The
Hartford (NYSE:HIG) reported core earnings of $324 million, or $0.66
per diluted share, for the three months ended June 30, 2013 (second
quarter 2013), up 18% from $274 million, or $0.56 per diluted
share, in second quarter 2012. The improvement from the prior year
quarter was principally due to higher core earnings in Property &
Casualty (P&C), Group Benefits and Mutual Funds and a lower core loss in
Corporate.
The company reported a second quarter 2013 net loss of $190 million, or
$0.42 per diluted share, which included $421 million, after-tax, of
realized capital losses, principally from the company's international
variable annuity (VA) hedging programs, and a $126 million, after-tax,
loss from discontinued operations due to the agreement to sell Hartford
Life International Limited (HLIL) for approximately $285 million in
cash. Second quarter 2012 net loss totaled $101 million, or $0.26 per
diluted share, and included a $587 million, after-tax, loss on
extinguishment of debt and realized capital gains of $369 million,
after-tax, principally from international VA hedging programs.
“The Hartford continues to deliver shareholder value through profitable
growth, reduced risk and capital management,” said The Hartford's
Chairman, President and CEO Liam E. McGee. “This quarter, P&C, Group
Benefits and Mutual Funds margin improvements drove core earnings for
those businesses up 28% compared with second quarter 2012. We remain
focused on achieving renewal written price increases in P&C Commercial,
which averaged 8% this quarter for Standard Commercial, in line with the
last three quarters. In June, we expanded the 2013 and 2014 equity
repurchase program by $750 million, to a total of $1.25 billion, and
increased the quarterly dividend by 50%.”
*Denotes financial measures not calculated based on generally
accepted accounting principles (“non-GAAP").
“We continue to make progress reducing the size and risk of Talcott
Resolution,” said Executive Vice President and Chief Financial Officer
Christopher J. Swift. “During the second quarter, variable annuity
surrender activity increased, with full surrenders rising to 34.8% on
the Japan block and to 17.5% in the U.S., reflecting policyholder
behavior in strong markets and our management of the block. In addition,
we agreed to sell our U.K. variable annuity business at attractive
economics to a subsidiary of Berkshire Hathaway.”
CONSOLIDATED FINANCIAL RESULTS
|
|
|
|
|
($ in millions except per share data)
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change2 |
Core earnings (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Property & Casualty
|
|
|
|
$140
|
|
|
|
$101
|
|
|
|
39%
|
Group Benefits
|
|
|
|
$37
|
|
|
|
$34
|
|
|
|
9%
|
Mutual Funds
|
|
|
|
$20
|
|
|
|
$19
|
|
|
|
5%
|
Sub-Total
|
|
|
|
$197
|
|
|
|
$154
|
|
|
|
28%
|
Talcott Resolution
|
|
|
|
$196
|
|
|
|
$200
|
|
|
|
(2)%
|
Corporate
|
|
|
|
($69)
|
|
|
|
($80)
|
|
|
|
(14)%
|
Core earnings
|
|
|
|
$324
|
|
|
|
$274
|
|
|
|
18%
|
Net loss
|
|
|
|
($190)
|
|
|
|
($101)
|
|
|
|
88%
|
Net loss available to common shareholders per share
|
|
|
|
$(0.42)
|
|
|
|
$(0.26)
|
|
|
|
62%
|
Weighted average diluted common shares outstanding
|
|
|
|
489.0
|
|
|
|
485.8
|
|
|
|
1%
|
Core earnings available to common shareholders per diluted share1 |
|
|
|
$0.66
|
|
|
|
$0.56
|
|
|
|
18%
|
[1] Includes dilutive potential common shares and, in second quarter
2012, assumed conversion of preferred shares
[2] The Hartford defines increases or decreases greater than or equal
to 200%, or changes from a net gain to a net loss position, or vice
versa, as "NM" or not meaningful
Second quarter 2013 net income and core earnings included unfavorable
prior year development (PYD) of $95 million, after-tax, or $0.19 per
diluted share on a core earnings basis, including $91 million,
after-tax, associated with the company's annual ground-up review of
asbestos and environmental reserves and $52 million, after-tax, due to
the closing of the New York Fund for Reopened Cases (NY25A). Second
quarter catastrophe losses were in line with management's forecast at
$121 million, after-tax.
Second quarter 2012 included the following items that decreased net
income by $95 million, after-tax, and core earnings by $98 million,
after-tax, or $0.20 per diluted share on a core earnings basis:
-
Second quarter 2012 catastrophe losses that were higher than the
company's forecast by approximately $105 million, after-tax, or $0.21
per diluted share;
-
Unfavorable PYD of $32 million, after-tax, or $0.07 per diluted share
on a core earnings basis, including $33 million, after-tax, associated
with the company's annual ground-up review of asbestos and
environmental reserves; and
-
Net income of $42 million, or $0.09 per diluted share, and core
earnings of $39 million, or $0.08 per diluted share, from the
Retirement Plans and Individual Life businesses that were sold in
first quarter 2013, and HLIL, which was classified as a discontinued
operation effective March 31, 2013.
PROPERTY & CASUALTY (CONSOLIDATED)
Second Quarter 2013
Highlights:
-
Core earnings rose 39% due to improved underwriting results compared
with second quarter 2012
-
Combined ratio improved to 105.4 from 107.5 in second quarter 2012
-
Combined ratio, before catastrophes and PYD, improved to 91.8 from
93.6 in second quarter 2012
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|
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PROPERTY & CASUALTY
|
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|
|
|
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|
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($ in millions)
|
|
|
|
Three Months Ended
|
|
|
|
|
Jun. 30 2013
|
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|
|
Jun. 30 2012
|
|
|
|
Change
|
Underwriting gain (loss)*
|
|
|
|
$(132)
|
|
|
|
$(183)
|
|
|
|
(28)%
|
Investment income
|
|
|
|
$338
|
|
|
|
$319
|
|
|
|
6%
|
Core earnings
|
|
|
|
$140
|
|
|
|
$101
|
|
|
|
39%
|
Net income
|
|
|
|
$136
|
|
|
|
$84
|
|
|
|
62%
|
Expense ratio
|
|
|
|
28.5
|
|
|
|
28.6
|
|
|
|
0.1
|
Combined ratio
|
|
|
|
105.4
|
|
|
|
107.5
|
|
|
|
2.1
|
Combined ratio before catastrophes and PYD
|
|
|
|
91.8
|
|
|
|
93.6
|
|
|
|
1.8
|
PYD, before tax
|
|
|
|
$146
|
|
|
|
$49
|
|
|
|
198%
|
Current accident year catastrophe losses, before tax
|
|
|
|
$186
|
|
|
|
$290
|
|
|
|
(36)%
|
Written premiums
|
|
|
|
$2,501
|
|
|
|
$2,472
|
|
|
|
1%
|
P&C (Consolidated) includes the consolidated financial results of the
company's three P&C segments: P&C Commercial, Consumer Markets and P&C
Other Operations.
