- First quarter 2015 core earnings per
diluted share* of $1.04 declined 1% from $1.05 in first quarter
2014, which included a $0.07 benefit per diluted share from New
York State Workers' Compensation Board assessments
- First quarter 2015 net income per
diluted share of $1.08 rose 5% from first quarter 2014
- Property & Casualty (Combined)
first quarter 2015 combined ratio before catastrophes and prior
year favorable loss reserve development* was 91.7, essentially flat
with first quarter 2014, excluding the 2.0 point benefit from New
York State Workers' Compensation Board assessments
- Standard Commercial renewal written
price increases averaged 3%
- Book value per diluted share, excluding
accumulated other comprehensive income*, was $41.47, up 3% over
March 31, 2014
- Common share repurchases totaled $250
million for 6.1 million shares in first quarter 2015, contributing
to the 9% reduction in weighted average diluted common shares
outstanding since March 31, 2014
The Hartford (NYSE:HIG) reported core earnings of $452 million
for the three months ended March 31, 2015 (first quarter 2015),
down $49 million, or 10%, from $501 million in first quarter 2014.
The decrease from first quarter 2014 was primarily due to a $32
million, after-tax, benefit for New York State Workers'
Compensation Board assessments (NY Assessments) in first quarter
2014 and a $25 million, after-tax, reduction in favorable property
and casualty (P&C) prior year loss and loss adjustment expense
reserve development (PYD). Catastrophe losses did not have a
material impact on the change in core earnings, totaling $54
million, after-tax, in first quarter 2015 and $56 million,
after-tax, in first quarter 2014.
First quarter 2015 core earnings per diluted share were $1.04, a
1% decrease from $1.05 in first quarter 2014, as the accretive
impact of the 9% decrease in weighted average diluted common shares
outstanding and dilutive potential common shares largely offset the
core earnings decrease.
*Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP).
The decrease in weighted average common shares outstanding
resulted from the company's repurchase of 46.8 million shares since
March 31, 2014, including 6.1 million shares in first quarter 2015.
As of March 31, 2015, the company had $729 million of remaining
share repurchase authorization through Dec. 31, 2015 under its
current capital management plan.
First quarter 2015 net income totaled $467 million, down $28
million, or 6%, from $495 million in first quarter 2014, due
principally to the $49 million decrease in core earnings that was
largely offset by a $36 million reduction in net realized capital
losses, after-tax and deferred acquisition costs (DAC), excluded
from core earnings compared with first quarter 2014. In addition,
first quarter 2014 included $29 million of income from discontinued
operations earned by the Japan annuity business that was sold in
June 2014; first quarter 2015 did not have any income from
discontinued operations.
First quarter 2015 net income per diluted share was $1.08, up 5%
from $1.03 per diluted share in first quarter 2014 as the decrease
in net income was more than offset by the accretive impact of share
repurchases.
"The Hartford is off to a good start in 2015, and all our
businesses performed well from a growth and earnings perspective,"
said The Hartford's Chairman and CEO Christopher Swift. "We
continue to execute on our strategy and our businesses are
delivering against their operating and financial goals, despite
continued low interest rates and a U.S. P&C pricing cycle that
is increasingly competitive. We are well-positioned to navigate
these challenges, as we remain a disciplined underwriter committed
to creating shareholder value."
"Our P&C and Group Benefits businesses started 2015 with
solid results and steady operating performance," said The
Hartford's President Doug Elliot. "The combined ratio was 91.7
before catastrophes and PYD, while Group Benefits after-tax core
earnings margin* rose to 5.9%. The marketplace has grown more
competitive over the last quarter, and we are very focused on core
metrics and key performance indicators as we continue to balance
margins and growth. Our operating focus and investments in product,
underwriting and technology provide us a strong foundation moving
forward.”
CONSOLIDATED FINANCIAL RESULTS
($ in millions except per share data)
Three Months
Ended
Mar 312015
Mar 312014
Change2 Core earnings (loss):
Commercial Lines $234 $264 (11)% Personal
Lines $75 $101 (26)% P&C Other Operations $20
$21 (5)% Property & Casualty
(Combined) $329 $386
(15)% Group Benefits $52 $45
16% Mutual Funds $22 $21
5%
Sub-total $403
$452 (11)% Talcott Resolution
$111 $112 (1)% Corporate
$(62) $(63) 2%
Core
earnings $452 $501
(10)% Net income $467
$495 (6)% Weighted average diluted common
shares outstanding 433.7 478.6
(9)% Core earnings available to common shareholders per
diluted share¹ $1.04 $1.05
(1)% Net income available to common shareholders per diluted
share¹ $1.08 $1.03 5%
[1] Includes dilutive potential common shares[2] The Hartford
defines increases or decreases greater than or equal to 200%, or
changes from a net gain to a net loss position, or vice versa, as
"NM" or not meaningful
COMMERCIAL LINES
First Quarter 2015 Highlights:
- Core earnings were essentially flat
with first quarter 2014, excluding the $32 million, after-tax, NY
Assessments benefit recognized in first quarter 2014
- Combined ratio before catastrophes and
PYD of 92.4 improved 0.4 point over first quarter 2014, excluding
the 3.2 point benefit from NY Assessments
- Catastrophes and PYD were slightly
higher than first quarter 2014
COMMERCIAL LINES
($ in millions)
Three Months Ended
Mar 312015
Mar 312014
Change Core earnings¹ $234
$264 (11)% Net income¹ $240 $242 (1)%
Underwriting gain¹* $65 $107
(39)% Net investment income $257
$256 — Combined ratio² 95.9
93.1 (2.8) Catastrophes and PYD
3.6 3.4 (0.2) Combined ratio before
catastrophes and PYD² 92.4 89.6
(2.8) Small Commercial:
Combined ratio before catastrophes and
PYD² 89.6 85.9 (3.7) New
business premium $140 $131
7% Policy count retention 85%
83% 2.0 Middle Market:
Combined ratio before
catastrophes and PYD² 93.7 92.2
(1.5) New business premium $124
$110 13% Policy count retention 81%
81% — Written premiums
$1,722 $1,669 3% Standard Commercial
renewal written pricing increases 3% 6%
(3.0)
[1] Includes $32 million, after-tax expense benefit in first
quarter 2014 from NY Assessments[2] Commercial Lines, Small
Commercial and Middle Market combined ratios include an expense
ratio benefit of 3.2 point, 3.3 point and 2.6 point, respectively,
in first quarter 2014 from NY Assessments
Core earnings in Commercial Lines decreased 11% in first quarter
2015 to $234 million from $264 million in first quarter 2014
largely due to an expense benefit in first quarter 2014 of $32
million, after-tax, from NY Assessments. Excluding this benefit,
first quarter 2015 core earnings were essentially flat to the prior
year period. An improvement in underwriting margins on workers’
compensation due to earned pricing increases and moderate loss
costs was offset by higher expenses, excluding NY Assessments, due
to higher underwriting expenses. Net investment income was
essentially flat at $257 million, before tax, as both periods
reflected strong investment income on limited partnerships and
other alternative investments (LPs).
