Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to The Hartford's Fourth Quarter 2016 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Sabra Purtill, Head of Investor Relations, you may begin your conference.

Good morning and welcome to The Hartford's webcast for fourth quarter 2016 financial results. The news release, investor financial supplement and slides for this quarter were all posted on our website yesterday. Please note that we will file our 10-K on February 24. Our speakers today include Chris Swift, Chairman and CEO of The Hartford; Doug Elliot, President; and Beth Bombara, CFO. Following their prepared remarks, we will have about 30 minutes for Q&A. Just a few 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 be materially different. We do not assume any obligation to update information or forward-looking statements provided on this call. Investors should 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, which are available on our website. Our presentation today also includes 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 rebroadcasted 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 at least one year. I will now turn the call over to Chris.

Thanks Sabra, good morning everyone and thank you for joining us today. Hartford delivered strong results in commercial lines and group benefits despite sustain competition this quarter, while personal auto performance remains under pressure from loss cost trends. Doug will cover P&C and Group benefit results in a few minutes. And I wanted to highlight notable 2016 accomplishments that demonstrate the Hartford’s underwriting discipline, effective execution and fundamental strengths of our platform. Commercial Lines delivered an exceptionally strong underlying combined ratio of 89.4 for the full year. The performance reflects the Hartford’s best-in-class operating capabilities, strong market positions and disciplined underwriting. During the year, we also made progress on our strategy to broaden our risk appetite including entry into the E&S space with the acquisition of Maxum, expanded multinational capabilities through our partnership with AXA and the launch of a dedicated energy practice. Group Benefits delivered very good results for the full year, with the core earnings margin of 5.7%. We generated profitable growth in this segment reflecting strong sales, persistency and an improved loss ratio. We continue to execute on our Group Benefits growth strategy, enhancing the products suite with the addition of dental and vision for the small case market in new voluntary offerings. At Talcott, we continue to effectively and efficiently manage the runoff of the annuity blocks. Over the past two year, Talcott has returned $1.75 billion of capital to the holding company and we expect an additional $600 million in 2017. During 2016, we also addressed our legacy P&C exposures, which over the past few years has generated substantial adverse development. In July, we agreed to sell the runoff UK subsidiaries to Catalina, which we expect to close in the next few months. And at year-end, we reinsured the remaining legacy U.S. A&E liabilities to…

Thank you, Chris and good morning, everyone. We had an excellent 2016 in Commercial Lines and Group Benefits, particularly in light of the growing competitive dynamics we’ve seen in these markets. Before I share details on our commercial businesses, let me get right into Personal Lines, where I only can describe 2016 auto loss trends as challenging and our financial performance as disappointing. For the fourth quarter, we posted a Personal Lines core loss of $17 million, cat losses for the quarter were $28 million, $7 million higher than in 2015. The underlying combined ratio which excludes catastrophes and prior year development was 101.8, deteriorating 8.3 points from last year. This is primarily due to higher auto loss costs, partially offset by lower expenses. In homeowners the underlying combined ratio for the fourth quarter of 74.7, deteriorated 2.3 points versus last year. The fourth quarter of 2015 experienced very favorable results compared to our longer term average. Overall our homeowners performance remains very solid and we continue to effectively manage rate needs and underwriting execution. In Personal Lines auto, we continue to see higher than expected overall loss cost trends. On the positive side, our current estimate of the change in frequency for the second and third quarters of 2016 has moderated versus our estimates 90 days ago. The change in bodily injury severity on the other hand has increased and continues to be an area of intense focus affecting both current and prior accident years. We recorded $20 million of prior year development in auto liability, primarily related to accident year 2015. We also increased the accident year 2016 loss ratio by approximately 2.5 points. Throughout the year we have been executing on substantial rate underwriting, agency management and new business actions. We have provided a new exhibit in…

Thank you, Doug. I'm going to cover the other segments our investment performance and update you on our capital management plans. Mutual Funds core earnings totaled $17 million this year down from $20 million in the fourth quarter of 2015, principally due to transaction expenses for the acquisition of Lattice and the adoption of Schroders U.S. mutual funds. Asset management fees rose about 3% from the prior year due to higher average daily AUM. Although the growth in fees continues to be impacted in part by the shift to lower fee mutual funds. Total AUM increased 6% including the impact of both market appreciation and almost $3 billion from the Schroders funds. Talcott continues to perform well, core earnings were $111 million, up strongly from $83 million in the fourth quarter of 2015 due to higher returns on limited partnerships and a $14 million tax benefit from a prior year federal tax audit. Aside from these items Talcott’s core earnings declined due to lower variable annuity fee income driven by the run-off of the book. During 2016 VA contract count decreased by 10%, which we expect will drive a similar rate of increase in Talcott’s 2017 core earnings excluding the favorable items in 2016. In the slides posted to our website last night we also provided our annual update of Talcott statutory capital allocation by product. The capital allocation has not changed materially since last year, consistent with prior year's significant portion of Talcott capital supports our institutional and individual fixed annuity blocks. At year-end statutory surplus totaled $4.4 billion and the capital allocation shows expected 2017 dividends of $600 million, $300 million of which we received in January. We also provided an update on capital margins in base stress and favorable scenarios. Our analysis of Talcott’s capital adequacy remains…

