Hartford, CT – The Hartford (NYSE:HIG) reported core earnings of $477 million for the three months ended Sept. 30, 2014 (third quarter 2014), up 15% from $416 million in third quarter 2013. The increase in core earnings was principally due to improved property and casualty (P&C) underwriting results and higher income from limited partnerships and other alternative investments (LPs). Third quarter 2014 core earnings per diluted share were $1.06, a 25% increase from $0.85 per diluted share in third quarter 2013 due to the growth in core earnings and the accretive impact of share repurchases over the past 12 months.
Third quarter 2014 net income totaled $388 million, up 32% from $293 million in third quarter 2013. Third quarter 2014 net income included a $102 million, after-tax, unlock charge primarily related to the company’s annual assumptions update, compared to a $104 million, after-tax, unlock charge in third quarter 2013. Third quarter 2013 net income included a $72 million, after-tax, loss from discontinued operations associated largely with the Japan annuity business, which was sold in second quarter 2014. Third quarter 2014 net income per diluted share was $0.86, up 43% from $0.60 per diluted share in third quarter 2013.
*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP).
“The Hartford delivered outstanding results this quarter, with core earnings from P&C, Group Benefits and Mutual Funds up 30% year-over-year and a core earnings return on equity of 8.2% over the past twelve months,” said The Hartford’s CEO Christopher Swift. “Our focus on driving profitable growth through execution and investments in new capabilities is producing positive results. In the third quarter, we delivered margin expansion across the business lines and top-line growth in P&C. Looking ahead, our primary objectives are to drive return on equity improvement and growth in book value per share to achieve top-quartile shareholder returns.”
“Our P&C and Group Benefits businesses produced strong underlying results this quarter, continuing our track record of strengthening fundamentals from pricing, underwriting and product initiatives over the past several years,” said The Hartford’s President Doug Elliot. “In P&C, our combined ratio was 91.4, a 4.8 point improvement from last year, reflecting a 2.6 point improvement in current accident year results excluding catastrophes, as well as favorable prior year development and light catastrophes. In addition, written premiums for Small Commercial and Middle Market grew 5% in total due to strong retention and new business production. Group Benefits earnings also increased, with an after-tax core margin of 4.5% driven by improved group life and disability results.”
Third quarter 2014 financial results included the following items that had a favorable $75 million, after-tax, or $0.17 per diluted share, benefit to both net income and core earnings. This compares with favorable items in third quarter 2013 that increased net income and core earnings by a total of $87 million, after-tax, or $0.18 per diluted share:
- Catastrophe losses of $26 million, after-tax, in third quarter 2014 were lower than the company’s outlook of $87 million, after-tax, by $61 million, after-tax, or $0.14 per diluted share. Third quarter 2013 catastrophe losses of $43 million, after-tax, were $43 million, after-tax, or $0.09 per diluted share, lower than the company’s outlook for that quarter;
- Favorable prior year loss and loss adjustment expense reserve development (PYD) totaled $7 million, after-tax, or $0.02 per diluted share, in third quarter 2014 compared with unfavorable PYD of $11 million, after-tax, or $0.02 per diluted share, in third quarter 2013; and
- The Corporate segment had a benefit totaling $7 million, after-tax, or $0.02 per diluted share, for recovery of expenses from closed litigation, compared with $55 million, after-tax, or $0.11 per diluted share, in third quarter 2013 for an insurance recovery and for resolution of items under the company’s 1995 spin-off from its former parent company.
PROPERTY & CASUALTY (COMBINED)
Third Quarter 2014 Highlights:
- Written premiums rose 2% over third quarter 2013
- Combined ratio, before catastrophes and PYD, of 90.2, improved 2.6 points over third quarter 2013
- Core earnings of $353 million, increased 34% over third quarter 2013 largely due to improved current accident year (CAY) underwriting results
Third quarter 2014 P&C (Combined) written premiums increased 2% over the prior year period, comprised of 1% growth in P&C Commercial and 3% growth in Consumer Markets.
Third quarter 2014 underwriting gain was $218 million, a significant improvement from $95 million in third quarter 2013 due to better CAY underwriting results in P&C Commercial and Consumer Markets, lower catastrophe losses and favorable PYD. Third quarter 2014 P&C (Combined) combined ratio, before catastrophes and PYD, improved 2.6 points to 90.2 compared with 92.8 in third quarter 2013.