Commercial Lines underwriting gain totaled $65 million, before
tax, in first quarter 2015 for a 95.9 combined ratio compared with
a first quarter 2014 underwriting gain of $107 million, before tax,
for a 93.1 combined ratio. The decrease in underwriting gain and
increase in combined ratio was principally due to the $49 million,
before tax, favorable benefit of NY Assessments in first quarter
2014. Excluding the impact of NY Assessments, first quarter 2015
underwriting gain and combined ratio improved by $7 million and 0.4
point, respectively, over the prior year period. In addition to NY
Assessments, favorable PYD decreased in Commercial Lines in first
quarter 2015 to $2 million, before tax, compared with net favorable
PYD of $7 million, before tax, in first quarter 2014. The favorable
PYD in first quarter 2015 was primarily driven by the professional
and general liability lines, and was largely offset by commercial
auto liability strengthening. Catastrophe losses were essentially
flat between the two periods at $58 million, before tax, compared
with $60 million, before tax, in first quarter 2014.
First quarter 2015 combined ratio before catastrophes and PYD
was 92.4, a 0.4 point improvement over first quarter 2014 excluding
the 3.2 point expense ratio benefit from NY Assessments in first
quarter 2014. The improvement was largely driven by Middle Market,
which had a 93.7 combined ratio before catastrophes and PYD, a 1.1
point improvement over first quarter 2014 excluding the NY
Assessments. The improvement in Middle Market combined ratio before
catastrophes and PYD resulted from pricing and underwriting
initiatives over the past several years, as well as continued
modest loss cost inflation. Excluding NY Assessments, Small
Commercial's combined ratio before catastrophes and PYD rose 0.4
point to 89.6, reflecting increased underwriting expenses as a
result of business investments and higher agency supplemental
compensation as a result of loss ratio improvements.
First quarter 2015 written premiums in Commercial Lines grew 3%
to $1,722 million over first quarter 2014, reflecting renewal
written price increases and strong retention in Small Commercial
and Middle Market, which together comprise 87% of Commercial Lines
written premiums. Policy count retention in Small Commercial
increased 2.0 points over first quarter 2014 to 85%, while in
Middle Market retention remained stable at 81%. First quarter 2015
renewal written price increases averaged 3% in Standard Commercial,
which included 3% in Small Commercial and 2% in Middle Market,
exclusive of specialty programs and livestock. Written premiums
also benefited from increased new business premiums, rising 7% over
first quarter 2014 in Small Commercial and 13% in Middle
Market.
PERSONAL LINES
First Quarter 2015 Highlights:
- Written premiums rose 1% over first
quarter 2014 due to continued strong renewal written price
increases
- Combined ratio before catastrophes and
PYD of 89.9 increased 1.2 points compared with 88.7 in first
quarter 2014 due to higher automobile liability losses and physical
damage severity
- Underwriting gain of $75 million
decreased from $113 million in first quarter 2014 primarily due to
less favorable PYD
PERSONAL LINES ($
in millions)
Three Months Ended
Mar 312015
Mar 312014
Change Core earnings $75
$101 (26)% Net income $76 $99 (23)%
Underwriting gain $75 $113
(34)% Net investment income $35
$35 — Combined ratio 92.1
87.8 (4.3) Catastrophes and PYD 2.2
(0.9) (3.1) Combined ratio before
catastrophes and PYD 89.9 88.7
(1.2) Automobile 94.6 92.8
(1.8) Homeowners 79.7
78.8 (0.9) Written premiums $939
$927 1%
Core earnings in Personal Lines decreased 26% in first quarter
2015 over the prior year quarter primarily due to a lower
underwriting gain. Personal Lines underwriting gain decreased $38
million, before tax, to $75 million in first quarter 2015 compared
with $113 million in first quarter 2014 primarily due to less
favorable PYD, which declined from favorable PYD of $34 million,
before tax, in first quarter 2014 to favorable PYD of $4 million,
before tax in first quarter 2015. Catastrophes were essentially
flat between the two periods, totaling $25 million, before tax, in
first quarter 2015 compared with $26 million, before tax, in first
quarter 2014.
