- Fourth quarter 2015 core earnings*
increased 4% from fourth quarter 2014 principally due to improved
Commercial Lines underwriting results; fourth quarter 2015 core
earnings per diluted share* increased 11%
- Fourth quarter 2015 net income
increased 10% from fourth quarter 2014; fourth quarter net income
per diluted share increased 17%
- Commercial Lines fourth quarter 2015
combined ratio before catastrophes and prior accident year
development (PYD)* was 88.2, a 3.0 point improvement over fourth
quarter 2014
- Personal Lines fourth quarter 2015
combined ratio before catastrophes and PYD was 93.5, a 1.7 point
deterioration over fourth quarter 2014
- Book value per diluted share, excluding
accumulated other comprehensive income (AOCI)*, was $43.76, a 7%
increase from Dec. 31, 2014
- During fourth quarter 2015, the company
repurchased 9.8 million common shares for a total of $450
million
The Hartford (NYSE:HIG) reported core earnings for the three
months ended Dec. 31, 2015 (fourth quarter 2015) of $445 million, a
4% increase over fourth quarter 2014, principally due to improved
Commercial Lines, Property & Casualty (P&C) Other and
Corporate results, which were partially offset by lower core
earnings from Personal Lines, Group Benefits, Mutual Funds and
Talcott Resolution. Fourth quarter 2015 core earnings per diluted
share increased 11% to $1.07 compared with $0.96 in fourth quarter
2014 due to the increase in core earnings and the 6% decrease in
weighted average diluted common shares outstanding as a result of
the company's equity repurchase program.
Fourth quarter 2015 net income totaled $421 million, a 10%
increase from fourth quarter 2014. Fourth quarter 2015 net income
included net realized capital losses of $90 million, after-tax and
deferred acquisition costs (DAC), compared with $9 million,
after-tax and DAC, in fourth quarter 2014. The increase in net
realized capital losses compared with fourth quarter 2014 was
principally related to Talcott Resolution variable annuity (VA)
hedging program losses and the annual VA assumptions study, which
in 2014 was completed in the third quarter. Fourth quarter 2015 net
income also included a $35 million, after-tax, unlock benefit, an
increase from $13 million, after-tax, in fourth quarter 2014.
Fourth quarter 2015 net income included a $34 million income tax
benefit related to a reduction in the deferred tax asset valuation
reserve on capital loss carryovers; a $37 million benefit from
reduction in valuation allowance was included in loss from
discontinued operations in fourth quarter 2014. Fourth quarter 2015
net income per diluted share was $1.01, an increase of 17% compared
with net income of $0.86 per diluted share in fourth quarter
2014.
*Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP).
"2015 was a successful year for The Hartford," said The
Hartford's Chairman and CEO Christopher Swift. "Core earnings per
diluted share increased 15%, core earnings ROE rose to 9.2% from
8.4%, book value per diluted share, excluding AOCI, grew 7%, and we
returned $1.6 billion of capital to shareholders. We achieved these
financial results while investing in operating capabilities and
talent that are making us a broader, deeper risk player and a more
efficient and customer-focused company. We enter 2016 with a
strong foundation and, despite facing increased competition, we are
confident that we can continue to maintain our underwriting
discipline, expense control and capital flexibility.”
The Hartford's President Doug Elliot said, "The Hartford
achieved strong financial results in a competitive market in 2015.
Group Benefits had a very strong year, with an increase in the core
earnings margin to 5.6%. Our P&C business also performed well,
with the Commercial Lines combined ratio improving 1.5 points to
90.0, excluding catastrophes and prior accident year development.
However, Personal Lines results were challenged in the second half,
experiencing higher than expected auto frequency. In 2016, we are
focused on maintaining our margins in Commercial Lines and Group
Benefits, and improving Personal Lines results, while continuing to
invest in our businesses to drive long-term success.”
For the year ended Dec. 31, 2015 (full year 2015), core earnings
were $1,650 million, up 7% from full year 2014 due to improved
results from Commercial Lines, P&C Other, Group Benefits,
Talcott Resolution and Corporate, partially offset by lower core
earnings from Personal Lines and Mutual Funds. Full year 2015 core
earnings per diluted share were $3.88, a 15% increase from full
year 2014 due to higher core earnings and an 8% decrease in
weighted average diluted shares outstanding.
Full year 2015 net income totaled $1,682 million compared with
$798 million in full year 2014, which included a $551 million,
after-tax, loss from discontinued operations associated largely
with the Japan annuity business that was sold in June 2014. Full
year 2015 net income included net realized capital losses,
after-tax and DAC, excluded from core earnings, of $114 million
compared with full year 2014 net realized capital losses, after-tax
and DAC, excluded from core earnings, of $20 million. In addition,
full year 2015 had a income tax benefit from reduction in valuation
allowance totaling $94 million while full year 2014 included an $83
million, after-tax, pension settlement charge.
Full year 2015 net income per diluted share was $3.96, a
significant increase from $1.73 in full year 2014, reflecting the
growth in net income and the accretive impact of share
repurchases.
CONSOLIDATED FINANCIAL RESULTS
($ in millions except per share data)
Three Months
Ended Years Ended
Dec 312015
Dec 312014
Change2
Dec 312015
Dec 312014
Change2 Core earnings (loss):
Commercial Lines $289 $251 15% $1,003 $996 1%
Personal Lines $51 $65 (22)% $185 $210 (12)% P&C Other
Operations $18 $—
NM ($57)
($111) 49% Property & Casualty
$358 $316
13% $1,131 $1,095
3% Group Benefits $40
$45 (11)%
$195 $180 8% Mutual Funds
$20 $27
(26)% $86 $91
(5)%
Sub-total
$418 $388
8% $1,412
$1,366 3% Talcott Resolution
$83 $98
(15)% $472 $433
9% Corporate $(56)
$(60) 7%
($234) ($251) 7%
Core
earnings $445
$426 4%
$1,650 $1,548
7% Net income $421
$382
10%
$1,682 $798 111% Weighted
average diluted common shares outstanding
415.9 442.6 (6)%
425.2 460.2
(8)% Core earnings available to common shareholders per diluted
share¹ $1.07 $0.96
11% $3.88
$3.36 15% Net income available to common
shareholders per diluted share¹ $1.01
$0.86 17%
$3.96 $1.73 129%
[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
2016 OUTLOOK
The Hartford announced that the company's full year 2016 core
earnings outlook range is $1,575 million to $1,675 million and
includes an expected decline in Talcott Resolution core earnings to
a range of $320 million to $340 million.
