Hartford, CT -(BusinessWire)- The Hartford (NYSE:HIG) recently reported core earnings of $456 million for the three months ended Dec. 31, 2013 (fourth quarter 2013), up 78% from $256 million in fourth quarter 2012 due to lower catastrophe losses and improved Property and Casualty (P&C) Commercial and Group Benefits margins, partially offset by a decline in core earnings from Talcott Resolution and Corporate. Core earnings per diluted share rose 81% to $0.94 from $0.52 in fourth quarter 2012.
Fourth quarter 2013 net income totaled $314 million, or $0.65 per diluted share, compared with a fourth quarter 2012 net loss of $46 million, or $0.13 per diluted share, reflecting both higher core earnings and lower net realized capital losses. Fourth quarter 2013 net realized capital losses not included in core earnings, which are principally on international VA hedging programs, totaled $177 million, after-tax and deferred acquisition costs (DAC), a 37% decrease from $282 million, after-tax and DAC, in fourth quarter 2012.
“Fourth quarter was a strong finish to an outstanding year for The Hartford,” said The Hartford’s Chairman, President and CEO Liam E. McGee. “We executed our strategy and delivered 41% core earnings growth in P&C, Group Benefits and Mutual Funds, and reduced VA policy counts in Japan and the U.S. by 26% and 14%, respectively. Pricing increases in P&C Standard Commercial remained stable at 8% for the sixth consecutive quarter and profits rebounded in Group Benefits.”
“The Hartford’s 2014 outlook demonstrates confidence in the company’s continued ability to create shareholder value. We are focused on driving profitable growth, further reducing risk in Talcott Resolution, and making the company work more effectively and efficiently. With our strong financial position and capital generation, we were pleased to announce a new, two-year $2.656 billion capital management plan,” added McGee.
For the full year ended Dec. 31, 2013 (full year 2013), core earnings grew 26% to $1,742 million, or $3.55 per diluted share, from $1,386 million, or $2.85 per diluted share in 2012. Core earnings improved as a result of lower catastrophe losses and improved margins in P&C Commercial, Consumer Markets and Group Benefits, partially offset by a decline in core earnings from Talcott Resolution.
Full year 2013 net income was $176 million, or $0.34 per diluted share compared with full year 2012 net loss of $38 million, or $0.18 per diluted share. Full year 2013 net income was impacted by $701 million, after-tax and DAC, of net realized capital losses, principally related to international VA hedging programs, that are not included in core earnings and a $525 million, after-tax, unlock charge. Full year 2012 net income included $410 million of net realized capital losses not included in core earnings, after-tax and DAC; $587 million loss on extinguishment of debt, after-tax; and $388 million net reinsurance loss, after-tax, related to the sale of the Individual Life business, announced in September 2012.
Fourth quarter 2013 net income and core earnings included the following items that had no net impact on earnings, compared with items that decreased net income and core earnings by a total of $120 million, after-tax, or $0.25 per diluted share, in fourth quarter 2012:
- Fourth quarter 2013 catastrophe losses that were less than the company’s $42 million, after-tax, outlook by $24 million, after-tax, or $0.05 per diluted share. This compares with fourth quarter 2012 catastrophe losses that were $174 million, after-tax, or $0.36 per diluted share, higher than the company’s fourth quarter 2012 outlook of $44 million, after-tax;
- Fourth quarter 2013 unfavorable P&C (Combined) prior year loss and loss adjustment expense reserve development (PYD) of $10 million, after-tax, or $0.02 per diluted share, compared with fourth quarter 2012 unfavorable PYD of $6 million, after-tax, or $0.01 per diluted share;
- Fourth quarter 2013 Corporate segment expense of $14 million, after-tax, or $0.03 per diluted share, related to a tax adjustment, compared to a fourth quarter 2012 Corporate segment tax benefit of $17 million, after-tax, or $0.03 per diluted share, related to retiree prescription drug benefits; and
- Fourth quarter 2012 core earnings in Talcott Resolution of $43 million, or $0.09 per diluted share, from the Individual Life and Retirement Plans businesses that were sold in first quarter 2013.
