Hartford, CT – The Hartford (NYSE:HIG) recently 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%.”
“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.”
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
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 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.
The complete earnings release is available here: The Hartford Second Quarter 2013 Results
Source: The Hartford