The Hartford's outlook is a management estimate based on
business, competitive, capital market, catastrophe loads and other
assumptions. Key business and market assumptions included in this
outlook are set forth in the table below. This outlook is subject
to change for many reasons, including unusual or unpredictable
items, such as catastrophe losses, tax benefits or charges, PYD,
investment results and other items. The company has frequently
experienced unusual or unpredictable benefits and charges that were
not anticipated in previously provided guidance.
2016 OUTLOOK
($ in millions)
2015 Actual 2016
Outlook Consolidated core earnings $1,650
$1,575 - $1,675
Key Metrics and Market
Assumptions:
Commercial Lines combined ratio1 90.0
89.0 - 91.0 Personal Lines combined ratio1
92.0 90.0 - 92.0 P&C
catastrophe loss ratio2 3.2
3.9 Group Benefits core earnings margin*
5.6% 5.5% - 6.0% Talcott Resolution
core earnings $472 $320 -
$340 P&C net investment income, before tax, excluding limited
partnerships and other alternative income (LP)3
$1,065 $1,005 - $1,055 Share
repurchases $1,250 $1,330
[1] Excludes catastrophes and PYD and is a financial measure not
calculated based on generally accepted accounting principles[2]
2016 outlook includes P&C catastrophe ratio of 2.3 points in
Commercial Lines and 6.6 points in Personal Lines[3] Excludes
P&C LP investment income yield of 6% in 2016 outlook.
The 2016 outlook includes several items that differ from 2015
results. In particular, the 2016 outlook includes:
- P&C catastrophe loss ratio of 3.9
points compared with a 3.2 point catastrophe loss ratio in
2015;
- Unfavorable PYD of $22 million,
after-tax, for the accretion of the discount on workers'
compensation reserves, whereas full year 2015 core earnings
included total unfavorable PYD of $168 million, after-tax,
comprised of $19 million for accretion of discount on workers'
compensation reserves, $134 million, after-tax for asbestos and
environmental (A&E) reserves and $15 million, after-tax, net,
for other lines;
- Significantly lower core earnings from
Talcott Resolution of $320 million to $340 million compared with
$472 million in 2015, which included favorable LP returns and
non-routine net investment income from make-whole premiums and
other non-routine items;
- Common share repurchases of
approximately $1.3 billion, which are expected to be accretive to
core earnings per diluted share but the amount of accretion will
depend on the price and timing of the share repurchases; and
- Does not include a favorable litigation
resolution in P&C of $13 million, after-tax, in 2015.
The table below provides a reconciliation of these items between
full year 2015 core earnings and the 2016 outlook.
2015 Core Earnings Reconciliation To 2016 Outlook ($
in millions)
2015
2016 Outlook Core earnings $1,650 $1,575 - $1,675
Less: Catastrophes favorable to outlook 77 - - Unfavorable PYD
(168) (22) - (22) Favorable litigation resolution
13 - - Core
earnings excluding items $1,728 $1,597 - $1,697 Less: Talcott
Resolution core earnings 472
320 - 340 Adjusted core earnings,
excluding Talcott Resolution $1,256
$1,277 - $1,357
Adjusted core
earnings growth rate, excl. Talcott Resolution
2% -
8%
COMMERCIAL LINESFourth Quarter 2015 Highlights:
- Core earnings increased 15% over fourth
quarter 2014 due to improved underwriting results partially offset
by lower net investment income
- Combined ratio before catastrophes and
PYD of 88.2 improved 3.0 points over fourth quarter 2014
- Standard Commercial renewal written
pricing increases averaged 2%
($
in millions)
Three Months Ended
Dec 312015
Dec 312014
Change Core earnings
$289 $251 15% Net
income $293 $262
12% Underwriting gain* $198
$123 61% Net investment
income $206 $222
(7)% Combined ratio 88.1
92.4 4.3 Catastrophes and PYD
(0.2) 1.2
1.4 Combined ratio before catastrophes and PYD
88.2 91.2 3.0
Small Commercial:
Combined ratio before
catastrophes and PYD 85.1
86.8 1.7 New business premium
$133 $122 9%
Policy count retention 85%
85% — Middle Market:
Combined ratio before catastrophes and PYD
89.0 94.7 5.7 New
business premium $114
$131 (13)% Policy count retention
81% 80% 1.0
Written premiums $1,609
$1,558 3% Standard Commercial renewal written
pricing increases 2% 3%
(1.0)
Fourth quarter 2015 core earnings in Commercial Lines was $289
million, an increase of $38 million, or 15%, from fourth quarter
2014 due to improved underwriting results that were partially
offset by lower net investment income.
Commercial Lines underwriting results were a gain of $198
million, before tax, in fourth quarter 2015 for an 88.1 combined
ratio compared with a fourth quarter 2014 underwriting gain of $123
million, before tax, for a 92.4 combined ratio. The increase in
underwriting gain reflects improved current accident year results,
despite a modest increase in catastrophe losses, and favorable PYD
versus unfavorable PYD in fourth quarter 2014. Excluding the impact
of PYD on both periods, fourth quarter 2015 underwriting results
improved by $46 million, before tax, compared with fourth quarter
2014, including a $7 million, before tax, increase in catastrophe
losses.
Fourth quarter 2015 combined ratio before catastrophes and PYD
improved 3.0 points over fourth quarter 2014 to 88.2, reflecting
improvements in all three business lines within Commercial Lines.
The Small Commercial combined ratio before catastrophes and PYD was
85.1 in fourth quarter 2015, 1.7 points better than fourth quarter
2014, principally due to workers’ compensation results, lower
non-catastrophe property losses and a lower expense ratio. The
Middle Market combined ratio before catastrophes and PYD improved
5.7 points to 89.0, reflecting lower non-catastrophe property
losses and better workers' compensation and general liability
results compared with fourth quarter 2014. The Specialty Commercial
combined ratio before catastrophes and PYD improved 1.0 point
compared with fourth quarter 2014 to 98.1 due to better
underwriting results in financial products and bond.