First quarter 2015 combined ratio increased 4.3 points to 92.1
from 87.8 in first quarter 2014 largely due to less favorable PYD.
Catastrophes and PYD were a net benefit of 0.9 point on the first
quarter 2014 combined ratio versus a net 2.2 point expense in first
quarter 2015. First quarter 2015 combined ratio before catastrophes
and PYD increased 1.2 points to 89.9 due to higher automobile
liability losses and physical damage severity compared with first
quarter 2014.
First quarter 2015 Personal Lines written premiums rose 1% over
first quarter 2014 as higher first quarter 2015 renewal written
price increases were offset by lower retention compared to first
quarter 2014. Renewal written price increases in first quarter 2015
were 7% in automobile and 8% in homeowners to address rate needs in
certain segments. First quarter 2015 automobile premium retention
declined to 87%, down 2 points compared with first quarter 2014,
while homeowners premium retention declined 3 points to 90%. New
business premium in first quarter 2015 was impacted by underwriting
actions in certain segments, declining 6% to $128 million over
first quarter 2014 with decreases of 3% in automobile and 16% in
homeowners.
GROUP BENEFITS
First Quarter 2015 Highlights:
- Core earnings of $52 million increased
16% over first quarter 2014 with improved group disability and
group life results, excluding Association-Financial Institutions
business
- After-tax core earnings margin*
increased to 5.9% from 5.1% in first quarter 2014
- Total fully insured ongoing sales rose
67%, up 40% for group disability and 87% for group life, over first
quarter 2014
GROUP BENEFITS ($
in millions)
Three Months Ended
Mar 312015
Mar 312014
Change Core earnings1 $52
$45 16% Net income $52
$51 2% Fully insured ongoing premiums,
excluding A-FI2 $763 $732
4% Loss ratio, excluding A-FI 76.7%
77.6% 0.9 Expense ratio, excluding A-FI
26.7% 27.4% 0.7 Net investment income
$97 $96 1% After-tax core
earnings margin* 5.9% 5.1%
0.8
[1] Includes $0 and $1 from A-FI in the three months ended March
31, 2015 and March 31, 2014, respectively[2] Fully insured ongoing
premiums excludes buyout premiums and premium equivalents; excludes
A-FI premiums of $0 million and $44 million in first quarter 2015
and 2014, respectively
First quarter 2015 Group Benefits core earnings totaled $52
million, a 16% increase from $45 million in first quarter 2014,
primarily due to improved group disability and group life loss
ratios as well as a lower expense ratio compared with first quarter
2014, excluding the Association-Financial Institutions (A-FI) book
of business. The A-FI book, which was in the group life business,
is now fully in runoff and does not impact 2015 results, although
it did impact the 2014 group life loss and expense ratios in 2014.
The after-tax core earnings margin increased to 5.9% in first
quarter 2015 from 5.1% in first quarter 2014.
The first quarter 2015 total loss ratio, excluding A-FI, was
76.7%, a 0.9 point improvement, reflecting a 0.6 point improvement
in group disability and 0.8 point improvement in group life
compared with first quarter 2014. The expense ratio, excluding
A-FI, also improved, declining 0.7 point to 26.7% in first quarter
2015.
First quarter 2015 fully insured ongoing premiums were $763
million, up 4% from first quarter 2014, excluding A-FI, reflecting
increased sales, higher persistency and improved pricing. Fully
insured ongoing sales totaled $300 million in first quarter 2015,
up 67% over first quarter 2014. Group disability sales increased
40% to $123 million and group life sales rose 87% to $148 million
reflecting strong January 2015 sales, including several large
accounts that returned to the company after having moved to
competitors in prior years.
MUTUAL FUNDS
First Quarter 2015 Highlights:
- Mutual Fund sales of $4.7 billion
increased 28% compared with first quarter 2014
- Mutual Fund net flows, which exclude
Talcott Resolution assets under management (AUM), were $529
million
- Mutual Fund core earnings rose 5% over
first quarter 2014 to $22 million
MUTUAL FUNDS ($ in
millions)
Three Months Ended
Mar 312015
Mar 312014
Change Core earnings $22
$21 5% Net income $22
$21 5% Mutual Fund sales $4,710
$3,692 28% Mutual Fund net flows
$529 $18 NM Mutual Fund AUM
$75,696 $73,346 3%
Talcott AUM $20,240 $24,957
(19)% Total Mutual Funds segment AUM $95,936
$98,303 (2)%
Core earnings for the Mutual Funds segment rose 5% to $22
million in first quarter 2015 compared with first quarter 2014 due
to increased revenues resulting from higher Mutual Fund AUM
compared with first quarter 2014. During the quarter, Mutual Fund
net flows were $529 million, benefiting from a 28% increase in
sales during the quarter.
Total AUM for the segment declined 2% due to the continued
runoff of Talcott Resolution AUM, which decreased 19% over the last
twelve months to $20.2 billion at March 31, 2015. Mutual Fund AUM
increased to $75.7 billion at March 31, 2015 from $73.3 billion at
March 31, 2014 primarily due to higher market levels and strong
sales over the period.
TALCOTT RESOLUTION
First Quarter 2015 Highlights:
- Core earnings decreased 1% to $111
million due to the continued runoff of the variable annuity block,
partially offset by lower expenses
- Variable annuity contract counts
declined 3% and 13% from Dec. 31, 2014 and March 31, 2014,
respectively
- Fixed annuity contract counts declined
1% and 16% from Dec. 31, 2014 and March 31, 2014, respectively
TALCOTT RESOLUTION
($ in millions)
Three Months Ended
Mar 312015
Mar 312014
Change Core earnings $111
$112 (1)% Net income $111
$145 (23)% VA contract count (in thousands)
653 747 (13)% Fixed
annuity and other contract count (in thousands) 137
163 (16)%
Talcott Resolution first quarter 2015 core earnings were $111
million, a 1% decrease from first quarter 2014, due to the decrease
in variable annuity (VA) fees as a result of the runoff of the
block, largely offset by lower expenses, including lower costs
related to contract holder initiatives.