Second quarter 2013 P&C (Consolidated) net income was $136 million and
core earnings were $140 million, 62% and 39% increases, respectively,
primarily reflecting a reduced underwriting loss and higher limited
partnership and other alternative investment income compared with second
quarter 2012. The improved underwriting results in P&C (Consolidated)
were principally due to better Consumer Markets and P&C Commercial
underwriting results driven by lower catastrophe losses and improved
current accident year underwriting margins that were partially offset by
increased unfavorable PYD in P&C Other Operations and, to a lesser
extent, P&C Commercial.
Second quarter 2013 combined ratio and underwriting loss were 105.4 and
$132 million, respectively, compared with 107.5 and $183 million in
second quarter 2012. Before catastrophes and PYD, second quarter 2013
P&C (Consolidated) combined ratio improved to 91.8 compared with 93.6 in
second quarter 2012, reflecting improved underwriting margins in both
P&C Commercial and Consumer Markets.
Catastrophe losses totaled $186 million, before tax, in second quarter
2013 compared with $290 million, before tax, in second quarter 2012.
Unfavorable PYD totaled $146 million, before tax, in second quarter 2013
compared with unfavorable PYD of $49 million, before tax, in second
quarter 2012. Unfavorable PYD in second quarter 2013 was comprised of
$37 million from P&C Commercial and $141 million from P&C Other
Operations, principally due to the company's annual ground-up asbestos
and environmental reserve study, partially offset by favorable PYD of
$32 million in Consumer Markets. Second quarter 2013 P&C Commercial
unfavorable PYD included $80 million for NY25A, before tax.
Second quarter 2013 P&C (Consolidated) written premiums increased 1%
over the prior year period, reflecting 1% growth in P&C Commercial
Markets and 2% growth in Consumer Markets.
P&C Commercial
Second Quarter 2013 Highlights:
-
Underwriting gain of $25 million compared with a $7 million
underwriting loss in second quarter 2012 reflecting improved current
accident year results and lower catastrophes
-
Standard Commercial renewal written price increases rose to 8% in
second quarter 2013 compared with 7% in second quarter 2012
-
Middle Market workers’ compensation and property both achieved written
pricing increases in the 9-10% range during second quarter 2013
P&C COMMERCIAL
|
|
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|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change
|
Underwriting gain (loss)
|
|
|
|
$25
|
|
|
|
$(7)
|
|
|
|
NM
|
Combined ratio
|
|
|
|
98.4
|
|
|
|
100.5
|
|
|
|
2.1
|
Combined ratio before catastrophes and PYD
|
|
|
|
93.1
|
|
|
|
94.5
|
|
|
|
1.4
|
Written premiums
|
|
|
|
$1,533
|
|
|
|
$1,516
|
|
|
|
1%
|
Standard commercial rate increases
|
|
|
|
8%
|
|
|
|
7%
|
|
|
|
1.0
|
P&C Commercial underwriting gain was $25 million in second quarter 2013
compared with an underwriting loss of $7 million in second quarter 2012.
The improvement in underwriting results was due to improved current
accident year results and lower catastrophes, which were slightly offset
by higher unfavorable PYD. Second quarter 2013 catastrophe losses
totaled $44 million, before tax, for 14 events compared with $74
million, before tax, for 13 events in second quarter 2012. Unfavorable
PYD increased to $37 million, before tax, in second quarter 2013
compared with unfavorable PYD of $19 million, before tax, in second
quarter 2012. Second quarter 2013 unfavorable PYD included $80 million
($52 million, after-tax) due to NY25A.
The combined ratio before catastrophes and PYD improved to 93.1 in
second quarter 2013 compared with 94.5 in second quarter 2012,
reflecting improved underwriting margins in Middle Market and Specialty
driven by the company's pricing and underwriting initiatives since
mid-year 2011.
P&C Commercial renewal written pricing continued to be strong, achieving
increases in all standard commercial business lines in second quarter
2013. Standard Commercial, which is comprised of Small Commercial and
Middle Market, achieved renewal written pricing increases of 8%, a 1
point increase over second quarter 2012 and stable with first quarter
2013. Middle Market pricing increased 8%, including Middle Market
workers' compensation and property pricing increases in the 9-10% range
during second quarter 2013.
Written premiums grew 1% from $1,516 million in second quarter 2012 to
$1,533 million in second quarter 2013, driven by growth in Small
Commercial and Middle Market, up 2% and 1%, respectively. Written
premium growth reflects higher pricing on renewals in Small Commercial
and stronger new business production in Middle Market. Policy count
retention in Small Commercial was 80% in second quarter 2013 compared
with 82% in second quarter 2012. Middle Market policy count retention
for second quarter 2013 was 79%, an improvement from 73% in second
quarter 2012. New business premium for Small Commercial and Middle
Market totaled $241 million, up 13% from $213 million in second quarter
2012 driven by Middle Market workers' compensation, property, auto and
general liability.
Consumer Markets
Second Quarter 2013 Highlights:
-
Written premiums rose 2% compared with second quarter 2012 due to
strong new business and improved retention
-
Combined ratio, excluding catastrophes and PYD, improved to 88.9
compared with 91.3 in second quarter 2012
-
Auto policy count retention improved 2 points and homeowners improved
1 point compared with second quarter 2012
CONSUMER MARKETS
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change
|
Underwriting loss
|
|
|
|
$(9)
|
|
|
|
$(114)
|
|
|
|
(92%)
|
Combined ratio
|
|
|
|
101.0
|
|
|
|
112.6
|
|
|
|
11.6
|
Combined ratio before catastrophes and PYD
|
|
|
|
88.9
|
|
|
|
91.3
|
|
|
|
2.4
|
Written premiums
|
|
|
|
$967
|
|
|
|
$950
|
|
|
|
2%
|
Consumer Markets reported an underwriting loss of $9 million in second
quarter 2013, down from an underwriting loss of $114 million in second
quarter 2012 due to favorable loss trends, including reduced current
accident year catastrophe losses and more favorable PYD. Second quarter
2013 underwriting results included current accident year catastrophe
losses of $142 million, before tax, compared with $216 million, before
tax, in second quarter 2012. Favorable PYD was $32 million, before tax,
in second quarter 2013 compared with favorable PYD of $23 million,
before tax, in second quarter 2012. Favorable PYD in second quarter 2013
was predominantly due to favorable PYD on catastrophes driven by Storm
Sandy.