Fourth quarter 2015 written premiums in Commercial Lines grew 3%
over fourth quarter 2014 to $1,609 million, reflecting renewal
written price increases and strong retention in Small Commercial
and Middle Market, which together comprise about 87% of Commercial
Lines written premiums. Fourth quarter 2015 renewal written price
increases averaged 2% in Standard Commercial, resulting from a 3%
increase in Small Commercial and a 1% increase in Middle Market,
exclusive of the specialty programs and livestock lines. Policy
count retention remained strong in both businesses at 85% in Small
Commercial and 81% in Middle Market.
PERSONAL LINESFourth Quarter 2015 Highlights:
- Combined ratio before catastrophes and
PYD of 93.5, up 1.7 points compared with fourth quarter 2014
- Automobile combined ratio before
catastrophes and PYD increased 0.5 point compared with fourth
quarter 2014 due to higher physical damage and liability
frequency
- Homeowners combined ratio before
catastrophes and PYD increased 4.3 points over fourth quarter 2014,
which was lower than normal
($
in millions)
Three Months Ended
Dec 312015
Dec 312014
Change Core earnings
$51 $65 (22)% Net
income $51 $65
(22)% Underwriting gain $46
$60 (23)% Net investment
income $30 $30
—% Combined ratio 95.3
93.8 (1.5) Catastrophes and PYD
1.8 1.9
0.1 Combined ratio before catastrophes and PYD
93.5 91.8 (1.7)
Automobile 102.9 102.4
(0.5) Homeowners 72.4
68.1 (4.3) Written
premiums $936 $912
3%
Fourth quarter 2015 core earnings in Personal Lines decreased to
$51 million from $65 million in fourth quarter 2014 due to a
decrease in the underwriting gain as a result of lower current
accident year results for automobile and homeowners, including
higher catastrophe losses.
Personal Lines underwriting gain totaled $46 million, before
tax, for a combined ratio of 95.3 in fourth quarter 2015 compared
with fourth quarter 2014 underwriting gain of $60 million for a
combined ratio of 93.8. Catastrophes increased from $13 million,
before tax, in fourth quarter 2014 to $21 million, before tax, in
fourth quarter 2015. The increase in catastrophes, however, was
more than offset by PYD, which was a favorable $3 million, before
tax, in fourth quarter 2015 compared with an unfavorable $6
million, before tax, in fourth quarter 2014. In total, catastrophes
and PYD added 1.8 points to the fourth quarter 2015 combined ratio
versus 1.9 points in fourth quarter 2014.
Excluding catastrophes and PYD, fourth quarter 2015 underwriting
results deteriorated from fourth quarter 2014 due to higher
automobile losses as a result of increased physical damage and
liability frequency and increased homeowner losses. Fourth quarter
2015 combined ratio before catastrophes and PYD was 93.5, up 1.7
points compared with fourth quarter 2014.
The automobile combined ratio before catastrophes and PYD rose
from 102.4 in fourth quarter 2014 to 102.9 in fourth quarter 2015
due to higher frequency compared with fourth quarter 2014, although
largely consistent with third quarter 2015 experience. Frequency
was unfavorably impacted by increased economic activity, resulting
in more miles driven and congested roadways, coupled with adverse
weather conditions in parts of the country.
The homeowners combined ratio before catastrophes and PYD
increased from 68.1 in fourth quarter 2014 to 72.4 in fourth
quarter 2015. Fourth quarter 2014 had a low level of non-weather
related losses compared with a more normal level in fourth quarter
2015.
Fourth quarter 2015 Personal Lines written premiums rose 3% over
fourth quarter 2014 reflecting strong automobile new business
growth and stable retention, partially offset by lower premium in
Other Agency. Premium retention continued to be strong and stable
with third quarter 2015 and fourth quarter 2014 at 87% for
automobile and 90% for homeowners. Total automobile new business
premium increased 14%, while homeowners declined 14% compared with
fourth quarter 2014. Renewal written price increases in fourth
quarter 2015 averaged 6% in automobile and 8% in homeowners,
consistent with the past several quarters.
GROUP BENEFITSFourth Quarter 2015 Highlights:
- Core earnings of $40 million decreased
11% over fourth quarter 2014 principally due to less favorable
group life results
- Core earnings margin* of 4.6% compared
with 5.3% in fourth quarter 2014
- Fully insured ongoing premiums grew 5%
over fourth quarter 2014, excluding Association-Financial
Institutions
($ in millions)
Three
Months Ended
Dec 312015
Dec 312014
Change Core earnings
$40 $45 (11%) Net
income $37 $48
(23%) Fully insured ongoing premiums, excluding A-FI1
$774 $737
5% Loss ratio, excluding A-FI 78.4%
76.0% (2.4) Expense
ratio, excluding A-FI 26.0%
27.9% 1.9 Net investment income
$88 $90
(2%) Core earnings margin* 4.6%
5.3% (0.7)
[1] Fully insured ongoing premiums exclude buyout premiums and
premium equivalents; excludes A-FI premiums of $0 million and $2
million in fourth quarter 2015 and 2014, respectively.
Fourth quarter 2015 core earnings in Group Benefits declined $5
million, after-tax, to $40 million, an 11% decrease from $45
million in fourth quarter 2014, reflecting higher loss ratios in
group life and group disability partially offset by a lower expense
ratio. As a result, the core earnings margin declined to 4.6% in
fourth quarter 2015 from 5.3% in fourth quarter 2014.
Fourth quarter 2015 total loss ratio was 78.4%, an increase of
2.4 points compared with fourth quarter 2014, excluding the impact
of the Association-Financial Institutions (A-FI) book. The A-FI
book, which was in the group life line, was fully run off as of
Dec. 31, 2014 and does not impact 2015 results, although it did
affect the group life loss ratio and Group Benefits expense ratios
in 2014. The increase in the loss ratio in fourth quarter 2015 was
due to a 4.2 point increase in the group life loss ratio, excluding
A-FI, and a 1.0 point increase in the group disability loss ratio
compared with fourth quarter 2014. The increase in group life was
due to higher mortality and claim severity while the increase in
disability was due to higher claims severity including slightly
lower recoveries, partially offset by improved incidence and
pricing. The fourth quarter 2015 expense ratio, excluding A-FI,
improved 1.9 points to 26.0% due to higher earned premiums and
lower insurance operating costs and other expenses compared with
fourth quarter 2014.