VA and fixed annuity contract counts as of March 31, 2015
declined 3% and 1%, respectively, from Dec. 31, 2014 and 13% and
16%, respectively, from March 31, 2014.
INVESTMENTS
First Quarter 2015 Highlights:
- Annualized investment yield, excluding
LPs, before tax, was 4.1%, down from 4.2% in first quarter 2014,
primarily due to lower reinvestment rates over the 12 months
- Annualized investment yield on LPs,
before tax, was 14%, up from 13% in first quarter 2014 and above
the company's outlook of 6%
- Net impairment losses, including
mortgage loan loss reserves, totaled $15 million, before tax
INVESTMENTS ($ in
millions)
Three Months Ended Amounts
presented before tax
Mar 312015
Mar 312014
Change Total investments excluding equity
securities, trading $76,565 $79,666
(4
)%
Net investment income on LPs $99 $97
2
%
Net investment income $809 $824
(2
)%
Net impairment losses, including mortgage loan loss reserves
$15 $22 (32 )% Annualized
investment yield1 4.5% 4.5%
— Annualized investment yield on LPs
13.7% 13.0% 0.7 Annualized
investment yield, excluding LPs 4.1%
4.2% (0.1
)
[1] Yields, before tax, calculated using annualized net
investment income divided by the monthly average invested assets at
cost, amortized cost, or adjusted carrying value, as applicable,
excluding repurchase agreement collateral, if any, and derivatives
book value.
First quarter 2015 net investment income totaled $809 million,
before tax, a 2% decrease from first quarter 2014 due to a decrease
in total investments excluding equity securities, trading. The
carrying value of total invested assets, excluding equity
securities, trading, declined to $76.6 billion at March 31, 2015
compared with $79.7 billion at March 31, 2014 largely due to the
runoff of Talcott Resolution, including the sale of the Japan
annuity business in second quarter 2014. LPs did not have a
material impact on the change in net investment income in the
quarter, with first quarter 2015 net investment income on LPs of
$99 million, before tax, compared with $97 million, before tax, in
first quarter 2014.
Excluding the impact of lower invested assets, investment income
remained relatively consistent with first quarter 2014 as
annualized yield, before tax, was 4.5% in both periods. Annualized
yield, before tax, on LPs increased to 13.7% compared with 13.0% in
first quarter 2014. Annualized investment yield excluding LPs,
before tax, declined slightly from 4.2% in first quarter 2014 to
4.1%, primarily due to lower reinvestment rates over the past 12
months.
The credit performance of the company's general account assets
remained strong. Net impairment losses in first quarter 2015,
including changes in mortgage loan loss reserves, totaled $15
million, before tax, down from $22 million, before tax, in first
quarter 2014.
STOCKHOLDERS’ EQUITY
First Quarter 2015 Highlights:
- Book value per diluted share, excluding
accumulated other comprehensive income (AOCI)*, of $41.47 rose 2%
over Dec. 31, 2014 and 3% over March 31, 2014
- Company share repurchases totaled $250
million during first quarter 2015 and $1.746 billion over the past
four quarters
- Weighted average diluted common shares
outstanding decreased 2% from Dec. 31, 2014 and 9% from March 31,
2014
($ in millions)
As of
Mar 312015
Dec 312014
Change Stockholders' equity
$19,077 $18,720 2% Stockholders' equity
(ex. AOCI) $17,927 $17,792
1% Book value per diluted share $44.13
$42.84 3% Book value per diluted share (ex.
AOCI) $41.47 $40.71 2%
Weighted average common shares outstanding 422.6
429.6 (2)% Weighted average diluted
common shares outstanding 433.7 442.6
(2)%
The Hartford’s stockholders’ equity was $19.1 billion as of
March 31, 2015, a 2% increase from $18.7 billion as of Dec. 31,
2014, primarily due to net income of $467 million and a $222
million increase in AOCI, partially offset by common share
repurchases of $250 million and common dividends of $75
million.
Book value per diluted common share was $44.13 as of March 31,
2015, an increase of 3% from Dec. 31, 2014, as a result of the 2%
increase in shareholders' equity and the impact of share
repurchases on weighted average diluted common shares outstanding.
Excluding AOCI, book value per diluted common share was up 2% to
$41.47 as of March 31, 2015 compared with $40.71 at Dec. 31,
2014.
Weighted average common shares outstanding and weighted average
diluted common shares outstanding both decreased by 2% to 422.6
million and 433.7 million, respectively, at March 31, 2015 from
Dec. 31, 2014 as a result of the company's repurchase of 6.1
million common shares for $250 million, at an average price of
$40.82 per share. Under the capital management plan announced in
2014, the company has $2.775 billion of equity repurchase
authorization for the period Jan. 1, 2014 through Dec. 31, 2015. As
of April 24, 2015, the company has spent $2.119 billion for equity
repurchases under this program, including $73 million since March
31, 2014.
On April 24, 2015 the company announced that it will redeem for
cash the entire $296 million aggregate principal amount outstanding
of 4.0% senior notes due Oct. 15, 2017 on May 27, 2015. The notes
will be redeemed at an estimated redemption price of approximately
$320 million including a make-whole premium and any interest
accrued and unpaid to the redemption date. The company expects
to use cash on hand to finance the redemption. The company expects
to use an additional $180 million for other debt repayment actions,
depending on market conditions.