CAY catastrophe losses in third quarter 2014 were $40 million, before tax, significantly below the company’s outlook of $134 million, before tax, and also less than third quarter 2013 catastrophe losses of $66 million, before tax. During the quarter there were six catastrophe events compared with eight events in third quarter 2013.
Favorable PYD totaled $10 million, before tax, in third quarter 2014, reflecting favorable PYD in both P&C Commercial and Consumer Markets compared with unfavorable PYD of $17 million, before tax, in third quarter 2013.
Third quarter 2014 P&C (Combined) core earnings were $353 million, an increase of 34% from $263 million in third quarter 2013, largely due to improved underwriting results. P&C Commercial core earnings increased 52% over third quarter 2013 to $268 million, while Consumer Markets core earnings increased 4% over third quarter 2013 to $71 million.
Third quarter 2014 net income was $367 million, an increase of 39% compared with $264 million in third quarter 2013. Net realized capital gains not included in core earnings totaled $14 million, after-tax, in third quarter 2014 compared with net realized capital gains not included in core earnings of $1 million, after-tax, in third quarter 2013.
P&C COMMERCIAL
Third Quarter 2014 Highlights:
- Standard Commercial renewal written pricing increases averaged 5%, down from 6% in second quarter 2014 and remain ahead of loss cost trends
- Written premiums, excluding Programs, rose 4% over third quarter 2013, driven by 7% growth in Small Commercial and 3% growth in Middle Market
- Combined ratio, before catastrophes and PYD, improved 3.1 points over third quarter 2013 to 90.2
Third quarter 2014 written premiums in P&C Commercial grew 1% to $1,583 million from $1,567 million in third quarter 2013, reflecting 7% growth in Small Commercial and 3% growth in Middle Market that was largely offset by a 21% decline in Specialty Commercial. Written premium growth resulted from renewal written pricing increases and stronger new business production in both Small Commercial and Middle Market as well as stronger policy retention in Small Commercial. Specialty Commercial written premiums declined in third quarter 2014 due to a 48% reduction in Programs written premiums as a result of 2013 underwriting initiatives, including the decision to exit several transportation programs. Excluding Programs, Specialty Commercial written premiums declined 4% and P&C Commercial written premiums rose 4%.
Renewal written pricing increases in third quarter 2014 for Standard Commercial, which is comprised of Small Commercial and Middle Market, averaged 5%, down from 6% in second quarter 2014 and 7% in third quarter 2013. However, renewal written pricing increases remained higher than increases in loss costs. Renewal written pricing increases in third quarter 2014 averaged 4% in Small Commercial and 5% in Middle Market and reflect renewal rate increases in all lines of business.
New business premium for Small Commercial increased 11% over third quarter 2013 to $128 million driven by growth in workers’ compensation and package business. Middle Market new business premium increased 5% from third quarter 2013 to $112 million.
Improved policy count retention also contributed to written premium growth. Small Commercial retention was 84% in third quarter 2014, a 3 point improvement from 81% in third quarter 2013. Middle Market policy count retention for third quarter 2014 was 80%, stable with third quarter 2013.
P&C Commercial underwriting gain rose significantly to $151 million in third quarter 2014 from $30 million in third quarter 2013 due to improved CAY results, favorable PYD and lower catastrophe losses. Third quarter 2014 combined ratio, which includes catastrophes and PYD, improved 7.7 points to 90.4 over third quarter 2013. Third quarter 2014 combined ratio, before catastrophes and PYD, improved by 3.1 points to 90.2 from 93.3 in third quarter 2013.
Third quarter 2014 catastrophe losses decreased to $8 million, before tax, compared with $48 million, before tax, in third quarter 2013. There were six catastrophe events in the quarter, primarily related to wind and thunderstorm activity. Third quarter 2014 PYD improved to a favorable $5 million, before tax, compared with unfavorable PYD of $26 million, before tax, in third quarter 2013. Favorable PYD in third quarter 2014 was principally in the professional and general liability lines, while third quarter 2013 unfavorable PYD occurred in auto liability, partially offset by favorable PYD in professional and general liability.
The complete earnings release is available here: The Hartford Third Quarter 2014 Results
Source: The Hartford