Hartford, CT -(BusinessWire)- The Hartford (NYSE:HIG) reported core earnings of $456 million, or $0.92 per diluted share, for the three months ended March 31, 2013 (first quarter 2013), up 7% from $426 million, or $0.87 per diluted share, for the three months ended March 31, 2012 (first quarter 2012). Improved core earnings in the company’s go forward Property and Casualty (P&C), Group Benefits and Mutual Funds businesses and lower core losses in Corporate were partially offset by reduced core earnings from Talcott Resolution, the company’s run-off life and annuity operation, due to the January 2013 sales of the Retirement Plans and Individual Life businesses and lower core earnings from annuities.
The company reported a first quarter 2013 net loss of $241 million, or $0.58 per diluted share, compared with net income of $96 million, or $0.18 per diluted share, in the first quarter of 2012. First quarter net income included a $541 million, after tax, unlock charge principally due to the expanded hedging of the international variable annuity block, and a $138 million, after tax, loss on extinguishment of debt.
“The Hartford reported strong performance in the first quarter of 2013,” said The Hartford’s Chairman, President and CEO Liam E. McGee. “Our go-forward businesses delivered core earnings growth of 19% across Property and Casualty, Group Benefits and Mutual Funds. P&C Standard Commercial renewal written price increases averaged 9% and our consolidated P&C combined ratio, ex-catastrophes and prior year development, improved by more than 2 points to 91.8. Group Benefits core earnings of $30 million were significantly improved from last year and gross sales for Mutual Funds were up 34% over first quarter 2012. We are pleased with the progress we are making with these businesses, as well as their outlook for profitable growth.”
*Denotes financial measures not calculated based on generally accepted accounting principles (“non-GAAP”).
“During the quarter, we executed a major portion of our capital management plan and effectively eliminated the currency and equity market risk of the Japan variable annuity block with an expanded hedging program,” said Executive Vice President and Chief Financial Officer Christopher J. Swift. “Talcott Resolution is now capital self-sufficient, the company’s capital flexibility is significantly enhanced, and our capital generation outlook is improved. As a result, we are developing the next phase of our 2013 and 2014 capital management plans.”
First quarter 2013 net income and core earnings included the following items that increased both net income and core earnings by $27 million, after tax, or $0.05 per diluted share:
- First quarter 2013 catastrophe losses that were lower than the company’s forecast by approximately $36 million, after tax ($0.07 per diluted share on a core earnings basis); first quarter 2013 catastrophe losses totaled $21 million, after tax; and
- First quarter 2013 unfavorable prior year development (PYD) of $14 million, before tax ($9 million, after tax, or $0.02 per diluted share on a core earnings basis).
First quarter 2012 included the following items that increased net income by $57 million, after tax, and core earnings by $58 million, after tax, or $0.12 per diluted share on a core earnings basis:
- First quarter 2012 catastrophe losses that were lower than the company’s forecast by approximately $1 million, after tax; catastrophe losses totaled $46 million, after tax;
- Favorable PYD of $29 million, before tax ($19 million, after tax, or $0.04 per diluted share on a core earnings basis); and
- Net income of $37 million and core earnings of $38 million (or $0.08 per diluted share) from the Retirement Plans and Individual Life businesses that were sold on January 1, and January 2, respectively, of 2013.
PROPERTY & CASUALTY (CONSOLIDATED)
First Quarter 2013 Highlights:
- First quarter 2013 core earnings rose 12% due to better underwriting results compared with the first quarter of 2012
- First quarter 2013 combined ratio improved to 93.6 from 95.6 in the first quarter of 2012
- First quarter 2013 combined ratio, before catastrophes and prior year development (PYD), improved to 91.8 from 93.9 in the first quarter of 2012
First Quarter 2013 Results
First quarter 2013 P&C net income was $351 million and core earnings were $318 million, up 8% and 12%, respectively, over the first quarter of 2012. The increases reflect an improvement in the combined ratio and underwriting gain from 95.6 and $108 million, respectively, in the first quarter of 2012 to 93.6 and $154 million in the first quarter of 2013. The improvement in the combined ratio and underwriting gain was principally due to improved P&C Commercial underwriting margins as a result of the company’s pricing and underwriting initiatives that began in 2011.
During the quarter, the company also had lower catastrophe losses that were partially offset by unfavorable PYD compared to the first quarter of 2012. Before catastrophes and PYD, the P&C (Consolidated) combined ratio in the first quarter of 2013 was 91.8 compared with 93.9 in the first quarter of 2012, reflecting improved underwriting margins in P&C Commercial. Catastrophe losses totaled $32 million, before tax, in the first quarter of 2013 compared with $71 million, before tax, in the first quarter of 2012. Unfavorable PYD totaled $14 million, before tax, in the first quarter of 2013 compared with favorable PYD of $29 million, before tax, in the first quarter of 2012. Unfavorable PYD in the first quarter of 2013 was comprised of $8 million from P&C Commercial, $4 million from Consumer Markets and $2 million from P&C Other.
First quarter 2013 written premiums declined 1% over the prior year period, as lower premiums in P&C Commercial Markets were partially offset by 2% written premium growth in Consumer Markets.
P&C Commercial
First Quarter 2013 Highlights:
- First quarter 2013 underwriting gain of $91 million compared with $4 million in the first quarter of 2012 reflecting improved current accident year results, including lower catastrophes, as well as lower unfavorable PYD
- Standard Commercial renewal written price increases rose to 9% in the first quarter of 2013 compared with 7% in the prior year quarter
- Middle Market workers’ compensation and property achieved renewal written price increases in the low teens in the first quarter of 2013
P&C Commercial underwriting gain was $91 million in the first quarter of 2013 compared with an underwriting gain of $4 million in the first quarter of 2012. The higher underwriting gain was primarily due to improved current accident year profitability, including lower catastrophes, as well as lower unfavorable PYD. First quarter 2013 catastrophe losses totaled $6 million, before tax, significantly lower than catastrophe losses of $32 million, before tax, in the first quarter of 2012. Unfavorable PYD declined to $8 million, before tax, in the first quarter of 2013 compared with unfavorable PYD of $20 million, before tax, in the first quarter of 2012.
The combined ratio, before catastrophes and PYD, improved to 93.1 in the first quarter of 2013 compared with 96.4 in the first quarter of 2012, reflecting improved underwriting margins in each of the company’s business lines (Small Commercial, Middle Market and Specialty) resulting from the company’s pricing and underwriting initiatives.
Written premiums declined 2% from $1,687 million in the first quarter of 2012 to $1,645 million in the first quarter of 2013. Excluding the conversion of one large account from a retrospectively-rated program to a high-deductible policy, written premiums decreased 1% over the same period driven by the impact of pricing and underwriting actions implemented to improve profitability. Pricing increases and new business did not fully offset the impact of non-renewals.
P&C Commercial renewal written pricing continued to be strong, achieving increases in all standard commercial business lines in the first quarter of 2013. Standard Commercial, which is comprised of Small Commercial and Middle Market, averaged renewal written pricing increases of 9%, a 2 point increase over the first quarter of 2012. Middle Market pricing increased 11%, while Middle Market workers’ compensation and property pricing increased in the low teens.
New business premium for Small Commercial and Middle Market totaled $231 million, down 2% from $236 million in the first quarter of 2012. Policy count retention in Small Commercial was 82% in the first quarter of 2013 compared with 84% in the first quarter of 2012. Middle Market policy count retention for the first quarter of 2013 was 77%, a decrease from 79% in the first quarter of 2012.
The complete earnings release is available here: The Hartford Reports First Quarter 2013 Financial Results