Consumer Markets combined ratio, before catastrophes and PYD, was 88.9
in second quarter 2013, down from 91.3 in second quarter 2012. The
improvement of 2.4 points reflects earned pricing increases, favorable
loss cost trends and a 1 point improvement in the expense ratio. The
auto combined ratio, before catastrophes and PYD, was down 2.2 points
due to earned pricing increases and favorable auto liability frequency.
The homeowners combined ratio, before catastrophes and PYD, was 2.3
points better than second quarter 2012 driven by earned pricing
increases and favorable non-catastrophe weather claim frequency.
Second quarter 2013 written premiums rose 2% from second quarter 2012 as
a result of improved premium and policy count retention and a 10%
increase in new written premium from AARP Direct and AARP Agency
production. Auto new business premiums were up 9% while homeowners
increased 13%. Second quarter 2013 policy count retention for auto and
homeowners increased by 2 points and 1 point to 86% and 87%,
respectively, from second quarter 2012. Premium retention for auto and
homeowners each increased by 2 points to 88% and 92%, respectively.
P&C Other Operations
Second quarter 2013 underwriting loss was $148 million compared with $62
million in second quarter 2012. Second quarter 2013 results included
unfavorable PYD of $141 million, before tax, while second quarter 2012
included unfavorable PYD of $53 million, before tax. The PYD was largely
due to a $130 million, before tax, increase in asbestos reserves
compared with $48 million, before tax, in second quarter 2012.
Environmental PYD totaled $10 million, before tax, compared with $3
million in second quarter 2012. The company completes its annual review
of asbestos and environmental reserves during the second quarter of each
year.
GROUP BENEFITS
Second Quarter 2013 Highlights:
-
Core earnings were $37 million, up 9% from $34 million in second
quarter 2012, driven by improved group long-term disability results
-
After-tax core earnings margin was 3.9% compared with 3.2% in second
quarter 2012
-
Fully insured premiums declined 13% in second quarter 2013 from second
quarter 2012 primarily due to pricing discipline for new and renewal
business, the loss of a large account due to pricing and other
considerations, and management actions specifically related to the
Association block of business
-
Loss ratio improved 2.9 points from second quarter 2012 to 75.7%
driven by improving long-term disability pricing and loss trends
|
|
|
|
|
|
|
|
|
|
|
|
|
GROUP BENEFITS
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change
|
Fully insured premiums¹
|
|
|
|
$822
|
|
|
|
$950
|
|
|
|
(13%)
|
Loss ratio
|
|
|
|
75.7%
|
|
|
|
78.6%
|
|
|
|
2.9
|
Core earnings
|
|
|
|
$37
|
|
|
|
$34
|
|
|
|
9%
|
[1] Fully insured ongoing premiums excludes buyout premiums and
premium equivalents
Group Benefits second quarter 2013 net income rose 74% to $61 million
compared with $35 million in second quarter 2012 due to higher realized
capital gains and improved core earnings. Second quarter 2013 realized
capital gains totaled $24 million, after-tax, compared with $0 million,
after-tax, in second quarter 2012. Core earnings in second quarter 2013
were $37 million compared with $34 million in second quarter 2012,
driven by improved group long-term disability results.
The loss ratio improved to 75.7 in second quarter 2013 compared with
78.6 in second quarter 2012, a 2.9 point improvement. The overall group
disability loss ratio improved by 10.4 points from the prior year
quarter, reflecting improved claims incidence and continued favorable
claim recovery trends.
In second quarter 2013, fully insured premiums in Group Benefits were
$822 million, a 13% decrease compared with $950 million in second
quarter 2012. The reduction in premiums was primarily due to the effect
of the company's pricing discipline for new business and case renewals,
and management actions specifically related to the Association block of
business.
MUTUAL FUNDS
Second Quarter 2013 Highlights:
-
Gross sales improved 32% versus second quarter 2012
-
Core earnings were $20 million, up compared with $19 million in second
quarter 2012
-
Total Mutual Funds assets under management rose 7% to $63.6 billion at
June 30, 2013 from $59.3 billion at June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
MUTUAL FUNDS
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change
|
Core earnings
|
|
|
|
$20
|
|
|
|
$19
|
|
|
|
5%
|
Total Mutual Funds assets under management
|
|
|
|
$63,608
|
|
|
|
$59,343
|
|
|
|
7%
|
Average Mutual Funds assets under management
|
|
|
|
$64,708
|
|
|
|
$61,302
|
|
|
|
6%
|
Annuity assets under management
|
|
|
|
$25,901
|
|
|
|
$26,888
|
|
|
|
(4%)
|
Total assets under management
|
|
|
|
$89,509
|
|
|
|
$86,231
|
|
|
|
4%
|
Average assets under management
|
|
|
|
$90,973
|
|
|
|
$89,318
|
|
|
|
2%
|
Second quarter 2013 net income for Mutual Funds totaled $20 million, up
11% compared with $18 million in second quarter 2012 due to higher
revenue partially offset by increased distribution expenses and higher
state taxes.
Mutual Funds second quarter 2013 core earnings were $20 million, up
compared with $19 million in second quarter 2012, as average assets
under management rose 2%. The growth in assets under management reflects
growth in Mutual Funds that was partially offset by declines in Annuity
assets. Mutual Funds assets under management increased 7% to $63.6
billion at June 30, 2013 from $59.3 billion at June 30, 2012, reflecting
market appreciation of $9.5 billion, partially offset by $5.2 billion of
net outflows. Mutual Funds net outflows included an expected
institutional redemption as well as a portfolio rebalance at a key
distributor, together totaling $2.5 billion. Annuity assets under
management declined 4% at June 30, 2013 compared with June 30, 2012 as
market appreciation during the last year was offset by redemptions.
TALCOTT RESOLUTION
Second Quarter 2013 Highlights:
-
Reached agreement to sell the U.K. VA business to a subsidiary of
Berkshire Hathaway for approximately $285 million in cash; transaction
expected to close by year-end 2013
-
Japan VA full surrender rate rose to an annualized rate of 34.8%
compared with 9.6% in first quarter 2013 and 3.9% in second quarter
2012
-
Second quarter 2013 U.S. VA full surrender rate, including the impact
of the Enhanced Surrender Value (ESV) program in 2013, rose to an
annualized rate of 17.5% compared with 14.5% in first quarter 2013 and
13.0% in second quarter 2012
TALCOTT RESOLUTION
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change
|
Core earnings
|
|
|
|
$196
|
|
|
|
$200
|
|
|
|
(2%)
|
Net income (loss)
|
|
|
|
$(332)
|
|
|
|
$440
|
|
|
|
NM
|
U.S. VA annualized full surrender rate1 |
|
|
|
17.5%
|
|
|
|
13.0%
|
|
|
|
4.5
|
Japan VA annualized full surrender rate1 |
|
|
|
34.8%
|
|
|
|
3.9%
|
|
|
|
30.9
|
U.S. Annuity account value
|
|
|
|
$73,249
|
|
|
|
$77,766
|
|
|
|
(6%)
|
Japan Annuity account value
|
|
|
|
$27,289
|
|
|
|
$32,438
|
|
|
|
(16%)
|
[1] Full surrender rate represents full contract liquidation;
excludes partial withdrawals
Talcott Resolution second quarter 2013 net loss was $332 million
compared with net income of $440 million in second quarter 2012. The
second quarter 2013 net loss included the following items, which are not
included in core earnings:
-
Net realized capital losses of $442 million, after-tax and DAC,
compared with net realized gains of $387 million, after-tax and DAC,
in second quarter 2012, principally as a result of the company's
International VA hedging programs;
-
Loss from discontinued operations of $124 million, after-tax,
including $102 million loss on sale of the U.K. VA business; and
-
Unlock benefit for market performance and assumption changes of $36
million, after-tax, compared with a charge of $146 million, after-tax,
in second quarter 2012.
