Hartford, CT -(BusinessWire)- The Hartford (NYSE:HIG) reported a net loss of $101 million, or $0.26 per diluted share, for the second quarter of 2012, which included a $587 million loss on extinguishment of debt, compared with net income of $33 million, or $0.05 per diluted share, in the second quarter of 2011. The company also reported that second quarter 2012 core earnings rose to $119 million, or $0.23 per diluted share, from $14 million, or $0.01 per diluted share, in the second quarter of 2011.
“Second quarter financial results benefitted from the pricing and underwriting actions that we initiated last year in our Property and Casualty and Group Benefits businesses,” said Chairman, President and CEO Liam E. McGee. “P&C pricing remains strong. Renewal pricing increased 7% in standard commercial with acceptable retention, and rose 4% in personal auto and 6% in homeowners. Group Benefits results also improved modestly compared to the prior year reflecting stable incidence and a small improvement in terminations.
“We are making progress executing on our strategy to focus The Hartford on its historical strength in insurance underwriting. We announced the definitive agreement to sell Woodbury Financial Services yesterday and the sales process for Individual Life and Retirement Plans is proceeding as expected,” added McGee. “The Hartford is on the right path to create greater shareholder value by sharpening our business focus, improving expense efficiency, increasing capital generation and reducing market risks.”
Second quarter 2012 core earnings included the following items that, in total, reduced core earnings by $379 million, after tax, or $0.82 per diluted share, and net income by $398 million, or $0.91 per diluted share (all items are presented after tax):
- Current accident year catastrophe losses totaled $189 million, reflecting $201 million from 13 U.S. catastrophe events in the second quarter of 2012 and $12 million of favorable development on first quarter 2012 catastrophes;
- Unfavorable deferred acquisition cost unlock expense (DAC unlock) included in core earnings was $127 million while unfavorable DAC unlock included in net income was $146 million due to actual separate account returns being below aggregated estimated returns;
- Net prior year Property and Casualty (P&C) loss and loss adjustment expense reserve strengthening of $32 million, including $33 million for the company’s annual ground-up studies of asbestos and environmental reserves (A&E); and
- Restructuring and other costs related to the company’s exit from Individual Annuity new business, the anticipated sales of Retirement Plans, Individual Life and Woodbury Financial and other expense initiatives totaling $31 million.
Second Quarter 2012 Highlights:
- P&C Commercial written premiums grew 1% due to higher pricing across all business lines, offset by slightly lower retention and new business premiums
- Renewal written price increases averaged 7% in Small Commercial and Middle Market and 16% in Middle Market workers’ compensation
- Group Benefits core earnings were $34 million, up 13% from $30 million in the second quarter of 2011
Commercial Markets net income rose 16% to $184 million in the second quarter of 2012 from $159 million in the second quarter of 2011 and core earnings increased 54% to $194 million from $126 million in the second quarter of 2011.
P&C Commercial core earnings were $160 million in the second quarter of 2012, a 67% increase from $96 million in the second quarter of 2011 primarily due to lower catastrophe losses. The combined ratio, excluding catastrophes and prior year development, increased to 94.5% in the second quarter of 2012 compared with 93.1% in the second quarter of 2011, reflecting lower workers’ compensation profitability. Unfavorable prior year reserve development was $12 million, after tax, in the second quarter of 2012 compared with unfavorable development of $20 million, after tax, in the second quarter of 2011. Current year catastrophe losses were $48 million, after tax, in the second quarter of 2012 compared with $108 million, after tax, in the second quarter of 2011.
P&C Commercial continued to benefit from strong renewal written pricing trends in all business lines in the second quarter of 2012. Small Commercial and Middle Market renewal written pricing increases averaged 7%, consistent with the first quarter of 2012. Middle Market pricing increased 10%, while Middle Market workers’ compensation renewal pricing increased 16% in the quarter. Retention remained strong at 82% in Small Commercial, a slight decline from 83% in the second quarter of 2011. Middle Market retention for the second quarter of 2012 was down to 73% compared with 79% in the prior year period, reflecting the impact of the company’s pricing actions on its renewal book of business.
Group Benefits core earnings in the second quarter of 2012 were $34 million, up 13% compared with $30 million in the second quarter of 2011. The loss ratio rose slightly to 78.6% compared with 78.0% in the second quarter of 2011. Group Benefits loss experience reflects stable but elevated incidence compared to historical levels, higher severity and a slight improvement in terminations in group long term disability. Second quarter 2012 core earnings also reflect favorable life and accidental death and dismemberment results. Second quarter 2012 fully insured premium in Group Benefits declined 6% to $950 million compared with the second quarter of 2011 due to lower persistency resulting from the company’s targeted pricing initiatives as well as the competitive market environment.
The complete earnings release is available here: The Hartford Second Quarter 2012 Financial Results