CONFERENCE CALL
The Hartford will discuss its first quarter 2015 financial
results in a webcast on Tuesday, April 28, 2015, at 9 a.m. EDT. The
webcast can be accessed live or as a replay through the investor
relations section of The Hartford's website at
http://ir.thehartford.com.
More detailed financial information can be found in The
Hartford's Quarterly Report on Form 10-Q, the Investor Financial
Supplement for March 31, 2015, and the First Quarter 2015 Financial
Results Presentation, which includes the company's outlook for
second quarter 2015 financial results, all of which are available
at http://ir.thehartford.com.
ABOUT THE HARTFORD
With more than 200 years of expertise, The Hartford (NYSE:HIG)
is a leader in property and casualty insurance, group benefits and
mutual funds. The company is widely recognized for its service
excellence, sustainability practices, trust and integrity. More
information on the company and its financial performance is
available at www.thehartford.com.
From time to time, The Hartford uses its website to disseminate
material company information. Financial and other important
information regarding The Hartford is routinely accessible through
and posted on our website at http://ir.thehartford.com. In
addition, you may automatically receive email alerts and other
information about The Hartford when you enroll your email address
by visiting the “Email Alerts” section at
http://ir.thehartford.com.
HIG-F
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended March
31, 2015 ($ in millions)
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate Consolidated
Earned premiums $ 2,535 $ 763 $ — $ 24 $ — $ 3,322 Fee income — 17
179 261 2 459 Net investment income 327 97 — 382 3 809 Other
revenues 22 — — — — 22 Net realized capital gains (losses)
13 (1 ) —
(25 ) 18 5
Total revenues 2,897 876 179 642
23 4,617 Benefits, losses, and loss adjustment
expenses 1,627 598 — 338 — 2,563 Amortization of deferred policy
acquisition costs 324 8 5 50 — 387 Insurance operating costs and
other expenses 470 200 140 121 7 938 Interest expense — — — — 94 94
Restructuring and other costs —
— — —
10 10
Total benefits and
expenses 2,421 806 145 509
111 3,992 Income (loss) from continuing
operations, before income taxes 476 70 34
133 (88 ) 625 Income tax expense
(benefit) 137 18
12 22 (31 )
158
Net income (loss) 339 52
22 111 (57 ) 467 Less: Unlock
charge, after-tax — — — 19 — 19 Less: Net realized capital gains
(losses), after-tax and DAC, excluded from core earnings 10 — — (19
) 11 2 Less: Restructuring and other costs, after-tax — — — — (6 )
(6 )
Core earnings (losses) $ 329 $
52 $ 22 $ 111 $
(62 ) $ 452 THE
HARTFORD FINANCIAL SERVICES GROUP, INC. PROPERTY &
CASUALTY CONSOLIDATING INCOME STATEMENTS Three Months
Ended March 31, 2015 ($ in millions)
CommercialLines
PersonalLines
P&COther
Property
&Casualty(Combined)
Written premiums $ 1,722 $ 939 $ — $ 2,661 Change in unearned
premium reserve 139 (13 )
— 126
Earned premiums
1,583 952 — 2,535 Losses and loss
adjustment expenses Current accident year before catastrophes 928
618 — 1,546 Current accident year catastrophes 58 25 — 83 Prior
year development (2 ) (4 )
4 (2 )
Total losses and loss
adjustment expenses 984 639 4 1,627
Amortization of DAC 234 90 — 324 Underwriting expenses 295 148 6
449 Dividends to policyholders 5
— — 5
Underwriting gain (loss) 65 75 (10
) 130 Net investment income 257 35 35 327 Net
realized capital gains 8 1 4 13 Net servicing and other income
5 — 1
6
Income from continuing operations
before income taxes 335 111 30 476
Income tax expense 95 35
7 137
Net income
240 76 23 339 Less: Net realized capital gains, after-tax and DAC,
excluded from core earnings 6 1 3 10
Core earnings $
234 $ 75 $ 20 $
329 THE HARTFORD FINANCIAL SERVICES
GROUP, INC. CONSOLIDATING INCOME STATEMENTS Three
Months Ended March 31, 2014 ($ in millions)
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate Consolidated
Earned premiums $ 2,469 $ 784 $ — $ 49 $ — $ 3,302 Fee income — 15
174 304 3 496 Net investment income 326 96 — 400 2 824 Other
revenues 25 — — — — 25 Net realized capital gains (losses)
(37 ) 8 —
3 (9 ) (35 )
Total
revenues 2,783 903 174 756
(4 ) 4,612 Benefits, losses, and loss
adjustment expenses 1,570 597 — 409 — 2,576 Amortization of
deferred policy acquisition costs 311 9 9 67 — 396 Insurance
operating costs and other expenses 396 228 132 148 12 916 Interest
expense — — — — 95 95 Restructuring and other costs —
— —
— 20 20
Total
benefits and expenses 2,277 834 141
624 127 4,003 Income (loss) from continuing
operations before income taxes 506 69 33
132 (131 ) 609 Income tax expense
(benefit) 143 18
12 16 (46 )
143
Income (loss) from continuing operations,
after tax 363 51 21 116 (85
) 466 Income from discontinued operations, after-tax
— — —
29 —
29
Net income (loss) 363 51 21
145 (85 ) 495 Less: Unlock charge,
after-tax — — — 12 — 12 Less: Net realized capital gains (losses)
and other, after-tax and DAC, excluded from core earnings (23 ) 6 —
(8 ) (9 ) (34 ) Less: Restructuring and other costs, after-tax — —
— — (13 ) (13 ) Less: Income from discontinued operations,
after-tax — —
— 29 —
29
Core earnings (losses) $
386 $ 45 $ 21 $
112 $ (63 ) $ 501
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
PROPERTY & CASUALTY CONSOLIDATING INCOME
STATEMENTS Three Months Ended March 31, 2014 ($ in
millions)
CommercialLines
PersonalLines
P&COther
Property
&Casualty(Combined)
Written premiums $ 1,669 $ 927 $ 1 $ 2,597 Change in unearned