Talcott Resolution second quarter 2013 core earnings were $196 million,
a 2% decrease compared with $200 million in second quarter 2012. Second
quarter 2012 core earnings included $39 million from the Individual Life
and Retirement Plans businesses, which were sold in January 2013.
Excluding these core earnings, second quarter 2013 core earnings rose
22%, primarily driven by lower DAC amortization expense in Japan and the
U.S. The write-off of Japan VA DAC in first quarter 2013 eliminated DAC
amortization expense in future periods, beginning with second quarter
2013. Second quarter 2013 results also included the cost of the ESV
program of $23 million, after-tax and DAC. Since its launch in first
quarter 2013, the total cost of the ESV program has been $48 million,
after-tax and DAC.
Second quarter 2013 U.S. VA annualized full surrender rate increased to
17.5% compared to 13.0% in second quarter 2012 and 14.5% in first
quarter 2013 primarily due to the success of the ESV program. Japan VA
annualized full surrender rate increased sharply to 34.8% in second
quarter 2013 from 3.9% in second quarter 2012 and 9.6% in first quarter
2013 due to improved market levels coupled with the aging of the block
in Japan.
U.S. Annuity account values at June 30, 2013 declined 6% compared with
June 30, 2012 principally due to the continued run-off of the book. U.S.
VA account values declined to $62.6 billion at June 30, 2013 from $66.5
billion at June 30, 2012 due to negative net flows of $12.5 billion.
Japan Annuity account values declined by 16%, also principally due to
the runoff of the VA book. Japan VA account values declined to $23.9
billion at June 30, 2013 from $28.0 billion at June 30, 2012 due to
negative net flows of $4.3 billion, which reflect significantly higher
surrenders in first and second quarter 2013 compared with 2012.
CORPORATE
Net loss in Corporate totaled $75 million in second quarter 2013
compared with a net loss of $678 million in second quarter 2012. During
second quarter 2012, the company incurred a $587 million after-tax
charge for the early extinguishment of debt; there was no corresponding
charge in second quarter 2013. In addition, second quarter 2013 net
income included restructuring and other costs of $12 million, after-tax,
compared with $18 million, after-tax, in second quarter 2012.
Second quarter 2013 Corporate core losses totaled $69 million, an $11
million decrease from core losses of $80 million in second quarter 2012
due to lower interest expense. Interest expense totaled $100 million,
before tax, in the quarter, a decrease of 13% from $115 million, before
tax, due to the Allianz debt refinancing in April 2012 and $800 million
of debt repayment in second quarter 2013.
INVESTMENTS
Second Quarter 2013 Highlights:
-
Annualized pre-tax investment yield of 4.4%, down from 4.5% in second
quarter 2012, which included investments for the Individual Life and
Retirement Plans businesses that were sold in January 2013
-
Excluding limited partnerships and other alternative investments,
pre-tax annualized investment yield was 4.1%, consistent with second
quarter 2012, excluding sold businesses
-
Net impairment losses including mortgage loan loss reserves were $12
million, before tax, compared with $98 million, before tax, in second
quarter 2012
INVESTMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
Three Months Ended
|
Amounts presented before tax
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
|
|
|
Change
|
Net investment income, excluding trading securities
|
|
|
|
$867
|
|
|
|
$1,094
|
|
|
|
(21%)
|
Net impairment losses including mortgage loan loss reserves
|
|
|
|
$12
|
|
|
|
$98
|
|
|
|
(88%)
|
Annualized investment yield1 |
|
|
|
4.4%
|
|
|
|
4.5%
|
|
|
|
(0.1)
|
Annualized investment yield, excluding limited partnerships and
other alternative investments
|
|
|
|
4.1%
|
|
|
|
4.3%
|
|
|
|
(0.2)
|
Annualized investment yield, excluding Retirement Plans, Individual
Life and limited partnerships and other alternative investments
|
|
|
|
4.1%
|
|
|
|
4.1%
|
|
|
|
—
|
[1] Yields, before tax, calculated using annualized net investment
income (excluding income related to equity securities, trading) divided
by the monthly average invested assets at cost, amortized cost, or
adjusted carrying value, as applicable, excluding equity securities,
trading, repurchase agreement and dollar roll collateral, and
consolidated variable interest entity non-controlling interests. Yield
calculations for all periods exclude income and assets associated with
the disposal of the HLIL business.
Second quarter 2013 net investment income, excluding trading securities
associated with the company's runoff Japan VA block, was $867 million,
before tax, a 21% decrease compared with second quarter 2012. The
reduction in second quarter 2013 net investment income was principally
due to lower invested assets as a result of the sale of the Individual
Life and Retirement Plans businesses in January 2013. Excluding the
impact of these sales, net investment income decreased approximately 1%
in second quarter 2013 compared to second quarter 2012.
Annualized investment yield, before tax, was 4.4% in second quarter
2013, down approximately 10 basis points as compared to second quarter
2012, including returns on limited partnerships and other alternative
investments. Excluding the impact of the sold businesses, the current
quarter annualized investment yield, before tax, of 4.4% was consistent
with second quarter 2012 annualized yield and included higher returns on
limited partnerships and other alternative investments, offset by the
impact of reinvesting at lower rates.
Limited partnership and other alternative investments generated before
tax income of $95 million for an annualized return of 13% in second
quarter 2013 compared with $72 million, before tax, for an annualized
return of 10% in second quarter 2012.
Annualized investment yield, excluding limited partnerships and other
alternative investments, declined to 4.1%, before tax, in second quarter
2013 compared to 4.3% in second quarter 2012, primarily resulting as
part of the sale of the Individual Life and Retirement Plan businesses.
