hig by iBCAxiom


									                                                                                         Company Report
                                                                                         February 4, 2013

  Hartford Financial Services Group                                                      Buy
  Thesis Intact Post Review of 4Q12 Results and '13 Outlook;                             HIG
  The Macros Keep Working; No Change to '13/'14 Estimates                                Price: Close $24.70
  Our Call                                                                               Price Target $30.00
  We view 4Q12 results and 2013 outlook as largely in line. While the total amount of
  capital deployment is as expected, the mix is weighted more toward debt reduction
                                                                                         Life Insurance
  than buybacks, though we still see upside to the latter over time, especially as the
  pace of VA run-off remains elevated. We expect 2013 consensus will gravitate           John M. Nadel
  toward $3.00 EPS, consistent with our expectations before the results.                 (212) 338-4717
  Reported/Core Results. HIG reported 4Q12 operating EPS of $0.54, well above
  our $0.24 and consensus $0.34. On a core basis, normalizing cats, DAC, PY              Alex Levine
                                                                                         (212) 338-4748
  development, restructuring costs and taxes, we view EPS as $0.87 vs. our $0.86
  on same basis (both include ~$0.09 contribution from Life and Retirement Plans
                                                                                         Company Data
  2013 Outlook. HIG is guiding operating earnings in a range of $1,375m-$1,475m          Rating                                       Buy
  vs. our prior $1,446m estimate. Key differences vs. us include 1) higher implied       Price: Close                               $24.70
  P&C earnings; 2) mid to high teens earnings growth in Group Benefits, implying         Price Target                               $30.00
                                                                                         52-Week Range                     $15.65 - $24.72
  ~$115m of earnings, well above our $92m estimate; and 3) run-off earnings of           Market Capitalization (M)              $10,392.7
  ~$550m well below our $650m estimate (perhaps foreshadowing faster rate of             Shares Outstanding (M)                      436.3
  decline in VA than we expected). Combined with the capital management outlook          Avg. Daily Vol. (000)                     8,768.5
  below, our sense is consensus will gravitate toward $3.00 p/s for 2013.                Dividend                                    $0.40
                                                                                         Dividend Yield                              1.6%
  Capital Management Outlook Modestly Below, But Clear Upside Potential In               Assets (M)                            $308,511.0
  Our View. HIG announced the CT Insurance Dept. approved a $1.2b dividend               Tangible Book Value                        $42.26
                                                                                         Price/Tangible Book                          58%
  to the Hold Co from operating units. HIG is also shutting down its VT captive          Book Value                                 $44.55
  (Champlain Re supported the individual life business), which will result in $300m      Price/Book                                   55%
  return of capital to the Hold Co. As such, total capital moved to the Hold Co of
  $1.5b is roughly in line with our $1.6b estimate. The mix of deployment differs
  somewhat though: by YE'14, HIG expects to pay down $1b of debt and buy
  back $500m of stock (though we suspect the buyback will be completed sooner).
  We estimate HIG will still have ~$700m of capital remaining at the Life Co,
  representing remainder of proceeds and capital freed up from business unit sales.
  Key Metrics Generally Improved. Among the key metrics we continue to monitor
  closely, we saw good results in 4Q12, including: 1) ~3% QoQ increase in fully
  diluted net Stat BVPS, pro forma for gain in 1Q13 from sale of Life business, to
  ~$24.50; 2) continued mid-teens annualized surrender rate on U.S. VA block; 3)
  P&C Commercial pricing momentum continues with overall Mid-Market +11%
  driven by WC +15% and good retention in Small Commercial at 83% and Mid-
  Market at 79% (up 2pts QoQ); and 4) Consumer Markets policy retention up 3-4pts
  YoY, 8pts of AY CR ex. cats improvement YoY in homeowners, and good YoY
  new business premium growth of 7%, driven by homeowners. Biggest blemish was
  continued unfavorable, albeit modest, WC reserve development.                          Price Performance
  FYE Dec          2012A      2012A       2013E      2013E                  2014E            28
                   (Prev)     (Curr)      (Prev)     (Curr)                 (Curr)
  EPS ($)
  Q1 (Mar)          1.25        0.86       0.83        0.80                     -            20
  Q2 (Jun)          0.23        0.58       0.65        0.75                     -            18
  Q3 (Sept)         0.78        0.90                   0.70                     -            16
  Q4 (Dec)          0.24        0.54       0.86        0.79                     -            14
                                                                                             Feb-12    May-12     Aug-12     Nov-12  Feb-13
  FY EPS            2.50        2.88                   3.04                   3.55                Hartford Financial Services Group
  P/E                           8.6x                   8.1x                   7.0x                S&P Insurance Select Industry Index (M0S1K)