Thank you, Beth. Elisa, I’ll ask you to give the instructions for Q&A in just a second, but for in the meantime I just wanted to note that for those of you who are interested in catching up with us in person, Beth will be attending the Credit Suisse Conference in Miami on Tuesday next week and Chris will be in Boston at a lunch hosted by Deutsche Bank on Wednesday February 8th. In addition Chris, Doug and Beth will be at the Bank of America Merrill Lynch conference in New York on February 15th, holding a fireside chat as well as some small group meetings. And then finally, I would note that Doug will be on the Commercial Lines panel at [indiscernible] in early March this year. We hope to see all of you, at one or more of those events. Elisa, could you give the directions again.

[Operator Instructions] Our first question comes from the line of Ryan Tunis from Credit Suisse. Your line is open.

Hey thanks, good morning. I had one question and then John Nadel had a follow-up. But I guess just looking at the guidance in P&C commercial, I guess this year on an underlying basis, combined ratio is 89 for -- and the midpoint of the guide you are giving implies a decent amount of deterioration after that and I realize that this year you had some favorable items with property, workers comp, but it also seems like rate worked against you, you’ve also talked about commercial auto. So it seems like there is some headwinds as well. So just trying to square, the type of scenarios that will potentially get you up towards that midpoint or above that, because I guess that just seems like a decent amount of volatility off of this year’s results? Thanks.

Ryan it’s Chris. Thanks. I’ll ask Doug to add his color too, but I would just ask you to consider just macro trends in general. The pricing environment has been soft and our views are its going to continue to soften into ‘17. So rates are coming down, pricing is not you know keeping up in aggregate what we believe are long-term loss cost trends. Capital is abundant in the industry and there is many competitors both in the traditional markets and those that are coming from offshore to compete in our market. So you put it all together and that’s our view of the environment. We’re going to work our tail off to maintain those margins, but at this point and knowing our customer embrace so well we want to retain as much as our business as we can and if there is some give that we need to give on price to retain that we’ll consider that. So we want to retain our best customers and we know that the price environment is very dynamic. So Doug what would you add from a color perspective?

Sure, Ryan the first thing I would say is that very pleased about 2016, pleased about the trends that we’ve been to work on with our claim department and our pricing actions, very pleased about middle market as I lean into 2017 don’t expect all those trends to continue. So as I think about what’s in front of us with workers compensation we’re still thinking that our medical trends long-term are in the 6% range and indemnity 3% to 4%. As I look at that line which matters a great deal for our company because we’re slightly overweight in comp with our expertise, it’s a line right now that is feeling some degree of pressure on the pricing side in the marketplace. So that is one of the things I think about, clearly we’re at work on commercial auto and expect progress there and expect to improve results, but we’re feeling a little bit of pressure on the general liability area across the book. And so as we planned into 2017 we try to be prudent with our loss assumptions, fair and thoughtful about what we’re doing with the pricing. I just feel a bit of pressure that yes we were able to withstand in 2016 and hope to do that again. We’d love to repeat that performance in ‘17 I know that’s our goal, but also want to be reasonable in our expectation.

So this is John, Chris there is increasing chatter about a potential sale of Talcott over the -- that chatter has been increasing over the past several months. I wouldn’t ask you to comment on that, but I am interested in what your preference is for use of proceeds if you assume the transaction were to occur, should we expect you to focus on trying to replace those lost earnings contribution via acquisitions or should we expect that you’ll continue to focus more on returning freed up capital to shareholders via incremental buybacks and debt management?

Thanks for not asking about Talcott directly. I think the point in time where we’re at right now John is we’ve done a lot particularly you saw with the legacy P&C liabilities this year, so Talcott contributes as it does today. We talk about managing the risk effectively and returning capital and we’re personally comfortable doing that, but hypothetically how we think about any capital that would be freed up. First we would focus on right sizing debt-to-equity ratios. And then we would think in terms of how do we replace those earnings via growth strategies both those that we can control from an organic side and then acquisition side, so that would be a high priority. I think we’ve been talking about that for at least the last 9 to 12 months as far as the priority of our capital. So yes I would prioritize growth in earnings over just share buybacks at that point.