Excluding the impact of the sold businesses, the annualized investment
yield, excluding limited partnerships and other alternative investments,
was consistent with second quarter 2012 at 4.1%, before tax, as a modest
increase in allocation to higher yielding asset classes was offset by
the impact of investing in the sustained low interest rate environment.
Net impairment losses for second quarter 2013, including mortgage loan
loss reserves, totaled $12 million, before tax, compared with $98
million, before tax, in second quarter 2012. Second quarter 2012 losses
included impairment losses on floating-rate preferred and asset-backed
securities as a result of low interest rates.
Total invested assets, excluding trading securities, were $82.2 billion
as of June 30, 2013 compared with $105.3 billion at Dec. 31, 2012, a 22%
reduction due principally to the sale of the Retirement Plans and
Individual Life businesses. Excluding the impact of the disposition of
these businesses, invested assets, excluding trading securities,
declined $5.8 billion at June 30, 2013 compared with Dec. 31, 2012.
Declines were driven by the impact of higher interest rates on invested
assets, which are recorded at market value, hedging activity including
collateral movements, reductions in dollar rolls, and capital management.
Net unrealized gains on available-for-sale securities were $2.1 billion
as of June 30, 2013, down $4.1 billion from Dec. 31, 2012, with $1.4
billion resulting from the sale of the Retirement Plans and Individual
Life businesses and with the remaining decrease primarily driven by
rising interest rates and wider credit spreads.
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
As of
|
|
|
|
|
June 30, 2013
|
|
|
|
December 31, 2012
|
|
|
|
Change
|
Stockholders' equity
|
|
|
|
$19,013
|
|
|
|
$22,447
|
|
|
|
(15%)
|
Stockholders' equity (ex. AOCI)¹
|
|
|
|
$18,939
|
|
|
|
$19,604
|
|
|
|
(3%)
|
Book value per diluted share
|
|
|
|
$38.59
|
|
|
|
$45.80
|
|
|
|
(16%)
|
Book value per diluted share (ex. AOCI)*
|
|
|
|
$38.44
|
|
|
|
$40.00
|
|
|
|
(4%)
|
[1] Accumulated other comprehensive income (AOCI)
The Hartford’s stockholders’ equity was $19.0 billion as of June 30,
2013, a decrease of $3.4 billion, or 15%, from $22.4 billion as of Dec.
31, 2012, reflecting net losses of $431 million in the first half of
2013, share and warrant repurchases totaling $166 million, common and
preferred dividends of $101 million and a decrease in AOCI from $2.8
billion at Dec. 31, 2012 to $0.1 billion at June 30, 2013.
The company repurchased 3.4 million shares and 0.9 million warrants for
a total of $118 million during second quarter 2013, bringing total
repurchases under the $1.25 billion equity repurchase plan to $166
million. Issued shares totaled 491.6 million and diluted common shares
totaled 492.7 million at June 30, 2013 compared with 469.7 million and
490.1 million, respectively, at Dec. 31, 2012. The increase in shares
was due to the April 1, 2013 conversion of the company's $575 million of
Mandatory Convertible Preferred Stock, Series F into 21.2 million shares
of common equity. There was no material impact on book value per diluted
share as a result of this conversion. Diluted common shares for both
periods include the dilutive effect of the company's common stock
warrants and options.
Book value per diluted common share was $38.59 as of June 30, 2013, a
decrease of 16% compared with $45.80 as of Dec. 31, 2012. Excluding
AOCI, book value per diluted common share* declined 4% to $38.44 as of
June 30, 2013, compared with $40.00 as of Dec. 31, 2012.
CONFERENCE CALL
The Hartford will discuss its second quarter 2013 financial results in a
webcast on Tuesday, July 30, 2013 at 9 a.m. EDT. The webcast, along with
a slide presentation, can be accessed live or as a replay through the
investor relations section of The Hartford's website at http://ir.thehartford.com.
The slide presentation will be posted on The Hartford’s website at
approximately 8:30 a.m. EDT on July 30, 2013.
More detailed financial information can be found in The Hartford's
Investor Financial Supplement for June 30, 2013 and 10-Q filing for the
quarter ended June 30, 2013, which are both available at http://ir.thehartford.com.
ABOUT THE HARTFORD
With more than 200 years of expertise, The Hartford (NYSE:HIG) is a
leader in property and casualty insurance, group benefits and mutual
funds. The company is widely recognized for its service excellence,
sustainability practices, trust and integrity. More information on the
company and its financial performance is available at www.thehartford.com.
From time to time, The Hartford may use its website to disseminate
material company information. Financial and other important information
regarding The Hartford is routinely accessible through and posted on our
website at http://ir.thehartford.com.
In addition, you may automatically receive email alerts and other
information about The Hartford when you enroll your email address by
visiting the “Email Alerts” section at http://ir.thehartford.com.
