December 15, 2017

The Hartford Reports First Quarter 2017 Results

Hartford, CT – The Hartford (NYSE:HIG) reported first quarter 2017 net income and core earnings of $378 million compared with net income of $323 million and core earnings of $385 million in first quarter 2016. Net income rose 17% due to a reduction in net realized capital losses, partially offset by higher catastrophe losses. Net realized capital losses totaled $13 million, after-tax, in first quarter 2017 compared with $101 million, after-tax, in first quarter 2016. Current accident year catastrophe losses rose 66% from $59 million, after-tax, in first quarter 2016 to $98 million, after-tax, in first quarter 2017. The estimate of first quarter 2016 catastrophe losses subsequently increased by $26 million, after-tax, during 2016 due to the occurrence of storms late in that quarter.

“The Hartford is off to a very good start in 2017,” said The Hartford’s Chairman and CEO Christopher Swift. “Commercial Lines and Group Benefits both delivered top line growth and very strong margins. Mutual Funds had a great quarter, including a 14% increase in assets under management. The investment portfolio also continues to perform well, including solid limited partnership returns. Finally, I’m encouraged by the improvement in personal auto, where we have been addressing elevated loss cost trends.”

The Hartford’s President Doug Elliot said, “I am pleased with the underlying performance of Commercial Lines and Group Benefits as well as with the progress we’re making in Personal Lines. Our personal auto profitability initiatives are taking hold, with a significant improvement in the underlying loss ratio compared with last year, adjusted for unfavorable development during 2016. Commercial Lines results remained very strong, including outstanding performance in Small Commercial and Specialty Commercial, with both top line growth and excellent underlying margins. Middle Market results remained good, despite sustained competition and margin pressures. In Group Benefits, top line growth and a stable loss ratio resulted in a great quarter, excluding the impact of a previously-announced state guaranty fund assessment.”

Financial Results Summary
First quarter 2017 net income per diluted share was $1.00, an increase of 27% compared with net income per diluted share of $0.79 in first quarter 2016. The growth in net income per diluted share reflects a 17% increase in net income and a 7% reduction in weighted average diluted common shares outstanding in first quarter 2017 compared with first quarter 2016. The reduction in weighted average diluted common shares outstanding was primarily due to the company’s repurchase of 29.1 million common shares for a total of $1.3 billion over the last four quarters.

Core earnings declined 2% from first quarter 2016 principally due to the decrease in P&C underwriting gain, partially offset by higher net investment income. The decline in P&C underwriting gain was largely due to increased catastrophe losses and higher current accident year loss costs in commercial auto, personal auto and homeowners, partially offset by a decrease in net unfavorable PYD from $21 million, after-tax, in first quarter 2016 to $8 million, after-tax, in first quarter 2017. Core earnings per diluted share in first quarter 2017 rose 5% to $1.00, compared with $0.95 in first quarter 2016, as a 2% reduction in core earnings was more than offset by the impact of the 7% reduction in weighted average diluted common shares outstanding.

Net investment income increased 5% to $728 million, before tax, in first quarter 2017 compared with $696 million, before tax, in first quarter 2016 due to higher investment income on LPs, partially offset by the effect of lower invested assets, principally due to the runoff of Talcott Resolution, and a lower annualized investment yield, excluding LPs. Investment income from LPs totaled $70 million, before tax, or $47 million, after-tax, in first quarter 2017 compared with $8 million, before tax, or $3 million, after-tax, in first quarter 2016. Excluding LPs, first quarter 2017 net investment income declined 4% compared with first quarter 2016 due to both the continued runoff of Talcott Resolution and a decrease in the total annualized investment yield, excluding LPs, to 4.0% from 4.1% in first quarter 2016. The P&C annualized investment yield, excluding LPs, declined to 3.7% compared with 3.8% in first quarter 2016. The credit performance of the investment portfolio remained strong. Net impairment losses including mortgage loan valuation allowances totaled $1 million, before tax, down from $23 million, before tax, in first quarter 2016.

Net income return on equity (ROE) was 5.4% in first quarter 2017 compared with 8.3% in first quarter 2016, and core earnings ROE was 7.6% in first quarter 2017 compared with 8.8% in first quarter 2016.

Book value per diluted share as of March 31, 2017 rose 2% compared with Dec. 31, 2016 to $45.25. The increase in book value per diluted share reflects the 1% growth in stockholders’ equity and 1% decrease in common shares outstanding and dilutive potential common shares. The increase in stockholders’ equity was principally due to the change in AOCI that was largely due to the impact of lower market interest rates and tighter credit spreads since Dec. 31, 2016 on the fair value of the company’s fixed maturity investment portfolio. Excluding AOCI, book value per diluted share as of March 31, 2017 increased 1% to $45.80 from $45.24 as of Dec. 31, 2016 due to the reduction in common shares outstanding and dilutive potential common shares.

During first quarter 2017, the company repurchased 6.7 million common shares for approximately $325 million. As of April 25, 2017, the company had repurchased 1.9 million common shares for $92 million in second quarter 2017, leaving $883 million available under the $1.3 billion 2017 share repurchase authorization. During first quarter 2017, $87 million of common dividends were paid to shareholders, for a total return of capital to shareholders of $412 million during the quarter.

First Quarter 2017 Segment Results Summary

Commercial Lines:

  • Commercial Lines net income of $231 million rose 3% and core earnings declined 9% to $224 million compared with first quarter 2016. Net income increased due to a favorable change in net realized capital gains and higher net investment income that were largely offset by an unfavorable change in PYD and higher catastrophe losses. Unfavorable PYD was $15 million, before tax, in first quarter 2017 compared with favorable PYD of $20 million, before tax, in first quarter 2016. Catastrophe losses totaled $71 million, before tax, compared with $44 million, before tax, in first quarter 2016. The unfavorable change in PYD and the increase in catastrophe losses, partially offset by higher net investment income, were the primary causes of the core earnings decrease.
  • The Commercial Lines combined ratio increased 4.9 points from first quarter 2016 to 96.0 and included 5.1 points from catastrophes and PYD compared with 1.5 points from catastrophes and PYD in first quarter 2016.
  • The Commercial Lines underlying combined ratio was 90.9, an increase of 1.3 points from first quarter 2016 primarily due to higher current accident year commercial auto and general liability loss costs.

The complete results release is available here: The Hartford First Quarter 2017 Results

Source: The Hartford

  • RSS
  • Twitter
  • LinkedIn