Full year 2013 net income and core earnings included the following items that increased net income and core earnings by a total of $19 million, after-tax, or $0.04 per diluted share, compared with items that decreased net income and core earnings by a total of $26 million, after-tax, or $0.05 per diluted share, in 2012.
- Full year 2013 catastrophe losses that were less than the company’s 2013 outlook of $305 million, after-tax, by $103 million, after-tax, or $0.21 per diluted share, compared with full year 2012 catastrophe losses that were $210 million, after-tax, or $0.43 per diluted share, greater than the company’s 2012 catastrophe outlook of $249 million, after-tax;
- Full year 2013 unfavorable PYD of $125 million, after-tax, or $0.25 per diluted share, compared with full year 2012 favorable PYD of $3 million, after-tax, or $0.01 per diluted share;
- Full year 2013 net benefit of $41 million, or $0.08 per diluted share, in the Corporate segment for an insurance recovery, tax adjustment and other items, compared with a full year 2012 tax benefit totaling $17 million, or $0.03 per diluted share; and
- Full year 2012 core earnings in Talcott Resolution of $164 million, or $0.34 per diluted share, from the Retirement Plans and Individual Life businesses that were sold in first quarter 2013.
2014 OUTLOOK
The Hartford announced that the company’s full year 2014 core earnings outlook is $1,650 million to $1,750 million. The 2014 outlook includes catastrophe losses of $305 million, after-tax, unfavorable PYD of $22 million, after-tax, due to the accretion of the discount on workers’ compensation loss reserves, and limited partnership and other alternative investment returns of 6%, or $112 million, after-tax.
“With improved financial flexibility and growing dividend capacity from our operating subsidiaries, we are pleased to announce our 2014 and 2015 capital management plan and 2014 core earnings outlook of $1.65 billion to $1.75 billion,” said The Hartford’s Chief Financial Officer Christopher J. Swift. “Our 2014 outlook represents a modest increase over 2013 core earnings and ROE, adjusted for certain 2013 items including favorable catastrophes and limited partnership income and unfavorable prior year development. Having closed out an outstanding 2013, we are now focused on 2014 and beyond. We look forward to making continued progress on our goals to grow book value per share and to increase core earnings ROE.”
The Hartford’s outlook is a management estimate based on business, competitive, capital market, catastrophe loads and other assumptions. Key business and market assumptions included in this outlook are set forth in the table below. This outlook is subject to change for many reasons, including unusual or unpredictable items, such as catastrophe losses, tax benefits or charges, prior year development, investment results, and other items. The company has frequently experienced unusual or unpredictable benefits and charges that were not anticipated in previously provided guidance.
Full year 2013 core earnings include the impact of certain items that differ or are not included in the company’s 2014 core earnings outlook. In particular, 2013 catastrophes were $103 million, after-tax, below the company’s 2013 outlook; the 2014 outlook includes a catastrophe loss estimate of $305 million, after-tax. In addition, full year 2014 unfavorable PYD includes only the accretion of discount on workers’ compensation reserves, whereas full year 2013 PYD includes unfavorable development on other P&C lines, including $92 million, after-tax, of unfavorable asbestos and environmental PYD. Finally, the yield on full year 2013 limited partnership and other alternative investments was 10%, above the company’s 2014 outlook of 6%. The table below provides a reconciliation of these and Corporate segment items between full year 2013 core earnings and the 2014 outlook.
PROPERTY & CASUALTY (COMBINED)
Fourth Quarter 2013 Highlights:
- Combined ratio, before catastrophes and PYD, improved 2.2 points to 93.2 from 95.4 in fourth quarter 2012
- Written premiums grew 2% over fourth quarter 2012
- Core earnings were $300 million, compared to $54 million in fourth quarter 2012, primarily due to lower catastrophe losses
Fourth quarter 2013 P&C (Combined) core earnings were $300 million, an increase from $54 million in fourth quarter 2012 due to significantly lower catastrophe losses and better current accident year results. Fourth quarter 2013 net income was $346 million, compared with $80 million in fourth quarter 2012, reflecting the improvement in core earnings.