HIG-F
|
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
|
CONSOLIDATING INCOME STATEMENTS
|
($ in millions)
|
Three Months Ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property & Casualty
|
|
|
Group Benefits
|
|
|
Mutual Funds
|
|
|
Talcott Resolution
|
|
|
Corporate
|
|
|
Consolidated
|
Earned premiums
|
|
|
$2,453
|
|
|
$823
|
|
|
$—
|
|
|
$17
|
|
|
$—
|
|
|
$3,293
|
Fee income
|
|
|
—
|
|
|
15
|
|
|
170
|
|
|
512
|
|
|
2
|
|
|
699
|
Net investment income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale and other
|
|
|
338
|
|
|
100
|
|
|
—
|
|
|
429
|
|
|
—
|
|
|
867
|
Equity securities held for trading [1]
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,189
|
|
|
—
|
|
|
1,189
|
Total net investment income
|
|
|
338
|
|
|
100
|
|
|
—
|
|
|
1,618
|
|
|
—
|
|
|
2,056
|
Other revenues
|
|
|
65
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
65
|
Net realized capital gains (losses)
|
|
|
(7)
|
|
|
37
|
|
|
—
|
|
|
(688)
|
|
|
10
|
|
|
(648)
|
Total revenues
|
|
|
2,849
|
|
|
975
|
|
|
170
|
|
|
1,459
|
|
|
12
|
|
|
5,465
|
Benefits, losses, and loss adjustment expenses
|
|
|
1,883
|
|
|
635
|
|
|
—
|
|
|
368
|
|
|
—
|
|
|
2,886
|
Benefits, losses, and loss adjustment expenses – returns credited on
International variable annuities [1]
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,188
|
|
|
—
|
|
|
1,188
|
Amortization of deferred policy acquisition costs
|
|
|
309
|
|
|
8
|
|
|
10
|
|
|
64
|
|
|
—
|
|
|
391
|
Insurance operating costs and other expenses
|
|
|
492
|
|
|
248
|
|
|
128
|
|
|
219
|
|
|
14
|
|
|
1,101
|
Interest expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
100
|
Restructuring and other costs
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(1)
|
|
|
19
|
|
|
19
|
Total benefits and expenses
|
|
|
2,684
|
|
|
891
|
|
|
139
|
|
|
1,838
|
|
|
133
|
|
|
5,685
|
Income (loss) from continuing operations before income taxes
|
|
|
165
|
|
|
84
|
|
|
31
|
|
|
(379)
|
|
|
(121)
|
|
|
(220)
|
Income tax expense (benefit)
|
|
|
27
|
|
|
23
|
|
|
11
|
|
|
(171)
|
|
|
(46)
|
|
|
(156)
|
Income (loss) from continuing operations
|
|
|
138
|
|
|
61
|
|
|
20
|
|
|
(208)
|
|
|
(75)
|
|
|
(64)
|
Loss from discontinued operations, after tax
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(124)
|
|
|
—
|
|
|
(126)
|
Net income (loss)
|
|
|
136
|
|
|
61
|
|
|
20
|
|
|
(332)
|
|
|
(75)
|
|
|
(190)
|
Less: Unlock benefit, after tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36
|
|
|
—
|
|
|
36
|
Less: Restructuring and other costs, after tax
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
1
|
|
|
(12)
|
|
|
(12)
|
Less: Income (loss) from discontinued operations, after tax
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(124)
|
|
|
—
|
|
|
(126)
|
Less: Net gain (loss) on dispositions, after tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
Less: Net realized gains (losses), after tax and DAC, excluded from
core earnings
|
|
|
(2)
|
|
|
24
|
|
|
1
|
|
|
(442)
|
|
|
6
|
|
|
(413)
|
Core earnings (losses)
|
|
|
$140
|
|
|
$37
|
|
|
$20
|
|
|
$196
|
|
|
$(69)
|
|
|
$324
|
[1] Includes dividend income and mark-to-market effects of trading
securities supporting the international variable annuity business, which
are classified in net investment income with corresponding amounts
credited to policyholders within benefits, losses and loss adjustment
expenses.
|
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
|
CONSOLIDATING INCOME STATEMENTS
|
($ in millions)
|
Three Months Ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property & Casualty
|
|
|
Group Benefits
|
|
|
Mutual Funds
|
|
|
Talcott Resolution
|
|
|
Corporate
|
|
|
Consolidated
|
Earned premiums
|
|
|
$2,454
|
|
|
$950
|
|
|
$—
|
|
|
$(4)
|
|
|
$—
|
|
|
$3,400
|
Fee income
|
|
|
—
|
|
|
16
|
|
|
148
|
|
|
896
|
|
|
45
|
|
|
1,105
|
Net investment income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale and other
|
|
|
319
|
|
|
107
|
|
|
—
|
|
|
664
|
|
|
3
|
|
|
1,094
|
Equity securities held for trading [1]
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,661)
|
|
|
—
|
|
|
(1,662)
|
Total net investment income (loss)
|
|
|
319
|
|
|
107
|
|
|
—
|
|
|
(997)
|
|
|
3
|
|
|
(568)
|
Other revenues
|
|
|
61
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61
|
Net realized capital gains (losses)
|
|
|
(21)
|
|
|
—
|
|
|
(2)
|
|
|
573
|
|
|
17
|
|
|
567
|
Total revenues
|
|
|
2,813
|
|
|
1,073
|
|
|
146
|
|
|
468
|
|
|
65
|
|
|
4,565
|
Benefits, losses, and loss adjustment expenses
|
|
|
1,929
|
|
|
759
|
|
|
—
|
|
|
933
|
|
|
(1)
|
|
|
3,620
|
Benefits, losses, and loss adjustment expenses – returns credited on
International variable annuities [1]
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,661)
|
|
|
—
|
|
|
(1,661)
|
Amortization of deferred policy acquisition costs
|
|
|
315
|
|
|
8
|
|
|
9
|
|
|
222
|
|
|
—
|
|
|
554
|
Insurance operating costs and other expenses
|
|
|
471
|
|
|
261
|
|
|
108
|
|
|
350
|
|
|
63
|
|
|
1,253
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
910
|
|
|
910
|
Interest expense
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
115
|
|
|
115
|
Restructuring and other costs
|
|
|
5
|
|
|
—
|
|
|
1
|
|
|
14
|
|
|
28
|
|
|
48
|
Total benefits and expenses
|
|
|
2,720
|
|
|
1,028
|
|
|
118
|
|
|
(142)
|
|
|
1,115
|
|
|
4,839
|
Income (loss) from continuing operations before income taxes
|
|
|
93
|
|
|
45
|
|
|
28
|
|
|
610
|
|
|
(1,050)
|
|
|
(274)
|
Income tax expense (benefit)
|
|
|
8
|
|
|
10
|
|
|
10
|
|
|
178
|
|
|
(372)
|
|
|
(166)
|
Income (loss) from continuing operations
|
|
|
85
|
|
|
35
|
|
|
18
|
|
|
432
|
|
|
(678)
|
|
|
(108)
|
Add: Income (loss) from discontinued operations, after tax
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
7
|
Net income (loss)
|
|
|
84
|
|
|
35
|
|
|
18
|
|
|
440
|
|
|
(678)
|
|
|
(101)
|
Less: Unlock benefit (charge), after tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(146)
|
|
|
—
|
|
|
(146)
|
Less: Restructuring and other costs, after tax
|
|
|
(3)
|
|
|
—
|
|
|
(1)
|
|
|
(9)
|
|
|
(18)
|
|
|
(31)
|
Less: Loss from discontinued operations, after tax
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
7
|
Less: Loss on extinguishment of debt, after tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(587)
|
|
|
(587)
|
Less: Net realized gains (losses), after tax and DAC, excluded from
core earnings
|
|
|
(13)
|
|
|
1
|
|
|
—
|
|
|
387
|
|
|
7
|
|
|
382
|
Core earnings (losses)
|
|
|
$101
|
|
|
$34
|
|
|
$19
|
|
|
$200
|
|
|
$(80)
|
|
|
$274
|
[1] Includes dividend income and mark-to-market effects of trading
securities supporting the international variable annuity business, which
are classified in net investment income with corresponding amounts
credited to policyholders within benefits, losses and loss adjustment
expenses.