                                                                                         Source: FactSet

   Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification,
Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section.
                    800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500
                                  Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC
                                                                            February 4, 2013
Thoughts on 2013 Guidance.
HIG provided 2013 guidance, which included the following key assumptions:
    Operating Earnings of $1,375m - $1,475m
    P&C Commercial CR ex. Cats & PY of 92.5 – 95.5%
    Consumer Markets CR ex. Cats & PY of 89.5 – 92.5%
    Catastrophe losses of 4.8pts on consolidated CR
    Group Benefits operating earnings growth of mid to high teens
    Group Benefits loss ratio of 77 – 80%
    Talcott Resolution (Run-Off) operating earnings down $260-$280m YoY, implying
       about $550m in 2013;
    Annualized portfolio yield of 4.10%
    S&P 500 annualized return, including dividends of 9.0%, implying YE’13 ending
       S&P 500 around 1525 (up 2% from close on February 4)
    10-Year Treasury yield of 2.10%
    Yen/Dollar average of 90

Separately, management outlined its expectations for capital deployment through 2014, which
      $1b of debt reduction, including scheduled maturities of $520m in 2013/14;
      $500m of share repurchases with authorization expiration of YE’14
      Retain $700m of “freed-up” capital from business unit divestitures within the
         operating units for potential funding of risk-reduction solutions for run-off VA

Overall, the net result of the gives and takes versus our expectations is our operating earnings
estimate moves up to the upper end of management’s range (from prior $1,446m to new
$1,475m) largely on stronger equity market assumptions (consistent with our 2% quarterly
market appreciation assumption for the remainder of our coverage). Offsetting the stronger
level of earnings, we reduce our buyback assumption from prior $825m to new $500m for
2013. The net result of these two primary modeling adjustments is that our 2013E EPS
remains unchanged at $3.04.

Cigna Announces VA Risk-Transfer Transaction.
Completely unrelated to HIG’s 4Q12 results and 2013 outlook, we note Cigna (CI, $58.35,
N/R) announced after the close that it entered into a transaction with a life insurance
subsidiary of Berkshire Hathaway (BRK.B, $96.51, N/R) whereby it will effectively transfer
to BRK all of its run-off VA guarantee risks. In the transaction, BRK will assume 100% of
CI’s exposure up to $4b of future Guaranteed Minimum Death Benefits and Guaranteed
Minimum Income Benefits, well above CI’s current projection of future claims for the
business. CI will pay $500m to BRK above the amount of CI’s current reserves for the

By way of comparison, though it’s unclear if this is truly apples to apples, HIG’s U.S. VA
business had retained net amount at risk (before hedging) for GMDB and GMWB totaling
$2.2b and $540m as of 4Q12, down 12% and 15% QoQ, respectively.