Fourth quarter 2015 fully insured ongoing premiums were $774
million, up 5%, excluding A-FI, from fourth quarter 2014,
reflecting increased sales, improved persistency and improved
pricing during 2015. Group life premiums, which comprise 48% of
segment premiums, rose 5% from fourth quarter 2014, excluding A-FI,
while group disability premiums, which comprise approximately 46%,
were up 4%. Fourth quarter 2015 fully insured ongoing sales rose 9%
over fourth quarter 2014 to $48 million, principally reflecting 10%
growth in group disability sales to $22 million and stable group
life sales at $20 million.
MUTUAL FUNDSFourth Quarter 2015 Highlights:
- Core earnings of $20 million compared
with $27 million in fourth quarter 2014, which included a favorable
state tax benefit
- Mutual Fund net flows, which exclude
Talcott Resolution assets under management (AUM), were $0.4 billion
in the quarter and $1.5 billion for full year 2015, marking four
consecutive quarters of positive net flows
- Solid overall fund performance, with
61%, 55% and 58% of Hartford Mutual Funds outperforming peers on a
1-, 3- and 5-year basis, respectively1
($
in millions)
Three Months Ended
Dec 312015
Dec 312014
Change Core earnings
$20 $27 (26%) Net
income $20 $23
(13%) Mutual Fund sales $4,636
$3,894 19% Mutual Fund
net flows $405 $(1,060)
NM Mutual Fund AUM
$74,413 $73,035 2%
Talcott AUM $17,549
$20,584 (15)% Total Mutual Funds segment AUM
$91,962 $93,619
(2)%
Mutual Funds fourth quarter 2015 core earnings were $20 million,
down from $27 million in fourth quarter 2014, which included a
favorable state tax benefit. Excluding this benefit, fourth quarter
2015 core earnings decreased due to a decrease in fees as a result
of a lower average AUM and higher marketing expenses compared with
fourth quarter 2014.
Total AUM declined 2% from fourth quarter 2014 due to the
expected decrease in Talcott Resolution AUM, partially offset by
$1.5 billion of net flows into Mutual Fund AUM during 2015. Talcott
Resolution AUM decreased 15% over the past twelve months to $17.5
billion due to continued runoff of variable annuity contract
counts. Excluding Talcott Resolution, Mutual Fund AUM increased to
$74.4 billion from $73.0 billion due to positive net flows during
2015.
During the quarter, Mutual Fund net flows were $405 million,
benefiting from higher sales compared with fourth quarter 2014 and
stable redemption levels. Overall Mutual Fund performance remained
solid, with 61%, 55% and 58% of funds outperforming peers on a 1-,
3- and 5-year basis, respectively.
[1] Hartford Mutual Funds only on Morningstar net of fee
basis
TALCOTT RESOLUTION
($ in millions)
Three Months Ended
Dec 312015
Dec 312014
Change Core earnings
$83 $98 (15)% Net
income $28 $144
(81)% Variable annuity contract count (in thousands)
603 674
(11)% Fixed annuity and other contract count (in thousands)
128 139
(8)%
Fourth quarter 2015 core earnings in Talcott Resolution were $83
million, a $15 million, or 15%, decrease from fourth quarter 2014
due to lower net investment income, including lower income on LPs,
and lower fees due to the continued runoff of the annuity business.
Investment income on LPs was $1 million, before tax, in fourth
quarter 2015 compared with $24 million, before tax, in fourth
quarter 2014.
Variable annuity (VA) and fixed annuity contract counts as of
Dec. 31, 2015 each declined 2% from Sept. 30, 2015 and declined 11%
and 8%, respectively, from Dec. 31, 2014. The decline in contract
counts since Dec. 31, 2014 includes normal surrender activity and
the impact of the company's contractholder initiatives in both VA
and fixed annuity, which ended in April and November 2015,
respectively.
In the fourth quarter of 2015, the company completed its annual
study of non-market related policyholder behavior assumptions and
incorporated the results of those studies into its projection of
future gross profits. In 2014, the annual assumptions study was
completed in the third quarter. As a result of the fourth quarter
assumptions study in 2015, the company recognized an unlock benefit
of $9 million, after-tax. In addition, annual assumption study
updates were included in the valuation of the liability for
non-lifetime guaranteed minimum withdrawal benefit (GMWB). This
resulted in a charge of $27 million, after-tax, included in net
realized capital losses, after-tax and DAC. The charge was largely
due to lower assumed lapses and higher withdrawal utilization.
INVESTMENTS
($ in millions)
Three Months
Ended Amounts presented before tax
Dec 312015
Dec 312014
Change Total investments
$72,728 $76,278
(5)% Net investment income on LPs $12
$44 (73)% Net investment income
$695 $752
(8)% Net impairment losses, including mortgage loan loss
reserves $42 $17
147% Annualized investment yield1
3.9% 4.2% (0.3)
Annualized investment yield on LPs 1.5%
6.0% (4.5) Annualized investment
yield, excluding LPs 4.1%
4.1% —
[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 and securities lending collateral,
if any, and derivatives book value.
Fourth quarter 2015 net investment income totaled $695 million,
before tax, an 8% decrease from fourth quarter 2014 principally due
to lower investment income on LPs and the continued runoff of
Talcott Resolution. Fourth quarter 2015 annualized investment yield
declined to 3.9%, before tax, from 4.2%, before tax, in fourth
quarter 2014 due to lower investment income on LPs, which totaled
$12 million, before tax, in fourth quarter 2015 compared with $44
million, before tax, in fourth quarter 2014. The decrease in
investment income on LPs was largely due to losses on hedge funds
and real-estate partnerships but also includes lower income on
private equity funds compared with fourth quarter 2014. Fourth
quarter 2015 annualized investment yield on LPs was 1.5%, before
tax, compared with 6.0%, before tax, in fourth quarter 2014.
Excluding the impact of LPs, net investment income decreased 4%
compared with fourth quarter 2014 due to lower investment income in
Talcott Resolution as a result of the runoff of the business.
Fourth quarter 2015 annualized investment yield excluding LPs was
4.1%, before tax, consistent with fourth quarter 2014 although
lower reinvestment rates continue to pressure the total portfolio
yield.