|
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
|
RESULTS BY SEGMENT
|
($ in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
Change
|
Property & Casualty Commercial
|
|
|
$
|
198
|
|
|
|
$
|
162
|
|
|
|
22
|
%
|
Consumer Markets
|
|
|
15
|
|
|
|
(47
|
)
|
|
|
NM
|
|
P&C Other Operations
|
|
|
(73
|
)
|
|
|
(14
|
)
|
|
|
NM
|
|
Total P&C core earnings
|
|
|
140
|
|
|
|
101
|
|
|
|
39
|
%
|
Group Benefits core earnings
|
|
|
37
|
|
|
|
34
|
|
|
|
9
|
%
|
Mutual Funds core earnings
|
|
|
20
|
|
|
|
19
|
|
|
|
5
|
%
|
Sub-total
|
|
|
197
|
|
|
|
154
|
|
|
|
28
|
%
|
Talcott Resolution core earnings
|
|
|
196
|
|
|
|
200
|
|
|
|
(2
|
)%
|
Corporate core losses
|
|
|
(69
|
)
|
|
|
(80
|
)
|
|
|
(14
|
)%
|
CONSOLIDATED CORE EARNINGS
|
|
|
324
|
|
|
|
274
|
|
|
|
18
|
%
|
Add: Unlock benefit (charge), after tax
|
|
|
36
|
|
|
|
(146
|
)
|
|
|
NM
|
|
Add: Restructuring and other costs, after tax
|
|
|
(12
|
)
|
|
|
(31
|
)
|
|
|
NM
|
|
Add: Income (loss) from discontinued operations, after tax
|
|
|
(126
|
)
|
|
|
7
|
|
|
|
NM
|
|
Add: Loss on extinguishment of debt, after tax
|
|
|
—
|
|
|
|
(587
|
)
|
|
|
100
|
%
|
Add: Net reinsurance gain on dispositions, after tax
|
|
|
1
|
|
|
|
—
|
|
|
|
100
|
%
|
Add: Net realized capital gains (losses), after tax and DAC,
excluded from core earnings [1]
|
|
|
(413
|
)
|
|
|
382
|
|
|
|
NM
|
|
Net loss
|
|
|
$
|
(190
|
)
|
|
|
$
|
(101
|
)
|
|
|
NM
|
|
PER SHARE DATA
|
|
|
|
|
|
|
|
|
|
Diluted earnings (losses) per common share
|
|
|
|
|
|
|
|
|
|
Core earnings available to common shareholders and assumed
conversion of preferred shares
|
|
|
$
|
0.66
|
|
|
|
$
|
0.56
|
|
|
|
18
|
%
|
Less: Difference arising from shares used for the denominator
between net loss and core earnings
|
|
|
0.03
|
|
|
|
0.01
|
|
|
|
NM
|
|
Add: Unlock benefit (charge), after tax
|
|
|
0.07
|
|
|
|
(0.31
|
)
|
|
|
NM
|
|
Add: Restructuring and other costs, after tax
|
|
|
(0.02
|
)
|
|
|
(0.07
|
)
|
|
|
(71
|
)%
|
Add: Income (loss) from discontinued operations, after tax
|
|
|
(0.28
|
)
|
|
|
0.01
|
|
|
|
NM
|
|
Add: Loss on extinguishment of debt, after tax
|
|
|
—
|
|
|
|
(1.26
|
)
|
|
|
100
|
%
|
Add: Net reinsurance gain on dispositions, after tax
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
%
|
Add: Net realized capital gains (losses), after tax and DAC,
excluded from core earnings [1]
|
|
|
(0.82
|
)
|
|
|
0.81
|
|
|
|
NM
|
|
Less: Assumed conversion of preferred dividends
|
|
|
—
|
|
|
|
(0.01
|
)
|
|
|
(100
|
)%
|
Net income loss available to common shareholders
|
|
|
$
|
(0.42
|
)
|
|
|
$
|
(0.26
|
)
|
|
|
62
|
%
|
[1] NM: The Hartford defines increases or decreases greater
than or equal to 200% or changes from a net gain to a net loss position,
or vice versa, as “NM” or “not meaningful.”
DISCUSSION OF NON-GAAP FINANCIAL MEASURES
The Hartford uses non-GAAP financial measures in this press release to
assist investors in analyzing the company's operating performance for
the periods presented herein. Because The Hartford's calculation of
these measures may differ from similar measures used by other companies,
investors should be careful when comparing The Hartford's non-GAAP
financial measures to those of other companies. Definitions and
calculations of other financial measures used in this press release can
be found below and in The Hartford's Investor Financial Supplement for
the second quarter of 2013, which is available on The Hartford's
website, http://ir.thehartford.com.
Book value per diluted common share excluding
accumulated other comprehensive income ("AOCI”): Book value
per diluted common share excluding AOCI is a non-GAAP financial measure
based on a GAAP financial measure. It is calculated by dividing (a)
common stockholders' equity excluding AOCI, after tax, by (b) common
shares outstanding and dilutive potential common shares. The Hartford
provides book value per diluted common share excluding AOCI to enable
investors to analyze the company’s stockholders’ equity excluding the
effect of changes in the value of the company’s investment portfolio and
other assets due to interest rates, currency and other factors. The
Hartford believes book value per diluted common share excluding AOCI is
useful to investors because it eliminates the effect of items that can
fluctuate significantly from period to period, primarily based on
changes in market value. Book value per diluted common share is the most
directly comparable GAAP measure. A reconciliation of book value per
diluted common share, including AOCI to book value per diluted common
share, excluding AOCI as of June 30, 2013 and December 31, 2012 is set
forth below.
|
|
|
|
As of
|
|
|
|
|
June 30, 2013
|
|
|
|
December 31, 2012
|
|
|
|
Change
|
Book value per diluted common share, including AOCI
|
|
|
|
$38.59
|
|
|
|
$45.80
|
|
|
|
(16)%
|
Less: Per diluted share impact of AOCI
|
|
|
|
$0.15
|
|
|
|
$5.80
|
|
|
|
(97)%
|
Book value per diluted common share, excluding AOCI
|
|
|
|
$38.44
|
|
|
|
$40.00
|
|
|
|
(4)%
|
Combined ratio before catastrophes and prior year
development: Combined ratio before catastrophes and prior year
development is a non-GAAP financial measure. Combined ratio is the most
directly comparable GAAP measure. The combined ratio is the sum of the
loss and loss adjustment expense ratio, the expense ratio and the
policyholder dividend ratio. This ratio measures the cost of losses and
expenses for every $100 of earned premiums. A combined ratio below 100%
demonstrates a positive underwriting result. A combined ratio above 100%
indicates a negative underwriting result. The combined ratio before
catastrophes and prior year development represents the combined ratio
for the current accident year, excluding the impact of catastrophes and
prior year development. The company believes this ratio is an important
measure of the trend in profitability since it removes the impact of
volatile and unpredictable catastrophe losses and prior accident year
loss and loss adjustment expense reserve. A reconciliation of the
combined ratio to the combined ratio before catastrophes and prior year
development is provided in the table below.