Appreciate that. Thank you.

Our next question comes from the line of Jay Gelb from Barclays. Your line is open.

Thank you and good morning. I just wanted to level set for Talcott, I believe you said earnings will be down for Talcott 10% in 2017 adjusting for unusual items in 2016. So what’s the baseline you’re using for 2016?

Yes so if you look at our results over the last 12 months we have benefited from partnership return sort of an access of our plan and some of these one-time items. So if you adjust for that and take -- think about a 10% reduction in sort of run rate of Talcott. I think you’ll see that you’ll kind of get in that $300 million range for 2017.

That’s helpful, thanks Beth. And basically in line with what we were expecting. The other question I had a little more broadly on the return on equity profile. Based on all the puts and takes you're expecting for 2017 and you've already known about the pace of share buybacks $1.3 billion. Where do you think that roughly puts you for return on equity in 2017?

Jay it's Chris well I appreciate the call or the question on the call here. So if I look at and we've trying to talk to our key ROE metric is ex- Talcott, I think everyone knows there is a number of trap capital in Talcott. So if I look at where we ended ‘16 at 8.9 on a trailing 12 month basis. I think if we perform to the plan that we outlined and the metrics that we gave you that could be up 200 basis points especially without A&E charge in '17.

That's great. Thank you.

Our next question comes from the line of Thomas Gallagher for Evercore ISI. Your line is open.

Good morning. Chris I will ask a direct question on Talcott, just from an M&A standpoint, can you comment on where you would see kind of bid-ask spreads right now. I think from I've heard from you guys before there were some challenges related to the VA part considering regulatory developments and some tax questions. But as you guys show majority of capital is not back into VA part it's backing to general account part. So I assume the environment has gotten a lot better from an M&A standpoint, but just curious what you’re thinking there?

Appreciate the direct question. And look we're not going to speculate on what we may or may not do. I think Beth and I've been consistent in talking in terms of risk is managed well. We have been taking excess capital out and plan to as you saw in '17. And if there are counter parties out there we'll continue to work hard to find parties that are interested in buying two legal entities that have both variable and fixed annuities both deferred and payout in them. And you can't just point to one block of business and exclude the other because just give the legal entity nature. And we're at the point in our cycle right now where simple reinsurance transactions really don't accomplish our mission Tom. So you put all that together and I’ll let you conclude. Rising rates help, robust equity markets growth prospects for the future. So I'm actually bullish on our economic outlook in general which I think bodes well for these types of liability structures going forward.

Okay, appreciate that. And then just a question on the NICO deal, the $650 million of premium. I just want to understand would that -- did you transfer long-term bonds or was that cash. And can you comment roughly what the lost yield would have been for you on that transaction?

Yes so currently we transferred cash, but obviously when you think about taking $650 million of cash out of the system that comes with thinking about liquidating other assets. So we provided I believe in our press release when we announced the transaction that we'd expect some decrease in that investment income coming from there to be modest. And that's all contemplated in the guidance that we've given relative to P&C net investment income for next year.

But Beth I guess my question was, I assume there was a long duration portfolio backing that line. And would those associated bonds the ones that were sold. So was there a disproportionate loss of yield or was it not that big of a yield?

Yes I wouldn't think about it at that way. Again to some extent yes there was -- there is assets backing that portfolio. But when we look to manage the portfolio on a P&C side it's a little bit probably more fungible than you probably think of on a life side. And so net-net we took all that into consideration and looking at what we're anticipating for the net investment income for P&C next year including some of the modest declines that we see in overall yield, but I wouldn’t point to that as a significant driver of a decrease in P&C yield.

Okay, thanks.

Our next question comes from the line of Brian Meredith from UBS. Your line is open.

Yes thanks a couple of questions here. First, Dough I just wanted to dive back into the Commercial Lines guidance a little bit here and the question I guess I have is how different is your kind of trend assumption that you’re thinking about for ‘17 today versus when you were going into ‘16 and providing guidance. So are you still kind of thinking long-term trend or if things kind of deteriorated are you seeing that deterioration happening, which makes you more concerned about what’s happening in ‘17 from a trend perspective?

Fair question Brian, I would say in the comp area pretty consistent. Our view of go forward versus what we’re experiencing very consistent. Auto, the severity in our commercial auto book we’ve got higher expectations of lost trend in ‘17 than we did in ‘16, absolutely. And in GL, slightly higher as well. So nothing radically different, but we’re feeling a little bit pressure across the liability book. We’re on it, we’re pricing for it, but we also see the market and the competitive dynamics around us. I think we just wanted to pick a prudent path.