The credit performance of the company's portfolio remained
strong in fourth quarter 2015, although net impairment losses,
including mortgage loan loss reserves, increased from $17 million,
before tax, in fourth quarter 2014 to $42 million, before tax, in
fourth quarter 2015. Similar to third quarter 2015, the increase in
net impairment losses includes impairments on securities the
company intends to sell as well as credit impairments for
securities that the company expects to continue to own. The
impairments included securities in the energy and minerals and
mining sectors.
The carrying value of total investments declined to $72.7
billion at Dec. 31, 2015 compared with $76.3 billion at Dec. 31,
2014. The decline in total investments reflects stable invested
assets in the P&C and Group Benefits businesses, partially
offset by a reduction in Corporate invested assets due to
dividends, share repurchases and debt reduction over the past 12
months and by a 9% decrease in invested assets in Talcott
Resolution during 2015.
STOCKHOLDERS’ EQUITY
($ in millions)
As of
Dec 31,2015
Dec 312014
Change Stockholders' equity
$17,642 $18,720
(6)% Stockholders' equity (ex. AOCI)
$17,971 $17,792 1% Book
value per diluted share $42.96
$42.84 —% Book value per diluted share
(ex. AOCI) $43.76 $40.71
7% Common shares outstanding
401.8 424.4 (5)%
Common shares outstanding and dilutive potential common shares
410.7 437.0
(6)%
The Hartford’s stockholders’ equity was $17.6 billion as of Dec.
31, 2015, a 6% decrease from $18.7 billion as of Dec. 31, 2014. The
decrease was largely due to the $1.3 billion reduction in
accumulated other comprehensive income (AOCI) from Dec. 31, 2014
mostly due to the impact of higher interest rates on the company's
fixed income portfolios. Excluding AOCI, stockholders' equity was
$18.0 billion as of Dec. 31, 2015, a 1% increase compared with Dec.
31, 2014, as the company's common share repurchases of $1,250
million and common dividends of $323 million during 2015 almost
entirely offset 2015 net income of $1,682 million.
Common shares outstanding at Dec. 31, 2015 decreased to 401.8
million, or 5%, since Dec. 31, 2014, due to the company's
repurchase of 28.4 million common shares, slightly offset by
conversion of warrants into common equity. Common shares
outstanding and dilutive potential common shares as of Dec. 31,
2015 decreased 6% from Dec. 31, 2014 to 410.7 million, also as a
result of the company's common share repurchases.
The company's current capital management plan authorized $4.375
billion for equity repurchases from Jan. 1, 2014 through Dec. 31,
2016. As of Feb. 3, 2016, the company has repurchased $3.173
billion of common shares and warrants, including $128 million of
common equity since Dec. 31, 2015, leaving approximately $1.2
billion for equity repurchases through Dec. 31, 2016.
Book value per diluted common share was $42.96 as of Dec. 31,
2015, roughly flat with Dec. 31, 2014, as the 6% decline in
stockholders' equity, due principally to a decline in AOCI during
2015, was offset by the effect of a 6% decrease in common shares
outstanding and dilutive potential common shares as a result of the
company's equity repurchases. Excluding AOCI, book value per
diluted common share rose 7% to $43.76 as of Dec. 31, 2015 from
$40.71 as of Dec. 31, 2014. The increase in book value per diluted
common share, excluding AOCI, was due to a 1% increase in
stockholders' equity, excluding AOCI, and a 6% decrease in common
shares outstanding and dilutive potential common shares.
CONFERENCE CALL
The Hartford will discuss its fourth quarter and full year 2015
financial results and its 2016 outlook in a webcast on Friday, Feb.
5, 2016, at 9 a.m. EST. The webcast can be accessed live or as a
replay through the investor relations section of The Hartford's
website at http://ir.thehartford.com.
More detailed financial information can be found in The
Hartford's Investor Financial Supplement for Dec. 31, 2015 and the
Fourth Quarter 2015 Financial Results Presentation, both of which
are available at http://ir.thehartford.com.
ABOUT THE HARTFORD
With more than 200 years of expertise, The Hartford (NYSE:HIG)
is a leader in property and casualty insurance, group benefits and
mutual funds. The company is widely recognized for its service
excellence, sustainability practices, trust and integrity. More
information on the company and its financial performance is
available at www.thehartford.com.
From time to time, The Hartford uses its website to disseminate
material company information. Financial and other important
information regarding The Hartford is routinely accessible through
and posted on our website at http://ir.thehartford.com. In
addition, you may automatically receive email alerts and other
information about The Hartford when you enroll your email address
by visiting the “Email Alerts” section at
http://ir.thehartford.com.