                                                                                       Page 2
                                                                          February 4, 2013
Some Questions for the Call
We will be focused on a few areas, including:
    Given continued reduction in retained net amount at risk for both the U.S. and Japan
        VA run-off blocks (largely driven by continued improvement in macro conditions),
        is management seeing increase opportunities to find permanent “solutions” to ring-
        fence and/or exit these blocks?
    With the Japan block of VAs moving toward the first real wave of eligibility for
        annuitization later this year, how much does management believe the weakening of
        the Yen and resulting decline in “in the moneyness” could alter policyholder
    What level of expense reduction should we expect to see benefit 2013 results and in
        which specific reporting segments?
    Aside from the expected pay-down of 2013 and 2014 debt maturities, can
        management offer some guidance on specific securities they are targeting,
        particularly if any are callable at/near par?
    Given all of the capital deployment expected in 2013/14 at this point is related
        entirely to the capital freed up from business unit divestitures, can management
        provide an outlook for expected free cash flow from annual earnings, particularly if
        we ignore the run-off businesses and focus instead on the ongoing businesses (P&C
        Commercial, Consumer Markets, Group Benefits and Mutual Funds)?
    In the 2013 outlook, are the ongoing businesses expected to achieve targeted ROE in
        the 12% area? If not, which segment(s) is/are expected to fall short?
    With the S&P now right around 1500 and macro conditions generally demonstrating
        improvement, albeit slowly, at what point might management be willing to revisit the
        underlying metrics associated with its stress scenario for the businesses? In
        particular, we understand the VA business is being managed to a 325% RBC ratio
        under a stress scenario that includes the S&P 500 falling to 900, down 40% from
        current levels. Would management consider, and does management believe the
        rating agencies would allow, altering the stress scenario to S&P 500 1000 or
        something like that, particularly considering the pace of VA run-off? Finally, if
        management were willing to alter the stress scenario, how would that impact hedging
        requirements, costs thereof, and ability to unlock some of the capital supporting the
        run-off block?

                                                                                    Page 3
                                                                                                                                                                     February 4, 2013
                                                                   1Q12                              2Q12                             3Q12                              4Q12
HIG - Statutory Capital Levels                           $ Millions   Per Share            $ Millions   Per Share           $ Millions   Per Share            $ Millions   Per Share
U.S. Life                                                    7,451         $14.61             7,666          $15.19             7,567          $14.98             6,610          $13.08
P&C                                                          7,716         $15.13             7,732          $15.32             7,746          $15.34             7,645          $15.13
Japan Life Co                                                1,200          $2.35             1,300           $2.58             1,300           $2.57             1,300           $2.57
Hold Co Resources                                            1,500          $2.94             1,300           $2.58             1,453           $2.88             2,874           $5.69
 Total Statutory Capital incl. Hold Co Cash                 17,867         $40.52            17,998          $41.32            18,066          $41.43            18,429          $42.24
Less: Hold Co Debt                                           6,025         $13.67             7,125          $16.36             7,126          $16.34             7,126          $16.33
 Net Statutory Capital                                      11,842         $26.86            10,873          $24.96            10,940          $25.09            11,303          $25.91
Warrant/Convert Exercises                                    1,084                            1,084                             1,084                             1,084
 Net Statutory Capital Assuming Conversion                  12,926         $25.35            11,957          $23.70            12,024          $23.81            12,387          $24.51
 QoQ % Change                                                                4.0%                             -6.5%                              0.5%                              3.0%

Diluted Shares
Actual Outstanding                                           440.9                             435.6                            436.1                             436.3
Warrant/Convert Exercises                                     69.0                              69.0                             69.0                              69.0
Total Fully Diluted Shares                                   509.9                             504.6                            505.1                             505.3
Source: Company Reports, SALI Estimates
Note: 4Q12 U.S. Life capital is pro-forma to reflect the January $1.7b statutory gain upon the sale of the Individual Life and Retirement Plan businesses, less the expected $1.5b
of dividends paid to the Holding Company. 4Q12 Hold Co Resources is pro-forma to include the $1.5b of expected dividends from the Life Co, also in January.

                                                                                                                                                                                Page 4
                                                                                                                          February 4, 2013

                                                       APPENDIX SECTION
Company Description:
The Hartford Financial Services Group, Inc.'s principal activity is to provide diversified insurance and financial services. The Group
conducts business through several operating segments: P&C Commercial, Consumer Markets, Group Insurance, and Mutual Funds.
The Company also has a large Run-Off segment, which consists primarily of its U.S. and Japanese run-off books of annuities as well
as legacy P&C asbestos and environmental exposures.

Regulation Analyst Certification:
I, John M. Nadel and Alex Levine, hereby certify the views expressed in this research report accurately reflect my personal views about
the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related
to the specific recommendations or views expressed by me in this report.