Fourth quarter 2013 underwriting gain was $128 million, a substantial improvement compared with a loss of $229 million in fourth quarter 2012, as a result of improved current accident year results and lower catastrophe losses. Catastrophe losses totaled $28 million, before tax, in fourth quarter 2013, a substantial decline from fourth quarter 2012 catastrophe losses of $335 million, before tax, which included significant losses from Storm Sandy. PYD had a relatively modest impact on underwriting results in both periods, totaling an unfavorable $15 million, before tax, in fourth quarter 2013 compared with an unfavorable $9 million, before tax, in fourth quarter 2012.
Fourth quarter 2013 combined ratio was 94.9 compared with 109.2 in fourth quarter 2012. Before catastrophes and PYD, the P&C (Combined) fourth quarter 2013 combined ratio improved 2.2 points to 93.2 compared with 95.4 in fourth quarter 2012, reflecting pricing and underwriting initiatives in P&C Commercial.
Fourth quarter 2013 written premiums increased 2% over the prior year period, reflecting 1% growth in P&C Commercial and 3% growth in Consumer Markets.
P&C Commercial
Fourth Quarter 2013 Highlights:
- Underwriting gain improved to $98 million compared with a loss of $193 million in fourth quarter 2012 due to lower catastrophe losses and better current accident year results
- Standard Commercial renewal written pricing increased 8% in fourth quarter 2013, consistent with the last five quarters
- Middle Market workers’ compensation represented 30% of new business, compared with 38% in fourth quarter 2011
P&C Commercial underwriting gain was $98 million in fourth quarter 2013 versus a loss of $193 million in fourth quarter 2012 due to lower catastrophe losses and better current accident year results in each of its three businesses (Small Commercial, Middle Market and Specialty.) Fourth quarter 2013 catastrophe losses totaled $7 million, before tax, compared with $209 million, before tax, in fourth quarter 2012, due to Storm Sandy.
Unfavorable PYD decreased to $12 million, before tax, in fourth quarter 2013 compared with $18 million, before tax, in fourth quarter 2012. Unfavorable PYD in fourth quarter 2013 was largely related to the package business, which was partially offset by favorable development on workers’ compensation, principally for older accident years.
The combined ratio before catastrophes and PYD improved to 92.5 in fourth quarter 2013 compared with 97.8 in fourth quarter 2012, reflecting improved underwriting margins in Small Commercial, Middle Market and Specialty. Before catastrophes and PYD, the fourth quarter 2013 combined ratio for Small Commercial was 85.9, a 6.9 point improvement from 92.8 in fourth quarter 2012, while Middle Market improved by 4.2 points to 94.8 from 99.0 in fourth quarter 2012 and Specialty improved 10.6 points to 100.6 from 111.2 in fourth quarter 2012.
Renewal written pricing in Standard Commercial, which is comprised of Small Commercial and Middle Market, remained strong in fourth quarter 2013, reflecting price increases in all business lines. Renewal written pricing increased 8% in Standard Commercial, consistent with the last five quarters. Small Commercial renewal written pricing increases averaged 8%, including an increase of 11% in commercial auto. Middle Market renewal written pricing increases averaged 7%, reflecting increases of 8% in both workers’ compensation and property and 10% in commercial auto.
Written premiums grew 1% from $1,454 million in fourth quarter 2012 to $1,463 million in fourth quarter 2013, driven by growth in Small Commercial and Middle Market, which were up 1% and 2%, respectively. Written premium growth reflects higher pricing on renewals in Small Commercial, stronger new business production in Middle Market and solid retention in both business lines. New business premium for Small Commercial and Middle Market totaled $213 million, up 13% from $189 million in fourth quarter 2012 driven by Middle Market property and general liability. Policy count retention in Small Commercial was 82% in fourth quarter 2013 compared with 83% in fourth quarter 2012. Middle Market policy count retention for fourth quarter 2013 was 79%, flat versus fourth quarter 2012.
The complete earnings release is available here: The Hartford Fourth Quarter And Full Year 2013 Financial Results
Source: BusinessWire