HIG-F
THE HARTFORD FINANCIAL
SERVICES GROUP, INC. CONSOLIDATING INCOME STATEMENTS
Three Months Ended December 31, 2015 ($ in millions)
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate
Consolidated Earned premiums $ 2,667 $ 774 $ — $ 19 $ — $
3,460 Fee income — 17 178 266 2 463 Net investment income 270 88 1
331 5 695 Other revenues 21 — — — — 21 Net realized capital gains
(losses) 10 (6 )
— (128 ) (2 )
(126 )
Total revenues 2,968 873
179 488 5 4,513 Benefits, losses, and
loss adjustment expenses 1,639 620 — 431 — 2,690 Amortization of
deferred policy acquisition costs 330 7 6 (53 ) — 290 Insurance
operating costs and other expenses 487 199 141 106 6 939 Interest
expense — — — — 86 86 Restructuring and other costs
— — —
— 4 4
Total benefits and expenses 2,456 826
147 484 96 4,009 Income (loss) from
continuing operations, before income taxes 512 47
32 4 (91 ) 504 Income tax
expense (benefit) 149 10
12 (24 )
(64 ) 83
Net income (loss) 363
37 20 28 (27 ) 421 Less:
Unlock benefit, after-tax — — — 35 — 35 Less: Net realized capital
gains (losses), after-tax and DAC, excluded from core earnings 5 (3
) — (90 ) (2 ) (90 ) Less: Restructuring and other costs, after-tax
— — — — (3 ) (3 ) Less: Income tax benefit from reduction in
valuation allowance — —
— —
34 34
Core earnings (losses)
$ 358
$ 40 $ 20
$ 83 $
(56 ) $ 445
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
PROPERTY & CASUALTY CONSOLIDATING INCOME
STATEMENTS Three Months Ended December 31, 2015 ($ in
millions)
CommercialLines
PersonalLines
P&COther
Property &Casualty
Written premiums $ 1,609 $ 936 $ 31 $ 2,576 Change in
unearned premium reserve (49 )
(42 ) — (91
)
Earned premiums 1,658 978 31
2,667 Losses and loss adjustment expenses Current accident
year before catastrophes 923 662 25 1,610 Current accident year
catastrophes 13 21 — 34 Prior accident year development
(16 ) (3 )
14 (5 )
Total losses and loss
adjustment expenses 920 680 39
1,639 Amortization of DAC 241 89 — 330 Underwriting expenses
295 163 11 469 Dividends to policyholders 4
— —
4
Underwriting gain (loss)
198 46 (19 ) 225 Net investment
income 206 30 34 270 Net realized capital gains (losses) 11 — (1 )
10 Net servicing and other income 4
— 3
7
Income from continuing operations before
income taxes 419 76 17 512 Income
tax expense (benefit) 126
25 (2 ) 149
Net income 293 51 19 363 Less: Net realized capital
gains, after-tax and DAC, excluded from core earnings
4 —
1 5
Core earnings
$ 289
$ 51 $ 18
$ 358
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended
December 31, 2014 ($ in millions)
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate
Consolidated Earned premiums $ 2,580 $ 751 $ —
$ 47 $ — $ 3,378 Fee income — 15 181 276 1 473 Net investment
income 282 90 — 370 10 752 Other revenues 28 — — — — 28 Net
realized capital gains (losses) 6
4 —
(15 ) (9 )
(14 )
Total revenues 2,896 860 181
678 2 4,617 Benefits, losses, and loss
adjustment expenses 1,622 580 — 380 — 2,582 Amortization of
deferred policy acquisition costs 322 8 6 45 — 381 Insurance
operating costs and other expenses 491 208 134 144 8 985 Interest
expense — — — — 94 94 Net reinsurance gain on dispositions — — —
(23 ) — (23 ) Pension settlement — — — — 128 128 Restructuring and
other costs — —
6 —
20 26
Total benefits and expenses 2,435 796
146 546 250 4,173 Income (loss) from
continuing operations before income taxes 461 64
35 132 (248 ) 444 Income tax
expense (benefit) 140
16 12
19 (88 ) 99
Income (loss) from continuing operations, after tax
321 48 23 113 (160 )
345 Income from discontinued operations, after-tax
6 —
— 31
— 37
Net income (loss)
327 48 23 144 (160 )
382 Less: Unlock benefit, after-tax — — — 13 — 13 Less: Net
realized capital gains (losses) and other, after-tax and DAC,
excluded from core earnings 5 3 — (13 ) (4 ) (9 ) Less:
Restructuring and other costs, after-tax — — (4 ) — (13 ) (17 )
Less: Pension settlement, after-tax — — — — (83 ) (83 ) Less: Net
reinsurance gain on dispositions, after-tax — — — 15 — 15 Less:
Income from discontinued operations, after-tax
6 — —
31 —
37
Core earnings (losses)
$ 316
$ 45 $ 27
$ 98
$ (60 ) $
426
THE HARTFORD FINANCIAL
SERVICES GROUP, INC. PROPERTY & CASUALTY
CONSOLIDATING INCOME STATEMENTS Three Months Ended
December 31, 2014 ($ in millions)
CommercialLines
PersonalLines
P&COther
Property &Casualty
Written premiums $ 1,558 $ 912 $ — $ 2,470 Change in unearned
premium reserve (53 ) (56
) (1 ) (110 )
Earned
premiums 1,611 968 1 2,580 Losses
and loss adjustment expenses Current accident year before
catastrophes 934 640 — 1,574 Current accident year catastrophes 6
13 — 19 Prior accident year development 13
6 10
29
Total losses and loss adjustment
expenses 953 659 10 1,622
Amortization of DAC 233 89 — 322 Underwriting expenses 298 160 15
473 Dividends to policyholders 4
— —
4
Underwriting gain (loss) 123
60 (24 ) 159 Net investment income 222
30 30 282 Net realized capital gains (losses) 8 (1 ) (1 ) 6 Net
servicing and other income 5
6 3
14
Income from continuing operations before income
taxes 358 95 8 461 Income tax
expense 102 30
8 140
Income from continuing operations, after-tax 256 65 —
321 Income from discontinued operations, after-tax
6 —
— 6
Net income 262 65 —
327 Less: Net realized capital gains, after-tax and DAC, excluded
from core earnings 5 — — 5 Less: Income from discontinued
operations, after-tax 6
— —
6
Core earnings $
251 $ 65
$ —
$ 316
THE HARTFORD FINANCIAL
SERVICES GROUP, INC. CONSOLIDATING INCOME STATEMENTS ($
in millions)
Year Ended December 31, 2015
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate
Consolidated Earned premiums $ 10,416 $ 3,069
$ — $ 92 $ — $ 13,577 Fee income — 67 723 1,041 8 1,839 Net
investment income 1,171 371 1 1,470 17 3,030 Other revenues 87 — —
— — 87 Net realized capital gains (losses) 1
(11 ) —
(161 ) 15
(156 )
Total revenues 11,675
3,496 724 2,442 40 18,377
Benefits, losses, and loss adjustment expenses 6,897 2,427 — 1,451
— 10,775 Amortization of deferred policy acquisition costs 1,310 31
22 139 — 1,502 Insurance operating costs and other expenses 1,894
788 568 469 33 3,752 Interest expense — — — — 357 357 Net
reinsurance gain loss on dispositions — — — (28 ) — (28 ) Loss on
