The Hartford Announces Expanded Hedging Program That Effectively Eliminates Currency And Equity Market Risks On Japan Variable Annuity Block
At its investor meeting being held today, The Hartford said that the
risk profile of its legacy variable annuity block has been significantly
improved as a result of actions the company has taken, including an
expanded Japan variable annuity (VA) hedging program, as well as the
benefit of favorable yen weakening and global equity market movements.
“Last March, we announced a new strategy for The Hartford focused on
positioning the organization, over time, to generate greater shareholder
value by reducing the company’s exposure to market volatility, lowering
our cost of capital and increasing capital flexibility,” said The
Hartford’s Chairman, President and CEO Liam E. McGee. “A key element of
that strategy, along with profitably growing our go forward businesses,
is to reduce the size and risk of the legacy VA block. We are pleased
that as a result of actions we have taken and global market movements,
the risk profile of the legacy VA block has dramatically improved and
Talcott’s operations are now capital self-sufficient.”
“The company’s capital flexibility is significantly enhanced since year
end, and our capital generation outlook heading into 2014 and beyond is
improved,” said The Hartford’s Chief Financial Officer Christopher J.
Swift. “With the significant progress we have made on The Hartford’s
transformation, excess capital generated by the go forward businesses --
property and casualty, group benefits and mutual funds -- will be
available for potential capital management actions or reinvestment in
the businesses for future profitable growth.”
The company also announced that financial results for the first quarter
of 2013 will include a deferred acquisition charge (DAC) of
approximately $600 million, after tax. The charge reflects the
elimination of future estimated gross profits on the Japan VA block due
to the increased costs of the hedging program. The first quarter of 2013
will also include the previously announced charge of $140 million, after
tax, associated with costs incurred in connection with the company’s
$800 million debt tender offer completed in the first quarter of 2013.
Due to the impact of these charges, the company expects to record a net
loss for the first quarter of 2013. However, neither of these charges is
included in core earnings, a non-GAAP financial measure.
The Hartford also increased its full year 2013 core earnings outlook,
which was originally described in its Feb. 4, 2013 news release,
to between $1.45 billion and $1.55 billion, reflecting higher Talcott
Resolution core earnings due to the elimination of Japan VA DAC
amortization expense as a result of the first quarter 2013 DAC charge.
About The Hartford
With more than 200 years of expertise, The Hartford (NYSE:HIG) is a
leader in property and casualty insurance, group benefits and mutual
funds. The company is widely recognized for its service excellence,
sustainability practices, trust and integrity. More information on the
company and its financial performance is available at www.thehartford.com.
HIG-F
The 2013 earnings guidance presented in this release is based on core
earnings (loss). A quantitative reconciliation of The Hartford’s net
income (loss) to core earnings (loss) is not calculable on a
forward-looking basis because it is not possible to provide a reliable
forecast of realized capital gains and losses, which typically vary
substantially from period to period.
Some of the statements in this release should be considered
forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be
identified by words such as "anticipates," "intends," "plans," "seeks,"
"believes," "estimates," "expects," "projects" and similar references to
the future. Examples of forward-looking statements include, but are not
limited to, statements the company makes regarding future results of
operations. The Hartford cautions 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. These important
risks and uncertainties include: challenges related to The Hartford's
and its subsidiaries' (collectively, the "Company") current operating
environment, including continuing uncertainty about the strength and
speed of the recovery in the United States and other key economies and
the impact of governmental stimulus and austerity initiatives, sovereign
credit concerns, a sustained low interest rate environment, higher tax
rates and other potentially adverse developments on financial, commodity
and credit markets and consumer and business spending and investment and
the effect of these events on our returns in investment portfolios and
our hedging costs associated with our variable annuities business; the
risks, challenges and uncertainties associated with our capital
management plan and our strategic realignment to focus on our property
and casualty, group benefits and mutual fund businesses, place our
Individual Annuity business into run-off and the sale of the Individual
Life, Woodbury Financial Services and the Retirement Plans businesses;
execution risk related to the continued reinvestment of our investment
portfolios and refinement of our hedge program for our run-off annuity
block; the capital self-sufficiency of the Company’s Talcott Resolution
business in stress scenarios; market risks associated with our business,
including changes in interest rates, credit spreads, equity prices,
market volatility and foreign exchange rates, and implied volatility