premium reserve 128 (1 )
1 128
Earned premiums
1,541 928 — 2,469 Losses and loss
adjustment expenses Current accident year before catastrophes 934
590 — 1,524 Current accident year catastrophes 60 26 — 86 Prior
year development (7 ) (34 )
1 (40 )
Total losses and loss
adjustment expenses 987 582 1 1,570
Amortization of DAC 226 85 — 311 Underwriting expenses 217 148 7
372 Dividends to policyholders 4
— — 4
Underwriting gain (loss) 107 113 (8
) 212 Net investment income 256 35 35 326 Net
realized capital losses (32 ) (5 ) — (37 ) Net servicing and other
income 1 4
— 5
Income from continuing
operations before income taxes 332 147 27
506 Income tax expense 90
48 5 143
Net
income 242 99 22 363 Less: Net realized capital gains (losses),
after-tax and DAC, excluded from core earnings (22 ) (2 ) 1 (23 )
Core earnings $ 264 $ 101
$ 21 $ 386
DISCUSSION OF NON-GAAP FINANCIAL MEASURES
The Hartford uses non-GAAP financial measures in this press
release to assist investors in analyzing the company's operating
performance for the periods presented herein. Because The
Hartford's calculation of these measures may differ from similar
measures used by other companies, investors should be careful when
comparing The Hartford's non-GAAP financial measures to those of
other companies. Definitions and calculations of other financial
measures used in this press release can be found below and in The
Hartford's Investor Financial Supplement for first quarter 2015,
which is available on The Hartford's website,
http://ir.thehartford.com.
Book value per diluted common share
excluding accumulated other comprehensive income ("AOCI”):
Book value per diluted common share excluding AOCI is a non-GAAP
financial measure based on a GAAP financial measure. It is
calculated by dividing (a) common stockholders' equity excluding
AOCI, after-tax, by (b) common shares outstanding and dilutive
potential common shares. The Hartford provides book value per
diluted common share excluding AOCI to enable investors to analyze
the company’s stockholders’ equity excluding the effect of changes
in the value of the company’s investment portfolio and other assets
due to interest rates, currency and other factors. The Hartford
believes book value per diluted common share excluding AOCI is
useful to investors because it eliminates the effect of items that
can fluctuate significantly from period to period, primarily based
on changes in market value. Book value per diluted common share is
the most directly comparable GAAP measure. A reconciliation of book
value per diluted common share, including AOCI to book value per
diluted common share, excluding AOCI is set forth below.
As of
Mar 312015
Dec 312014
Change Book value per diluted common share,
including AOCI $44.13 $42.84 3% Less:
Per diluted share impact of AOCI $2.66
$2.13 25%
Book value per diluted common share,
excluding AOCI $41.47
$40.71 2%
Core Earnings: The Hartford uses
the non-GAAP measure core earnings as an important measure of the
company’s operating performance. The Hartford believes that the
measure core earnings provides investors with a valuable measure of
the performance of the company’s ongoing businesses because it
reveals trends in our insurance and financial services businesses
that may be obscured by including the net effect of certain
realized capital gains and losses, certain restructuring charges,
pension settlements, loss on extinguishment of debt, reinsurance
gains and losses on business disposition transactions, income tax
benefit from reduction in valuation allowance, discontinued
operations, and the impact of Unlocks to deferred policy
acquisition costs ("DAC"), sales inducement assets ("SIA"),
unearned revenue reserves ("URR") and death and other insurance
benefit reserve balances. Some realized capital gains and losses
are primarily driven by investment decisions and external economic
developments, the nature and timing of which are unrelated to the
insurance and underwriting aspects of our business.
Accordingly, core earnings excludes the effect of all realized
gains and losses (net of tax and the effects of DAC) that tend to
be highly variable from period to period based on capital market
conditions. The Hartford believes, however, that some realized
capital gains and losses are integrally related to our insurance
operations, so core earnings includes net realized gains and losses
such as net periodic settlements on credit derivatives and net
periodic settlements on the Japan fixed annuity cross-currency
swap. These net realized gains and losses are directly related to
an offsetting item included in the income statement such as net
investment income.
Net income (loss) is the most directly comparable U.S. GAAP
measure. Core earnings should not be considered as a substitute for
net income (loss) and does not reflect the overall profitability of
the company’s business. Therefore, the Hartford believes that it is
useful for investors to evaluate both net income (loss) and core
earnings when reviewing the company’s performance.
A reconciliation of core earnings to net income (loss) for the
quarterly periods ended March 31, 2015 and 2014, is included
in this press release. A reconciliation of core earnings to net
income (loss) for individual reporting segments can be found in
this press release under the heading "The Hartford Financial
Services Group, Inc. Consolidating Income Statements" and in The
Hartford's Investor Financial Supplement for the quarter ended
March 31, 2015.