extinguishment of debt — — — — 21 21 Restructuring and other costs
— —
— —
20 20
Total benefits
and expenses 10,101 3,246 590 2,031
431 16,399 Income (loss) from continuing
operations, before income taxes 1,574 250
134 411 (391 ) 1,978 Income tax
expense (benefit) 444
63 48
(17 ) (233 ) 305
Income (loss) from continuing operations, after tax
1,130 187 86 428 (158 )
1,673 Income from discontinued operations, after-tax
7 —
— 2
— 9
Net income (loss)
1,137 187 86 430 (158 )
1,682 Less: Unlock benefit, after-tax — — — 52 — 52 Less:
Net realized capital gains (losses), after-tax and DAC, excluded
from core earnings (1 ) (8 ) — (114 ) 9 (114 ) Less: Restructuring
and other costs, after-tax — — — — (13 ) (13 ) Less: Loss on
extinguishment of debt, after-tax — — — — (14 ) (14 ) Less: Net
reinsurance gain on dispositions, after-tax — — — 18 — 18 Less:
Income tax benefit from reduction in valuation allowance — — — — 94
94 Less: Income from discontinued operations, after-tax
7 —
— 2
— 9
Core earnings
(losses) $ 1,131
$ 195
$ 86 $
472 $ (234
) $ 1,650
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
PROPERTY & CASUALTY CONSOLIDATING INCOME
STATEMENTS Year Ended December 31, 2015 ($ in millions)
CommercialLines
PersonalLines
P&COther
Property
&Casualty(Combined)
Written premiums $ 6,625 $ 3,918 $ 35 $ 10,578 Change in unearned
premium reserve 114
45 3
162
Earned premiums 6,511 3,873 32
10,416 Losses and loss adjustment expenses Current accident
year before catastrophes 3,712 2,578 25 6,315 Current accident year
catastrophes 121 211 — 332 Prior accident year development
53 (21 )
218 250
Total losses and loss
adjustment expenses 3,886 2,768 243
6,897 Amortization of DAC 951 359 — 1,310 Underwriting
expenses 1,178 628 32 1,838 Dividends to policyholders
17 —
— 17
Underwriting gain
(loss) 479 118 (243 ) 354
Net investment income 910 128 133 1,171 Net realized capital gains
(losses) (6 ) 4 3 1 Net servicing and other income
22 19
7 48
Income (loss) from
continuing operations before income taxes 1,405
269 (100 ) 1,574 Income tax expense
(benefit) 409 82
(47 ) 444
Income (loss) from continuing operations, after-tax 996 187
(53 ) 1,130 Income from discontinued operations, after-tax 7 — — 7
Net income (loss) 1,003 187 (53 ) 1,137 Less: Income from
discontinued operations, net of tax 7 — — 7 Less: Net realized
capital gains (losses), after-tax and DAC, excluded from core
earnings (7 ) 2 4 (1)
Core earnings (losses)
$ 1,003 $
185 $ (57 )
$ 1,131
THE HARTFORD
FINANCIAL SERVICES GROUP, INC. CONSOLIDATING INCOME
STATEMENTS ($ in millions)
Year Ended December 31, 2014
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate
Consolidated Earned premiums $ 10,096 $ 3,034 $ — $
206 $ — $ 13,336 Fee income — 61 723 1,201 10 1,995 Net investment
income 1,216 374 — 1,542 22 3,154 Other revenues 113 — — — — 113
Net realized capital gains (losses) (32 )
15 —
26 7
16
Total revenues 11,393 3,484
723 2,975 39 18,614 Benefits, losses,
and loss adjustment expenses 6,800 2,362 — 1,643 — 10,805
Amortization of deferred policy acquisition costs 1,267 32 28 402 —
1,729 Insurance operating costs and other expenses 1,824 836 553
567 44 3,824 Interest expense — — — — 376 376 Net reinsurance gain
on dispositions — — — (23 ) — (23 ) Pension settlement — — — — 128
128 Restructuring and other costs —
— 6
— 70
76
Total benefits and expenses 9,891
3,230 587 2,589 618 16,915
Income (loss) from continuing operations, before income
taxes 1,502 254 136 386 (579
) 1,699 Income tax expense (benefit)
426 63
49 16
(204 ) 350
Income (loss) from
continuing operations, after tax 1,076 191
87 370 (375 ) 1,349 Income
(loss) from discontinued operations, after-tax
6 — —
(557 ) —
(551 )
Net income (loss) 1,082
191 87 (187 ) (375 )
798 Less: Unlock charge, after-tax — — — (62 ) — (62 ) Less:
Net realized capital gains (losses), after-tax and DAC, excluded
from core earnings (19 ) 11 — (16 ) 4 (20 ) Less: Restructuring and
other costs, after-tax — — (4 ) — (45 ) (49 ) Less: Pension
settlement, after-tax — — — — (83 ) (83 ) Less: Reinsurance gain on
disposition, after-tax — — — 15 — 15 Less: Income (loss) from
discontinued operations, after-tax 6
— —
(557 ) —
(551 )
Core earnings (losses)
$ 1,095 $
180 $ 91
$ 433
$ (251 ) $
1,548
THE HARTFORD FINANCIAL
SERVICES GROUP, INC. PROPERTY & CASUALTY
CONSOLIDATING INCOME STATEMENTS Year Ended December 31,
2014 ($ in millions)
CommercialLines
PersonalLines
P&COther
Property
&Casualty(Combined)
Written premiums $ 6,381 $ 3,861 $ 2 $ 10,244 Change in unearned
premium reserve 92
55 1 148
Earned premiums 6,289 3,806 1
10,096 Losses and loss adjustment expenses Current accident
year before catastrophes 3,733 2,498 — 6,231 Current accident year
catastrophes 109 232 — 341 Prior accident year development
13 (46 )
261 228
Total losses
and loss adjustment expenses 3,855 2,684
261 6,800 Amortization of DAC 919 348 — 1,267
Underwriting expenses 1,086 604 37 1,727 Dividends to policyholders
15 —
— 15
Underwriting gain (loss) 414 170 (297
) 287 Net investment income 958 129 129 1,216 Net
realized capital gains (losses) (30 ) (5 ) 3 (32 ) Net servicing
and other income 20
5 6
31
Income (loss) from continuing operations before income
taxes 1,362 299 (159 ) 1,502
Income tax expense (benefit) 385
92 (51 )
426
Income (loss) from continuing operations,
after-tax 977 207 (108 )
1,076 Income from discontinued operations, after-tax
6 —
— 6
Net income
(loss) 983 207 (108 ) 1,082
Less: Net realized capital gains (losses), after-tax and DAC,
excluded from core earnings (19 ) (3 ) 3 (19 ) Less: Income from
discontinued operations, after-tax 6
— —
6
Core earnings (losses)
$ 996 $
210 $ (111
) $ 1,095
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 fourth 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
Dec 312015
Dec 312014
Change Book value per diluted common
share, including AOCI $42.96 $42.84
—% Less: Per diluted share impact of AOCI
$(0.80) $2.13
NM
Book value per diluted common share, excluding
AOCI $43.76
$40.71 7%
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 Dec. 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 Dec. 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
and years ended Dec. 31, 2015 and 2014 is provided in the table
below.