Got you appreciate that. And then my second question is looking at the benefits business I know that you all had some initiatives to develop products and stuff basically to kind of cater to the ACA believe it was supplemental products. Has your thoughts on that changed now that there could potentially be repealed that or changes to that and kind of where you’re thinking on that?

Brian it’s Chris. Generally no, I mean those supplemental products as you said had some strict definitions around of it given ACA. So if ACA gets repealed a little bit you have to watch to see the impact on the supplementary market, but we would not be interested in getting into any I’ll call it mini medical plans or things along those lines. We think the nature of these products the more we market them, more we educate our customer base on them. We’ll fit the needs with or without major ACA refinement.

Great.

Brian the only thing I would add is that clearly last three years major focus on getting our voluntary suite up to par and where it needs to be. Secondly, and Chris I think has talked about this in the past we are leaning into A&H [ph] over the next year or so. We’ve had an A&H product out there, we looked at it. We think it needs some retooling we’re working on that now, and I think more to talk about as we move through 2017.

Thank you.

Our next question comes from the line of Meyer Shields from KBW. Your line is open.

Great thanks. If I can just jump up on Brian’s question, do your 2017 auto spend expectations are those in line with what you saw in the fourth quarter of 2016?

They are Meyer.

Okay. So that means you’re not expecting further acceleration going forward?

No but we are, similarly to first lines we do see this world in terms of the new norm. So we’re expecting some of the pressure that we’re feeling and have felt in 2016 to continue into ‘17 and we’re making those types of choice in our trend assumptions both on personal lines and also on commercial. The difference in personal lines is that as you know we’ve talked about a number of initiatives, we think we can bend the loss trend curve, based on the initiatives that we’ve enumerated and we’re working hard to do that, that’s how we’re going to make progress against that stated goal because we’ve got some work to do to get our auto loss ratio, auto combined ratios into those 96, 96.5 category.

Okay, that’s helpful. Two quick questions on the commercial side, one it looks like mall commercial pricing improved a little bit from the third quarter to the fourth quarter, I was hoping you could talk about that? And also maybe some more detail on the new entrance, I guess I'm a little more surprised that there are new entrance into the standard commercial lines rather than specialty.

Yes we take them one-by-one. We’re clearly leaning into auto and our package liability business and you’re seeing that in the marketplace. So we are looking for more rate in Q4 and we’re looking for little bit more rate in Q1 of 2017. So there’s an escalation based on the pressures we’re feeling with loss trend. That’s driving what’s happening in small commercial. And relative to new entrance, fourth quarter was pretty much a normal quarter for us. So, yes there are new names they are coming at small from different directions. I don’t think there is anything different in our results that was impacted by any of those names and we’ll continue to respect and watch and think about our strategy going forward. But I feel very good about where our small commercial business is operating and pleased that we are leaning in relative to building new product and some of tools that we’re rolling out for customers in the coming quarters.

Okay, thank you very much.

Our next question comes from the line of Jay Cohen from Bank of America Merrill Lynch. Your line is open.

Thanks. Just have couple of questions for Doug. First on the commercial side specifically in the small and mid-fourth quarter accident year loss ratio is going to the best you saw all year that was a very good trend as the year progressed, the fourth quarter being very good. Was there anything helping for that low level of non-cat whether or were you adjusting kind of the full year loss ratios in the fourth quarter?

There isn’t anything that sticks out in my mind Jay, obviously when we get to year-end we want to make sure and do our best job in making sure the accident year full year is where it needs to be. In general fourth quarter weather is slightly better non-cat so there is a little bit of a positive bias on our property side both small and middle. And we experienced some of that in the fourth quarter, obviously December is the month that triggers where we have a good property quarter or not in fourth quarter. But there isn’t anything to speak about that I think I would raise that level.

Okay, great. Second question, on the auto side, I guess it could be argue that size and scale are increasingly important in auto insurance and likely will be going forward you’re shrinking this business obviously due to profitability issues, do you get concerned that by shrinking the business you’re losing out on the scale that you might need in the future to keep very effectively?

Jay, it’s Chris, I would say we are taking the corrective actions necessary to improve our profitability and that will obviously require some top-line shrinkage. I think we focus primarily on the older age market, we think we have a niche that we’ve understood for a number of years, our relationship with ARP is deep and very strategic for us and trusted. So, I don’t think scale in it by itself in that market is required if we were ever to think in terms of more of a mass market strategy then I would say scale and how we would think about it differently but we are not thinking about that. So, I think we have the appropriate underwriting skills the appropriate insights into that call a customer segment and I think we have the appropriate claim skills embedded in the organization across the country to effectively manage it. We’re in a rough spot now no doubt, but we are not giving up and it continues to be a strategic niche for us going forward.