Research Disclosures:
Sterne, Agee & Leach, Inc. makes a market in the following subject company Hartford Financial Services Group
Sterne, Agee & Leach, Inc.'s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach,
Inc.'s total revenues, a portion of which is generated by investment banking activities.
Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject company
and/or companies in the next three months.

Price Target Risks & Related Risk Factors:
Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve
Sterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect
demand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or
industry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability
to recruit and retain competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could
affect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities
Exchange Commission.
Company Specific Risks:
Risks include, but are not limited to: 1) significant equity market correction which could lead to higher variable annuity guarantee
reserves; 2) catastrophe events that could lead to significant losses in HIG’s Property & Casualty segments; 3) potential/likelihood that
HIG will be designated a non-bank covered company by the Federal Reserve leading to potentially higher capital and other requirements
that could pressure long-term ROE; 4) potential that HIG could be designated a Global systemically important financial institution ("G-
SIFI") which could have further consequences for capital and other requirements beyond that of non-bank SIFI designation by the Federal
Reserve; 5) material strengthening of the Yen versus the U.S. Dollar which increases HIG’s un-hedged Japanese annuity liabilities; 6)
given HIG's vast life insurance business in the U.S., the risk that a pandemic or large event that causes mass loss of life which could
negatively impact HIG's earnings and/or financial condition; and 7) HIG is unable to sell its life and/or retirement business at reasonable/
acceptable prices.

Valuation Methodology:
Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry
size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and
expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry
or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings
multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflects
the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.
Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.

Company Specific Valuation:
We value HIG through a combination of price-to-GAAP operating earnings per share and price-to-fully diluted GAAP tangible book
value per share excluding accumulated other comprehensive income (AOCI). We also incorporate a review of fully diluted statutory
book value per share adjusted for holding company net cash. In addition, we incorporate a view of absolute and relative return on equity
versus the peer group.

                                                                                                             Appendix Section, Page I
                                                                                                                      February 4, 2013

Definition of Investment Ratings:
BUY: We expect this stock to outperform the industry over the next 12 months.
NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months.
UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months.
RESTRICTED: Restricted list requirements preclude comment.

Ratings Distribution:
                                                                                                       IB Serv./ Past 12Mos.
Rating Category                       Count                     Percent                  Count                    Percent
Buy                                   217                       48.01%                   19                       8.76%
Neutral                               219                       48.45%                   14                       6.39%
Underperform                          16                        3.54%                    0                        0.00%

Other Disclosures:
Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or
more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein
and may act as principal or agent to buy or sell such securities.
Copyright © 2013 Sterne, Agee & Leach, Inc. All Rights Reserved.

To receive price charts or other disclosures on the companies mentioned in this report, please visit our website at https://
sterneagee.bluematrix.com/sellside/Disclosures.action or contact Sterne, Agee & Leach, Inc. toll-free at (800) 240-1438 or
(205) 949-3689.

                                                                                                         Appendix Section, Page II
                       Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the
                       early years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we
                       have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne
                       Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also
                       includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee
                       Financial Services, Inc.—www.sterneagee.com

                                                              EQUITY CAPITAL MARKETS
                                         Ryan Medo             Managing Dir., Eq. Cap. Mkts.              (205) 949-3623

                      INSTITUTIONAL SALES                                                                     INSTITUTIONAL TRADING
William Jump       Director of Institutional Sales            (404) 814-3960           JT Cacciabaudo        Head of Trading                           (212) 763-8288
Jon Schenk         Assoc. Director of Inst. Sales             (212) 763-8221

                                                                    EQUITY RESEARCH
                                         Robert Hoehn           Director of Research                      (212) 338-4731
CONSUMER                                                                               INDUSTRIALS
 Interactive Entertainment / Internet                                                    Aerospace & Defense
  Arvind Bhatia, CFA                   Mng. Dir.              (214) 702-4001              Peter Arment                         Mng. Dir.               (646) 376-5336
  Brett Strauser                       VP, Analyst            (214) 702-4009              Josh W. Sullivan                     Sr. Analyst             (646) 376-5337

