0.87 0.04 NM Change in loss reserves upon acquisition of a business, before tax -- -- --% -- 0.27 (100)% Income tax expense (benefit) on items excluded from core earnings (0.10) 0.01 NM (0.33) -- NM --------------------------- ------ ------ ------ ------- ------ ------ Core earnings per diluted share $1.76 $1.43 23% $5.78 $5.65 2% --------------------------- ------ ------ ------ ------- ------ ------Three Months Ended Twelve Months Ended ---------------------- ----------------------- Dec 31 Dec 31 Dec 31 Dec 31 Margin 2020 2019 Change 2020 2019 Change ----------------------------- ------ ------ ------ ------- ------ ------ Net income margin 3.9% 10.5% (6.6) 6.4% 8.8% (2.4) Adjustments to reconcile net income margin to core earnings margin Net realized capital losses (gains) excluded from core earnings, before tax (1.1)% (0.5)% (0.6) (0.4)% (0.5)% 0.1 Integration and transaction costs associated with acquired business, before tax 0.2% 0.5% (0.3) 0.3% 0.6% (0.3) Income tax expense 0.3% 0.1% 0.2 --% --% -- Impact of excluding buyouts from denominator of core earnings margin --% --% -- 0.1% --% 0.1 ----------------------------- ------ ------ ------ ------- ------ ------ Core earnings margin 3.3% 10.6% (7.3) 6.4% 8.9% (2.5) ----------------------------- ------ ------ ------ ------- ------ -------- Change in loss reserves upon acquisition of a business - These changes in loss reserves are excluded from core earnings because such changes could obscure the ability to compare results in periods after the acquisition to results of periods prior to the acquisition. -- Deferred gain resulting from retroactive reinsurance and subsequent changes in the deferred gain - Retroactive reinsurance agreements economically transfer risk to the reinsurers and including the full benefit from retroactive reinsurance in core earnings provides greater insight into the economics of the business. -- Change in valuation allowance on deferred taxes related to non-core components of pre-tax income - These changes in valuation allowances are excluded from core earnings because they relate to non-core components of pre-tax income, such as tax attributes like capital loss carryforwards. -- Results of discontinued operations - These results are excluded from core earnings for businesses sold or held for sale because such results could obscure the ability to compare period over period results for our ongoing businesses.

In addition to the above components of net income available to common stockholders that are excluded from core earnings, preferred stock dividends declared, which are excluded from net income available to common stockholders, are included in the determination of core earnings. Preferred stock dividends are a cost of financing more akin to interest expense on debt and are expected to be a recurring expense as long as the preferred stock is outstanding.

Net income (loss) and net income (loss) available to common stockholders are the most directly comparable U.S. GAAP measures to core earnings. Core earnings should not be considered as a substitute for net income (loss) or net income (loss) available to common stockholders and does not reflect the overall profitability of the Company's business. Therefore, The Hartford believes that it is useful for investors to evaluate net income (loss), net income (loss) available to common stockholders, and core earnings when reviewing the Company's performance.

A reconciliation of net income (loss) to core earnings for the quarterly periods and twelve-months ended Dec. 31, 2020 and 2019, is included in this press release. A reconciliation of net income (loss) to core earnings for individual reporting segments can be found in this press release under the heading "The Hartford Financial Services Group, Inc. Consolidating Income Statements" and in The Hartford's Investor Financial Supplement for the quarter ended Dec. 31, 2020.

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, calculated by dividing net income by revenues, 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) as well as other items excluded in the calculation of core earnings. 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 quarterly periods and twelve-months ended Dec. 31, 2020 and 2019, is set forth below.

Core earnings per diluted share - This non-GAAP per share measure is calculated using the non-GAAP financial measure core earnings rather than the GAAP measure net income. The Company believes that 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) available to common stockholders per diluted common share is the most directly comparable GAAP measures. Core earnings per diluted share should not be considered as a substitute for net income (loss) available to common stockholders per diluted common share and does not reflect the overall profitability of the Company's business. Therefore, the Company believes that it is useful for investors to evaluate net income (loss) available to common stockholders per diluted common share and core earnings per diluted share when reviewing the Company's performance. A reconciliation of net income (loss) available to common stockholders per diluted common share to core earnings per diluted share for the quarterly periods and twelve-months ended Dec. 31, 2020 and 2019 is provided in the table below.

[1] Net income (loss) available to common stockholders includes dilutive potential common shares

Core Earnings Return on Equity - The Company provides different measures of the return on stockholders' equity (ROE). Core earnings ROE is calculated based on non-GAAP financial measures. Core earnings ROE is calculated by dividing (a) the non-GAAP measure core earnings for the prior four fiscal quarters by (b) the non-GAAP measure average common stockholders' equity, excluding AOCI. Net income ROE is the most directly comparable U.S. GAAP measure. The Company excludes AOCI in the calculation of core earnings ROE 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 measure for the reasons set forth in the core earnings definition.

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February 04, 2021 16:15 ET (21:15 GMT)