Core earnings available to common
shareholders per diluted share: Core earnings available to
common shareholders per diluted share is calculated based on the
non-GAAP financial measure core earnings. It is calculated by
dividing (a) core earnings, by (b) diluted common shares
outstanding. The Hartford believes that the measure core earnings
available to common shareholders per diluted share provides
investors with a valuable measure of the company's operating
performance for the same reasons applicable to its underlying
measure, core earnings. Net income (loss) per diluted common share
is the most directly comparable GAAP measure. Core earnings
available to common shareholders per diluted share should not be
considered as a substitute for net income (loss) per diluted share
and does not reflect the overall profitability of the company's
business.
Therefore, The Hartford believes that it is useful for investors
to evaluate both net income (loss)per diluted share and core
earnings available to common shareholders per diluted share when
reviewing the company's performance. A reconciliation of core
earnings available to common shareholders per diluted share to net
income (loss) per diluted common share for the quarterly periods
ended March 31, 2015 and 2014 is provided in the table
below.
Three Months Ended
Mar 31
2015
Mar 312014
Change PER SHARE DATA
Diluted earnings (losses) per common share:
Core
earnings available to common shareholders $ 1.04
$ 1.05 (1 )% Add: Unlock charge,
after-tax 0.04 0.03 33 % Add: Net realized capital gains (losses),
after-tax and DAC, excluded from core earnings 0.01 (0.08 ) (113 )%
Add: Restructuring and other costs, after-tax (0.01 ) (0.03 ) (67
)% Add: Loss from discontinued operations, after-tax
— 0.06 (100 )%
Net
income available to common shareholders $
1.08 $ 1.03
5 %
After-tax core earnings margin: The
Hartford uses the non-GAAP measure after-tax core earnings margin,
excluding buyouts, to evaluate, and believes it is an important
measure of, the Group Benefits segment's operating performance.
After-tax margin is the most directly comparable U.S. GAAP measure.
The Company believes that after-tax core earnings margin, excluding
buyouts, provides investors with a valuable measure of the
performance of Group Benefits because it reveals trends in the
business that may be obscured by the effect of buyouts. After-tax
core earnings margin, excluding buyouts, should not be considered
as a substitute for after-tax margin and does not reflect the
overall profitability of Group Benefits. Therefore, the Company
believes it is important for investors to evaluate both after-tax
core earnings margin, excluding buyouts, and after-tax margin when
reviewing performance. After-tax core earnings margin, excluding
buyouts, is calculated by dividing core earnings, excluding
buyouts, by revenues, excluding buyouts and realized gains
(losses). A reconciliation of after-tax margin to after-tax core
earnings margin, excluding buyouts, for the quarterly periods ended
March 31, 2015 and 2014, is set forth below.
Three Months Ended March 31, After-tax
margin 2015 2014
Change After-tax margin (excluding buyouts)
5.9 % 5.7 % 0.2 Effect of net capital
realized gains (losses), net of tax on after-tax margin — % 0.6 %
(0.6 )
After-tax core earnings margin (excluding buyouts)
5.9 % 5.1 %
0.8
Underwriting gain (loss): The
Hartford's management evaluates profitability of the Commercial and
Personal Lines segments primarily on the basis of underwriting gain
or loss. Underwriting gain (loss) is a before-tax measure that
represents earned premiums less incurred losses, loss adjustment
expenses and underwriting expenses. Net income (loss) is the most
directly comparable GAAP measure. Underwriting gain (loss) is
influenced significantly by earned premium growth and the adequacy
of The Hartford's pricing. Underwriting profitability over time is
also greatly influenced by The Hartford's underwriting discipline,
as management strives to manage exposure to loss through favorable
risk selection and diversification, effective management of claims,
use of reinsurance and its ability to manage its expenses. The
Hartford believes that the measure underwriting gain (loss)
provides investors with a valuable measure of profitability, before
tax, derived from underwriting activities, which are managed
separately from the company's investing activities. A
reconciliation of underwriting results to net income for the
quarterly periods ended March 31, 2015 and 2014, is set forth
below.
Three Months Ended
Mar 312015
Mar 312014
Commercial Lines Net income $240 $242 Add:
Income tax expense 95 90 Less: Other expenses (income) 1 (2) Less:
Net realized capital gains (losses) 8 (32) Less: Net investment
income 257 256 Less: Net servicing income 4
3
Underwriting gain $65 $107
Personal Lines Net income $76 $99 Add: Income tax expense 35
48 Less: Other expenses (1) 4 Less: Net realized capital gains
(losses) 1 (5) Less: Net investment income 35 35 Less: Net
servicing income 1 —
Underwriting
gain $75 $113
Combined ratio before catastrophes and
prior year development: Combined ratio before catastrophes
and prior year development (PYD) is a non-GAAP financial measure.
Combined ratio is the most directly comparable GAAP measure. The
combined ratio is the sum of the loss and loss adjustment expense
ratio, the expense ratio and the policyholder dividend ratio. This
ratio measures the cost of losses and expenses for every $100 of
earned premiums. A combined ratio below 100 demonstrates a positive
underwriting result. A combined ratio above 100 indicates a
negative underwriting result. The combined ratio before
catastrophes and PYD represents the combined ratio for the current
accident year, excluding the impact of current accident year
catastrophes. The company believes this ratio is an important
measure of the trend in profitability since it removes the impact
of volatile and unpredictable catastrophe losses and prior accident
year loss and loss adjustment expense reserve. A reconciliation of
the combined ratio to the combined ratio before catastrophes and
PYD for individual reporting segments can be found in this press
release under the headings Commercial Lines and Personal Lines.
