Hartford, CT – The Hartford (NYSE:HIG) reported net income of $216 million in second quarter 2016 ended June 30, a decrease of $197 million from second quarter 2015, principally due to lower P&C underwriting results and lower net investment income. P&C underwriting losses deteriorated $159 million, after-tax, compared with second quarter 2015 largely due to higher unfavorable PYD for the Personal Lines automobile and run-off asbestos and environmental (A&E) lines, higher catastrophe losses and lower current accident year Personal Lines automobile results. Net investment income declined $40 million, after-tax, compared with second quarter 2015 primarily due to a $35 million, after-tax, decline in investment income from limited partnerships and other alternative investments (LPs). These items, in addition to a $48 million tax benefit in second quarter last year, were the principal drivers of the decrease in core earnings from $389 million in second quarter 2015 to $122 million in second quarter 2016.
*Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP).
Second quarter 2016 net income per diluted share was $0.54, a decrease of 44% compared with net income per diluted share of $0.96 in second quarter 2015 due to the decrease in net income slightly offset by fewer shares outstanding. Second quarter 2016 weighted average diluted common shares outstanding declined 7% from second quarter 2015 as a result of the company’s equity repurchases over the last year. Second quarter 2016 core earnings per diluted share decreased 66% to $0.31 compared with $0.91 in second quarter 2015.
“Although many of our segments continued to generate solid results, the second quarter bottom line was disappointing, principally due to Personal Lines auto and P&C Other Operations asbestos and environmental,” said The Hartford’s Chairman and CEO Christopher Swift. “While underlying margins remain strong in Commercial Lines and Group Benefits, competition is increasingly aggressive and we continue to feel pressure on investment income due to lower interest rates.”
The Hartford’s President Doug Elliot added, “Commercial Lines had a strong quarter as we remain intensely focused on maintaining underwriting discipline. Group Benefits had slightly higher life severity, but we remain pleased with overall margins and results. In Personal Lines, adverse auto liability claims experience has contributed to approximately 5 points of deterioration in our estimate of underlying 2016 auto margins. As a result, our outlook for the 2016 Personal Lines combined ratio before catastrophes and prior year development has increased to a range of 93.0 to 94.0.”
Swift concluded, “Looking forward, we expect the environment to remain challenging. Our primary objectives are to maintain margins in Commercial Lines and Group Benefits and to improve Personal Lines results. We remain confident that we are taking the right approach in this environment, emphasizing underwriting discipline over growth. With our strong capital generation and solid balance sheet, we have the financial flexibility to invest for the future in order to continue to strengthen our franchise and to create long-term shareholder value.”
Commercial Lines
Commercial Lines net income in second quarter 2016 declined to $240 million from $259 million in second quarter 2015, primarily due to decreases in both underwriting gain and net investment income, partially offset by increased net realized capital gains, after-tax. Commercial Lines underwriting gain was $82 million, before tax, in second quarter 2016 for a 95.0 combined ratio compared with a second quarter 2015 underwriting gain of $126 million, before tax, for a 92.2 combined ratio. The decrease in underwriting gain reflects lower current accident year results, including higher catastrophe losses, partially offset by lower unfavorable PYD. Before catastrophes and PYD, second quarter 2016 underwriting gain decreased by $21 million, before tax, compared with second quarter 2015 due to higher property losses and underwriting expenses, partially offset by improved workers’ compensation results.
Second quarter 2016 combined ratio deteriorated 2.8 points from second quarter 2015 reflecting a 2.2 point increase in catastrophe losses and a 1.4 point deterioration in the combined ratio before catastrophes and PYD, partially offset by a 0.9 point decline in unfavorable PYD. The Commercial Lines combined ratio before catastrophes and PYD increased 1.4 points to 89.8 in second quarter 2016 compared with second quarter 2015, reflecting a 1.8 point deterioration in Small Commercial to 86.9, a 2.6 point deterioration in Middle Market to 91.9 and a 3.4 point improvement in Specialty Commercial to 95.4.
Small Commercial combined ratio for second quarter 2016 was 92.2, an increase of 3.0 points compared with 89.2 in second quarter 2015, principally due to margin deterioration in package business, including higher property losses, partially offset by improved workers’ compensation results. Middle Market combined ratio was 99.8, an increase of 5.3 points from 94.5 in second quarter 2015, primarily due to higher property losses and a higher expense ratio. Specialty Commercial combined ratio improved 7.6 points to 92.8 compared with 100.4 in second quarter 2015, due to better underwriting results in National Accounts.
Second quarter 2016 Commercial Lines written premiums were $1,669 million, an increase of 1% from second quarter 2015 reflecting growth in Small Commercial, partially offset by a decline in Specialty Commercial. Second quarter 2016 Standard Commercial renewal written price increases averaged 2%, resulting from a 3% increase in Small Commercial and a 1% increase in Middle Market, exclusive of specialty programs and livestock lines of business.
The complete results release is available here: The Hartford Second Quarter 2016 Results
Source: The Hartford