  Footwear & Apparel
                                                                                          Auto, Auto Parts and Auto Retailers
  Sam Poser                            Mng. Dir.              (212) 763-8226
                                                                                          Michael P. Ward, CFA                 Mng. Dir.               (646) 376-5375
  Ben Shamsian                         Analyst                (212) 338-4721

  Leisure & Entertainment                                                                 Coal, Metals & Mining, Engineering & Construction
  David Bain                           Mng. Dir.              (949) 721-6651              Michael S. Dudas, CFA                Mng. Dir.               (646) 376-5329
                                                                                          Satyadeep Jain, CFA                  Analyst                 (646) 376-5357
  Restaurants                                                                             Patrick Uotila, CPA                  Analyst                 (646) 376-5358
  Lynne Collier                        Mng. Dir.              (214) 702-4045
                                                                                          Construction Materials & Diversified Industrials
ENERGY                                                                                    Todd Vencil, CFA                     SVP, Sr. Analyst       (804) 282-7385
  Exploration & Production                                                                Kevin Bennett, CFA                   VP, Analyst            (804) 282-4506
  Tim Rezvan, CFA                      Sr. Analyst            (212) 338-4736
  Oilfield Services & Equipment                                                           Pharmaceutical Services
  Stephen D. Gengaro                   Mng. Dir.              (646) 376-5331              Greg T. Bolan                        Mng. Dir.              (615) 760-1469
  Grant Fox                            Analyst                (212) 338-4723              Himanshu Rastogi, PhD, CFA           VP, Analyst            (615) 760-1478
FINANCIAL SERVICES                                                                     TECHNOLOGY
  Asset Management                                                                       Data Networking and Storage
  Jason Weyeneth, CFA                  SVP, Sr. Analyst       (212) 763-8293              Alex Kurtz                           Mng. Dir                (415) 402-6015
                                                                                          Amelia Harris                        Analyst                 (415) 402-6018
  Banks & Thrifts
  Matthew Kelley                       Mng. Dir.              (207) 699-5800              Financial Technology
  Matthew Breese                       VP, Sr. Analyst        (207) 699-5800              Greg Smith                           Mng. Dir                (818) 615-2029
  Brett Rabatin, CFA                   Mng. Dir.              (615) 760-1466              Jennifer Dugan                       Analyst                 (415) 402-6051
  Kenneth James                        VP, Sr. Analyst        (615) 760-1474
  Peyton Green                         Mng. Dir.              (877) 492-2663              Hardware, Mobile Devices, IT Supply Chain
  Zachary Wollam                       VP, Analyst            (615) 760-1468              Shaw Wu                               SVP, Sr. Analyst       (415) 362-7431
  Todd L. Hagerman                     Mng. Dir.              (212) 338-4744
  Robert Greene                        VP, Analyst            (212) 763-8296              LED Supply Chain
                                                                                          Andrew Huang                         Mng. Dir.               (415) 362-6143
  Life Insurance                                                                          John Shen                            Analyst                 (415) 402-6052
  John M. Nadel                        Mng. Dir.              (212) 338-4717
  Alex Levine                          Analyst                (212) 338-4748              Semiconductors
                                                                                          Vijay Rakesh                         Mng. Dir.               (312) 525-8431
  Mortgage Finance & Specialty Finance
  Henry J. Coffey, Jr., CFA            Mng. Dir.              (615) 760-1472           TRANSPORTATION, SERVICES & EQUIPMENT
  Calvin Hotrum                        Analyst                (615) 760-1476              Jeffrey A. Kauffman                  Mng. Dir.               (212) 338-4765
                                                                                          Sal Vitale                           VP, Sr. Analyst         (212) 338-4766
  Property/Casualty Insurance                                                             Ryan Mueller                         Analyst                 (212) 338-4732
  Dan Farrell                          Mng. Dir.              (212) 338-4782
  Nitin Chhabra, FCAS                  Analyst                (212) 338-4779

Email Address for Sterne Agee Employees: first initial + last name@sterneagee.com (e.g., jsmith@sterneagee.com)

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