SAFE HARBOR STATEMENT
Some of the statements in this release should be considered
forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be
identified by words such as “anticipates,” “intends,” “plans,”
“seeks,” “believes,” “estimates,” “expects,” “projects” and similar
references to the future. Examples of forward-looking statements
include, but are not limited to, statements the company makes
regarding future results of operations. The Hartford cautions
investors that these forward-looking statements are not guarantees
of future performance, and actual results may differ materially.
Investors should consider the important risks and uncertainties
that may cause actual results to differ. These important risks and
uncertainties include: challenges related to the Company’s current
operating environment, including global political, economic and
market conditions, and the effect of financial market disruptions,
economic downturns or other potentially adverse macroeconomic
developments on the attractiveness of our products, the returns in
our investment portfolios and the hedging costs associated with our
variable annuities business; financial risk related to the
continued reinvestment of our investment portfolios and performance
of our hedge program for our runoff annuity block; market risks
associated with our business, including changes in interest rates,
credit spreads, equity prices, market volatility and foreign
exchange rates, commodities prices and implied volatility levels,
as well as continuing uncertainty in key sectors such as the global
real estate market; the impact on our investment portfolio if our
investment portfolio is concentrated in any particular segment of
the economy; risk associated with the use of analytical models in
making decisions in key areas such as underwriting, capital,
hedging, reserving, and catastrophe risk management; the potential
for further acceleration of deferred policy acquisition cost
amortization; the potential for further impairments of our goodwill
or the potential for changes in valuation allowances against
deferred tax assets; the potential for differing interpretations of
the methodologies, estimations and assumptions that underlie the
valuation of the Company’s financial instruments that could result
in changes to investment valuations; the difficulty in predicting
the Company’s potential exposure for asbestos and environmental
claims; the subjective determinations that underlie the Company’s
evaluation of other-than-temporary impairments on
available-for-sale securities; the impact on our statutory capital
of various factors, including many that are outside the Company’s
control, which can in turn affect our credit and financial strength
ratings, cost of capital, regulatory compliance and other aspects
of our business and results; risks to our business, financial
position, prospects and results associated with negative rating
actions or downgrades in the Company’s financial strength and
credit ratings or negative rating actions or downgrades relating to
our investments; losses due to nonperformance or defaults by
others, including reinsurers, sourcing partners, derivative
counterparties and other third parties; the potential for losses
due to our reinsurers' unwillingness or inability to meet their
obligations under reinsurance contracts and the availability,
pricing and adequacy of reinsurance to protect us against losses;
the possibility of unfavorable loss development including with
respect to long-tailed exposures; the possibility of a pandemic,
earthquake, or other natural or man-made disaster that may
adversely affect our businesses; weather and other natural physical
events, including the severity and frequency of storms, hail,
winter storms, hurricanes and tropical storms, as well as climate
change and its potential impact on weather patterns; the uncertain
effects of emerging claim and coverage issues; the Company’s
ability to effectively price its property and casualty policies,
including its ability to obtain regulatory consents to pricing
actions or to non-renewal or withdrawal of certain product lines;
technology innovations, such as telematics and other usage-based
methods of determining premiums, auto technology advancements that
improve driver safety and technologies that facilitate ride or home
sharing, that may alter demand for the Company’s products, impact
the frequency or severity of losses and/or impact the way the
Company markets, distributes and underwrites its products; the
possible occurrence of terrorist attacks and the Company’s ability
to contain its exposure, including limitations on coverage from the
federal government under applicable reinsurance terrorism laws;
volatility in our statutory and United States ("U.S.") GAAP
earnings and potential material changes to our results resulting
from our adjustment of our risk management program to emphasize
protection of economic value; the cost and other effects of
increased regulation as a result of the implementation of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
and the potential effect of other domestic and foreign regulatory
developments, including those that could adversely impact the
demand for the Company’s products, operating costs and required
capital levels; unfavorable judicial or legislative developments;
regulatory limitations on the ability of the Company and certain of
its subsidiaries to declare and pay dividends; the impact of
changes in federal or state tax laws; the impact of potential
changes in accounting principles and related financial reporting
requirements; regulatory requirements that could delay, deter or
prevent a takeover attempt that shareholders might consider in
their best interests; the risks, challenges and uncertainties
associated with our capital management plan, expense reduction
initiatives and other actions, which may include acquisitions,
divestitures or restructurings; actions by our competitors, many of
which are larger or have greater financial resources than we do;
the Company’s ability to market, distribute and provide investment
advisory services in relation to our products through current and
future distribution channels and advisory firms; the Company’s
ability to maintain the availability of its systems and safeguard
the security of its data in the event of a disaster, cyber or other
information security incident or other unanticipated event; the
risk that our framework for managing operational risks may not be
effective in mitigating material risk and loss to the Company; the
potential for difficulties arising from outsourcing and similar
third-party relationships; the Company’s ability to protect its
intellectual property and defend against claims of infringement;
and other factors described in such forward-looking statements and
other factors described in such forward-looking statements or in
The Hartford's 2014 Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q and other filings The Hartford makes with the
Securities and Exchange Commission.
Any forward-looking statement made by the company in this
release speaks only as of the date of this release. Factors or
events that could cause the company's actual results to differ may
emerge from time to time, and it is not possible for the company to
predict all of them. The company undertakes no obligation to
publicly update any forward-looking statement, whether as a result
of new information, future developments or otherwise.
The HartfordMedia ContactsShannon Lapierre,
860-547-5624shannon.lapierre@thehartford.comorThomas Hambrick,
860-547-9746thomas.hambrick@thehartford.comorInvestor
ContactsSabra Purtill, CFA,
860-547-8691sabra.purtill@thehartford.comorSean Rourke,
860-547-5688sean.rourke@thehartford.com
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