Three Months Ended
Years Ended
Dec 312015
Dec 312014
Change
Dec 312015
Dec 312014
Change PER SHARE DATA
Diluted earnings (losses) per common share:
Core
earnings available to common shareholders $ 1.07
$ 0.96 11 % $ 3.88
$ 3.36 15 % Add: Unlock (charge)
benefit, after-tax 0.08 0.03 167 % 0.12 (0.13 ) NM Add: Net
realized capital losses, after-tax and DAC, excluded from core
earnings (0.21 ) (0.02 ) NM (0.27 ) (0.04 ) NM Add: Restructuring
and other costs, after-tax (0.01 ) (0.04 ) 75 % (0.03 ) (0.11 ) 73
% Add: Pension settlement, after-tax — (0.18 ) NM — (0.18 ) NM Add:
Loss on extinguishment of debt, after-tax — — — % (0.03 ) — NM Add:
Net reinsurance gain on dispositions, after-tax — 0.03 NM 0.04 0.03
33 % Add: Income tax benefit from reduction in valuation allowance
0.08 — NM 0.22 — NM Add: Income (loss) from discontinued
operations, after-tax —
0.08 NM
0.03 (1.20 )
NM
Net income available to common
shareholders $ 1.01
$ 0.86
17 % $ 3.96
$ 1.73
129 %
Core earnings margin: The Hartford
uses the non-GAAP measure core earnings margin to evaluate, and
believes it is an important measure of, the Group Benefits
segment's operating performance. Core earnings margin is calculated
by dividing core earnings by revenues, excluding buyouts and
realized gains (losses). Net income margin is the most directly
comparable U.S. GAAP measure. The Company believes that core
earnings margin 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 and realized
gains (losses). Core earnings margin should not be considered as a
substitute for net income margin and does not reflect the overall
profitability of Group Benefits. Therefore, the Company believes it
is important for investors to evaluate both core earnings margin
and net income margin when reviewing performance. A reconciliation
of net income margin to core earnings margin for the quarterly
periods and years ended Dec. 31, 2015 and 2014, is set forth
below.
Three Months Ended
Years Ended Margin
12/31/2015 12/31/2014
Change
12/31/2015 12/31/2014
Change Net income margin 4.2%
5.7% (1.5) 5.4%
5.5% (0.1) Less: Effect of net capital
realized gains (losses), net of tax on after-tax margin
(0.4)% 0.4%
(0.8) (0.2)% 0.3%
(0.5)
Core earnings margin
4.6% 5.3%
(0.7) 5.6%
5.2% 0.4
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 and years ended Dec. 31, 2015 and 2014, is set
forth below.
Three Months Ended
Years Ended
Dec 312015
Dec 312014
Dec 312015
Dec 312014
Commercial Lines Net income $293 $262 $1,003 $983 Less:
Income from discontinued operations — 6 7 6 Add: Income tax expense
126 102 409 385 Less: Other income (expense) (2) (4) 2 (3) Less:
Net realized capital gains (losses) 11 8 (6) (30) Less: Net
investment income 206 222 910 958 Less: Net servicing income
6 9 20
23
Underwriting gain $198
$123 $479 $414 Personal Lines
Net income $51 $65 $187 $207 Add: Income tax expense 25 30 82 92
Less: Other expenses (1) 5 15 2 Less: Net realized capital gains
(losses) — (1) 4 (5) Less: Net investment income 30 30 128 129
Less: Net servicing income 1
1 4 3
Underwriting gain $46
$60 $118
$170
Combined ratio before catastrophes and
prior accident year development: Combined ratio before
catastrophes and prior year development (PYD) (also referred to as
Current Accident Year (CAY) combined ratio before catastrophes) 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 the risks and uncertainties identified below,
as well as 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.
Risks Relating to Economic, Market and
Political Conditions: 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 runoff annuity block; 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;
Risks Relating to Estimates, Assumptions
and Valuations: 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 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 subjective determinations that underlie
the Company’s evaluation of other-than-temporary impairments on
available-for-sale securities; 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 difficulty in predicting the Company’s potential exposure for
asbestos and environmental claims;
Financial Strength, Credit and
Counterparty Risks: 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;
Insurance Industry and Product-Related
Risks: 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
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; the
uncertain effects of emerging claim and coverage issues; actions by
competitors that may be larger or have greater financial resources
than we do; technological changes, such as usage-based methods of
determining premiums, advancements in automotive safety features,
the development of autonomous vehicles, and platforms that
facilitate ride sharing, which 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 Company's ability to market, distribute and provide
insurance products and investment advisory services through current
and future distribution channels and advisory firms; 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;
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;
Regulatory and Legal Risks: 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;
regulatory requirements that could delay, deter or prevent a
takeover attempt that shareholders might consider in their best
interests; the impact of potential changes in accounting principles
and related financial reporting requirements;
Other Operational Risks: risks
associated with the runoff of our Talcott Resolution business; the
risks, challenges and uncertainties associated with our capital
management plan, including as a result of changes in our financial
position and earnings, share price, capital position, legal
restrictions, other investment opportunities, and other factors;
the risks, challenges and uncertainties associated with our expense
reduction initiatives and other actions, which may include
acquisitions, divestitures or restructurings; 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; and the Company’s ability to protect its
intellectual property and defend against claims of
infringement.
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160204006596/en/
The HartfordMedia ContactsMichelle Loxton,
860-547-7413michelle.loxton@thehartford.comorMatthew Sturdevant,
860-547-8664matthew.sturdevant@thehartford.comorInvestor
ContactsSabra Purtill, CFA,
860-547-8691sabra.purtill@thehartford.comorSean Rourke,
860-547-5688sean.rourke@thehartford.com
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