Great, that actually makes sense. Thanks Chris.

Our next question comes from the line of Elyse Greenspan from Wells Fargo. Your line is open.

Hi, good morning. Just a couple of questions on the personal auto side, we were putting together some of your comments it seems like when you came to your outlook you are assuming we are going to maintain the high BI [ph] severity trends so I’m assuming kind of to start ‘17 is basically the trends that you ended ‘16 with. Just kind of confirming that. And then as you think about the components to get to your margin goal are you assuming that there is some improvements both from the loss as well as earnings through some of the expense initiatives, additional expense initiatives next year? And then as we think a little bit further out you think is 2018 when you see obviously you pointed taking more rates that will return to profitably in the auto book as you think about going out a little bit further than ‘17?

Please let me try to tackle the pieces that all add up to obviously our overall performance. So on the pricing side we’ve given you pretty clear inside into the progress we are making and just a few moments ago I also gave you a little bit lens into 2017 and the fact that our written pricing will go up over the next couple of quarter. So as that earns its way into the book we are getting a positive contributor to our progress against targets. At the core of your question relative to loss trends we are expecting from a gross perspective our loss trends in ‘17 to be about where they are in ‘16. So as we think about our data our expectation for the accident year ‘16 is that our loss trend total frequency and severity put together is in that fixed range 5.5 to 6 and that's essentially where we are planning for our gross trend in ‘17. What’s different about ‘17 is now the number of initiatives that we’ve been working and putting into market over the past four to five quarters, we expect some traction and we’re beginning to see that traction. So, we’re expecting several points of improvement against that loss trend and the combination of earned rate working through and a bending of the loss trend curve drives our expectation of improvement in performance both in ‘17 and candidly accelerating into ‘18 as well.

Okay. And then there is -- when you think about that so do you think you also get some level of expense improvement in ‘17 when you come to your guidance or it’s more driven off of improvement on the loss ratio side of the auto book?

The core of our changes in the loss arena, I think our expenses we’ve manage our expenses according I don’t see a lot there in fact two and three and four quarters and I expect to be in a very different rate adequacy spot and we’ve got places around the country where we’re feeling much better today that we are pricing for the norms of the exposures in loss trend and I think you’ll see us begin to be more aggressive and thoughtful in our growth aspect.

Okay, thank you very much.

Our next question comes from the line of Mark Dwelle from RBC Capital Markets. Your line is open.

Good morning. I wanted to ask a question related to the asbestos [ph] transaction. I mean is there anything left there at all or maybe sit differently when you do your A&E study next summer, is there anything that can produce the change to reserves that will impact result either positively or negatively?

So I’ll take it, it’s Beth. So couple of things one, just to be clear and this will be in our 10-K we intend to do our A&E studies in the fourth quarter going forward just given the transaction that we did. If we don’t anticipate it to be on a significant obviously. As it relates to our exposure that's left as it relates to A&E again this Treaty covers substantially all of the A&E exposure that we have remained once we complete the sale of our UK subsidiary. The one thing though that we did retain as part of the transaction is to the extent that there is any uncollectable reinsurance that comes from our A&E exposures we would still bear that risk. So, that has not been a significant driver of our A&E reserve increases over the last couple of years, but that is one aspect of it that we did retain.

Mark, it’s Chris, the only thing I would add is as you know asbestos language and policy forms changed in 85 for an absolute exclusion. There is some post 85 reserves that we had that we also seeded. So I think in terms of pre and post 85 A&E reserves are part of this cover.

Okay, that's helpful. Thank you. And then in your comments remain related to the group benefits you mentioned the $30 million charge related to Pen Treaty maybe I missed it in the early remarks did you specify when that would be taken or any timing on that?

So again that's going to be based on facts and circumstances, the charge we will incur once the assessment is made and liquidation again. We think that could be first quarter, but it’s really outside of our control and we can’t -- we won’t book the amount until there has been a declaration.

Got it, thank you. That's all my questions.

We have no further questions in queue. I turn the call back over to the presenters.

Thank you, Lisa, and thank you all for joining us today and for your interest in the Hartford. If you have additional questions, please don't hesitate to follow-up with Investor Relations by email or phone and we’ll get back to as quickly as possible. And as I mentioned we hope to see you all soon at one of the event we’ll be attending. Thank you and we wish you good weekend.

This concludes today’s conference call. You may now disconnect.