|
|
|
|
Three Months Ended
|
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
P&C Commercial
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
|
98.4
|
|
|
|
|
100.5
|
|
Catastrophe ratio
|
|
|
|
2.3
|
|
|
|
|
2.3
|
|
Non-catastrophe prior year development
|
|
|
|
3.0
|
|
|
|
|
3.7
|
|
Combined ratio before PYD & catastrophes
|
|
|
|
93.1
|
|
|
|
|
94.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Markets
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
|
101.0
|
|
|
|
|
112.6
|
|
Catastrophe ratio
|
|
|
|
12.2
|
|
|
|
|
22.9
|
|
Non-catastrophe prior year development
|
|
|
|
(0.1
|
)
|
|
|
|
(1.5
|
)
|
Combined ratio before PYD & catastrophes
|
|
|
|
88.9
|
|
|
|
|
91.3
|
|
Core Earnings: The Hartford uses the
non-GAAP measure core earnings as an important measure of the company’s
operating performance. The Hartford believes that the measure core
earnings provides investors with a valuable measure of the performance
of the company’s ongoing businesses because it reveals trends in our
insurance and financial services businesses that may be obscured by
including the net effect of certain realized capital gains and losses,
discontinued operations, loss on extinguishment of debt, gains and
losses on business disposition transactions, certain restructuring
charges and the impact of Unlocks to deferred policy acquisition costs
("DAC"), sales inducement assets ("SIA"), unearned revenue reserves
("URR") and death and other insurance benefit reserve balances. Some
realized capital gains and losses are primarily driven by investment
decisions and external economic developments, the nature and timing of
which are unrelated to the insurance and underwriting aspects of our
business.
Accordingly, core earnings excludes the effect of all realized gains and
losses (net of tax and the effects of DAC) that tend to be highly
variable from period to period based on capital market conditions. The
Hartford believes, however, that some realized capital gains and losses
are integrally related to our insurance operations, so core earnings
includes net realized gains and losses such as net periodic settlements
on credit derivatives and net periodic settlements on the Japan fixed
annuity cross-currency swap. These net realized gains and losses are
directly related to an offsetting item included in the income statement
such as net investment income. Net income (loss) is the most directly
comparable U.S. GAAP measure. Core earnings should not be considered as
a substitute for net income (loss) and does not reflect the overall
profitability of the company’s business. Therefore, the Hartford
believes that it is useful for investors to evaluate both net income
(loss) and core earnings when reviewing the company’s performance.
A reconciliation of core earnings to net income (loss) for the quarterly
periods ended June 30, 2013 and 2012, is included in this press release.
A reconciliation of core earnings to net income (loss) 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 June 30, 2013.
Core earnings available to common shareholders per
diluted share: Core earnings available to common shareholders per
diluted share is calculated based on the non-GAAP financial measure core
earnings. It is calculated by dividing (a) core earnings, by (b) diluted
common shares outstanding. The Hartford believes that the measure core
earnings available to common shareholders 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) per diluted common share is the most
directly comparable GAAP measure. Core earnings available to common
shareholders per diluted share should not be considered as a substitute
for net income (loss) per diluted share and does not reflect the overall
profitability of the company's business.
Therefore, The Hartford believes that it is useful for investors to
evaluate both net income (loss)per diluted share and core earnings
available to common shareholders per diluted share when reviewing the
company's performance. A reconciliation of core earnings available to
common shareholders per diluted share to net income (loss) per diluted
common share for the quarterly periods ended June 30, 2013 and 2012 is
included in this press release under the heading “The Hartford Financial
Services Group, Inc. Results By Segment.”
Underwriting gain (loss): The Hartford's
management evaluates profitability of the P&C Commercial and Consumer
Markets segments primarily on the basis of underwriting gain or loss.
Underwriting gain (loss) is a before-tax measure that represents earned
premiums less incurred losses, loss adjustment expenses and underwriting
expenses. Net income (loss) is the most directly comparable GAAP
measure. Underwriting gain (loss) is influenced significantly by earned
premium growth and the adequacy of The Hartford's pricing. Underwriting
profitability over time is also greatly influenced by The Hartford's
underwriting discipline, as management strives to manage exposure to
loss through favorable risk selection and diversification, effective
management of claims, use of reinsurance and its ability to manage its
expenses. The Hartford believes that the measure underwriting gain
(loss) provides investors with a valuable measure of profitability,
before tax, derived from underwriting activities, which are managed
separately from the company's investing activities. A reconciliation of
underwriting results to net income for the quarterly periods ended
June 30, 2013 and 2012, is set forth below.
|
|
|
|
Three Months Ended
|
|
|
|
|
June 30, 2013
|
|
|
|
June 30, 2012
|
P&C Commercial
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$192
|
|
|
|
$149
|
Add: Loss from discontinued operations
|
|
|
|
(2)
|
|
|
|
(1)
|
Add: Net realized capital losses
|
|
|
|
(7)
|
|
|
|
(16)
|
Add: Income tax expense
|
|
|
|
63
|
|
|
|
48
|
Less: Net servicing income
|
|
|
|
7
|
|
|
|
4
|
Add: Other income
|
|
|
|
(30)
|
|
|
|
(22)
|
Less: Net investment income
|
|
|
|
262
|
|
|
|
239
|
Underwriting gain (loss)
|
|
|
|
$25
|
|
|
|
$(7)
|
|
|
|
|
|
|
|
|
|
Consumer Markets
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
$15
|
|
|
|
$(50)
|
Add: Net realized capital losses
|
|
|
|
(3)
|
|
|
|
(2)
|
Add (Less): Income tax expense (benefit)
|
|
|
|
2
|
|
|
|
(32)
|
Less: Net servicing income
|
|
|
|
6
|
|
|
|
4
|
Add: Other income
|
|
|
|
(16)
|
|
|
|
(11)
|
Less: Net investment income
|
|
|
|
39
|
|
|
|
41
|
Underwriting loss
|
|
|
|
$(9)
|
|
|
|
$(114)
|
SAFE HARBOR STATEMENT
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 company's
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 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
strategic realignment to focus on our property and casualty, group
benefits and mutual fund businesses, place our Individual Annuity
business into run-off and sell the Individual Life, Woodbury Financial
Services, Retirement Plans and U.K. variable annuity businesses,
including potential constraints on our ability to deploy capital as and
when planned; execution risk related to the continued repositioning of
our investment portfolios and refinement of our hedge program for our
run-off annuity block; the future capital self-sufficiency of the
company's Talcott Resolution businesses; 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 analytical models in making decisions in key areas such as
underwriting, capital, hedging, 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 Stability Oversight
Council with the power to designate “systemically important”
institutions, requires central clearing of, and/or imposes 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 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,
Quarterly Reports on Form 10-Q and Form 10-Q/A 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.
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