levels, as well as continuing uncertainty in key sectors such as the
global real estate market; the possibility of unfavorable loss
development including with respect to long-tailed exposures; the
possibility of a pandemic, earthquake, or other natural or man-made
disaster that may adversely affect our businesses; weather and other
natural physical events, including the severity and frequency of storms,
hail, winter storms, hurricanes and tropical storms, as well as climate
change and its potential impact on weather patterns; risk associated
with the use of analytical models in making decisions in key areas such
as underwriting, capital, reserving, and catastrophe risk management;
the uncertain effects of emerging claim and coverage issues; the
Company's ability to effectively price its property and casualty
policies, including its ability to obtain regulatory consents to pricing
actions or to non-renewal or withdrawal of certain product lines; the
impact on our statutory capital of various factors, including many that
are outside the Company's control, which can in turn affect our credit
and financial strength ratings, cost of capital, regulatory compliance
and other aspects of our business and results; risks to our business,
financial position, prospects and results associated with negative
rating actions or downgrades in the Company's financial strength and
credit ratings or negative rating actions or downgrades relating to our
investments; the impact on our investment portfolio if our investment
portfolio is concentrated in any particular segment of the economy;
volatility in our earnings and potential material changes to our results
resulting from our adjustment of our risk management program to
emphasize protection of economic value; the potential for differing
interpretations of the methodologies, estimations and assumptions that
underlie the valuation of the Company's financial instruments that could
result in changes to investment valuations; the subjective
determinations that underlie the Company's evaluation of
other-than-temporary impairments on available-for-sale securities;
losses due to nonperformance or defaults by others; the potential for
further acceleration of deferred policy acquisition cost amortization;
the potential for further impairments of our goodwill or the potential
for changes in valuation allowances against deferred tax assets; the
possible occurrence of terrorist attacks and the Company's ability to
contain its exposure, including the effect of the absence or
insufficiency of applicable terrorism legislation on coverage; the
difficulty in predicting the Company's potential exposure for asbestos
and environmental claims; the response of reinsurance companies under
reinsurance contracts and the availability, pricing and adequacy of
reinsurance to protect the Company against losses; actions by our
competitors, many of which are larger or have greater financial
resources than we do; the Company's ability to distribute its products
through distribution channels, both current and future; the cost and
other effects of increased regulation as a result of the enactment of
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
which, among other effects, vests a Financial Services Oversight Council
with the power to designate "systemically important" institutions, will
require central clearing of, and/or impose new margin and capital
requirements on, derivatives transactions, and created a new "Federal
Insurance Office" within the U.S. Department of the Treasury;
unfavorable judicial or legislative developments; the potential effect
of other domestic and foreign regulatory developments, including those
that could adversely impact the demand for the Company's products,
operating costs and required capital levels; regulatory limitations on
the ability of the Company and certain of its subsidiaries to declare
and pay dividends; the Company's ability to maintain the availability of
its systems and safeguard the security of its data in the event of a
disaster, cyber or other information security incident or other
unanticipated event; the risk that our framework for managing
operational risks may not be effective in mitigating material risk and
loss to the Company; the potential for difficulties arising from
outsourcing relationships; the impact of changes in federal or state tax
laws; regulatory requirements that could delay, deter or prevent a
takeover attempt that shareholders might consider in their best
interests; the impact of potential changes in accounting principles and
related financial reporting requirements; the impact of any future
errors in financial reporting; the Company's ability to protect its
intellectual property and defend against claims of infringement; the
company’s ability to implement its capital plan, and other factors
described in such forward-looking statements and other factors described
in The Hartford's 2012 Annual Report on Form 10-K, and other filings The
Hartford makes with the Securities and Exchange Commission.
Any forward-looking statement made by the company in this release speaks
only as of the date of this release. Factors or events that could cause
the company's actual results to differ may emerge from time to time, and
it is not possible for the company to predict all of them. The company
undertakes no obligation to publicly update any forward-looking
statement, whether as a result of new information, future developments
or otherwise.
![](http://cts.businesswire.com/ct/CT?id=bwnews&sty=20130411005650r1&sid=ntxv4&distro=nx)