- Core earnings* decreased 15% from first
quarter 2015 principally due to decreased investment income from
limited partnerships and other alternative investments (LPs) and
lower underwriting results in Personal Lines, including unfavorable
prior accident year development (PYD) in automobile
- Net income decreased 31% from first
quarter 2015 due to the decrease in core earnings and first quarter
2016 net realized capital losses
- Including the impact of the company's
share repurchase plan over the last twelve months, first quarter
2016 core earnings per diluted share* decreased 9% and first
quarter net income per diluted share decreased 27%
- Commercial Lines combined ratio before
catastrophes and PYD* was 89.6, a 2.8 point improvement over first
quarter 2015, primarily due to improved property and workers'
compensation results
- Personal Lines combined ratio before
catastrophes and PYD was 89.7, a 0.2 point improvement over first
quarter 2015, as the deterioration in personal automobile current
accident year results was more than offset by improvement in
homeowners
- Book value per diluted share, excluding
accumulated other comprehensive income (AOCI)*, was $44.27, a 1%
increase from Dec. 31, 2015
- During first quarter 2016, the company
repurchased 8.4 million common shares for a total of $350
million
The Hartford (NYSE:HIG) reported core earnings of $385 million
for first quarter 2016, ended March 31, 2016, a 15% decrease
from first quarter 2015, principally due to lower investment income
from LPs, and lower underwriting results in Personal Lines
including unfavorable PYD and higher catastrophes. Investment
income from LPs declined to $3 million, after-tax ($8 million,
before tax), in first quarter 2016 compared with $65 million,
after-tax ($99 million, before tax), in first quarter 2015, largely
due to lower income from real estate partnerships and losses on
hedge funds.
First quarter 2016 core earnings per diluted share decreased 9%
to $0.95 compared with $1.04 in first quarter 2015 due to the
decrease in core earnings, partially offset by a 6% decrease in
weighted average diluted common shares outstanding as a result of
the company's equity repurchases over the last year.
*Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP).
First quarter 2016 net income totaled $323 million, a 31%
decrease from $467 million in first quarter 2015. First quarter
2016 net income included net realized capital losses of $96
million, after-tax and deferred acquisition costs (DAC), compared
with net realized capital gains of $2 million, after-tax and DAC,
in first quarter 2015, primarily due to first quarter 2016 net
losses on sales of securities and losses on the variable annuity
(VA) hedge program and other derivatives, mostly due to volatile
capital market conditions during the quarter. First quarter 2016
net income also included an unlock benefit of $9 million,
after-tax, a decrease from a benefit of $19 million, after-tax, in
first quarter 2015. In addition, first quarter 2016 included a $25
million tax benefit from the reduction of a deferred tax asset
valuation allowance on capital loss carryovers. As a result of the
decrease in net income, first quarter 2016 net income per diluted
share was $0.79, a decrease of 27% compared with net income of
$1.08 per diluted share in first quarter 2015.
“The Hartford’s Commercial Lines and Group Benefits businesses
delivered strong underwriting results in the first quarter,” said
The Hartford's Chairman and CEO Christopher Swift. “However, core
earnings declined 15 percent due to a decrease in total net
investment income and Personal Lines results that were below
expectations. Although homeowners improved, personal automobile
loss trends continued to be challenging.”
The Hartford's President Doug Elliot added, "Commercial Lines
and Group Benefits results reflected disciplined pricing and
underwriting execution in a difficult market. Better underwriting
results for Small Commercial, Middle Market and Specialty
Commercial resulted in a 2.8 point improvement in the underlying
Commercial Lines combined ratio. In Group Benefits, the
twelve-month core earnings margin* was 5.5 percent and premium grew
slightly. However, in Personal Lines, automobile severity and
frequency trends negatively impacted our profitability, including
adverse prior accident year development. We have multiple
initiatives currently underway to aggressively address the
profitability of this line, including pricing, underwriting and
agency actions.”
Swift concluded, "As it relates to strategic goals, we also
achieved progress on our product and underwriting expansion
strategies, including adding excess and surplus lines capabilities
with our agreement to acquire Maxum Specialty Insurance Group and
expanding our international capabilities. While headwinds from the
second half of 2015 persist, we are well prepared to navigate this
environment with a clear strategy, underwriting discipline and a
strong balance sheet.”
CONSOLIDATED FINANCIAL RESULTS
($ in millions except per share data)
Three Months
Ended Mar 31 2016
Mar 31 2015 Change Core earnings
(losses): Commercial Lines $249 $234 6%
Personal Lines $23 $75 (69)% P&C Other Operations
$19 $20 (5)% Property
& Casualty $291 $329
(12)% Group Benefits $48
$52 (8)% Mutual Funds
$20 $22 (9)%
Sub-total $359
$403 (11)% Talcott Resolution
$77 $111
(31)% Corporate $(51)
$(62) 18%
Core earnings
$385 $452
(15)% Net income $323
$467
(31)%
Weighted average diluted common shares outstanding
406.3 433.7 (6)% Core
earnings per diluted share¹ $0.95
$1.04 (9)% Net income per diluted
share¹ $0.79 $1.08
(27)%
[1] Includes dilutive potential common shares
COMMERCIAL LINESFirst Quarter 2016 Highlights:
- Core earnings increased 6% over first
quarter 2015 due to better underwriting results partially offset by
lower investment income on LPs
- Combined ratio before catastrophes and
PYD of 89.6 improved 2.8 points over first quarter 2015
- Standard Commercial renewal written
pricing increases averaged 2%
($ in millions)
Three Months Ended
Mar 31 2016 Mar 31 2015
Change Core earnings $249
$234 6% Net income
$228 $240 (5)% Underwriting gain*
$145 $65
123% Net investment income $209
$257 (19)% Combined ratio
91.1 95.9 4.8 Catastrophes and
PYD 1.5 3.6
2.1 Combined ratio before catastrophes and PYD
89.6 92.4 2.8 Small Commercial:
Combined ratio before catastrophes and PYD
86.7 89.6 2.9 New
business premium $146
$140 4% Policy count retention
84% 85% (1.0) Middle Market:
Combined ratio before catastrophes and PYD
92.0 93.7 1.7 New
business premium $103
$124 (17)% Policy count retention1
74% 81% (7.0) Written
premiums $1,726 $1,722
0.2% Standard Commercial renewal written pricing
increases 2% 3%
(1.0)
[1] Policy count retention for the three months ended March 31,
2016 included the effect of transferring certain low premium
policies from Middle Market to Small Commercial. Had the transfer
not been made, Middle Market policy count retention would have been
79% for the three months ended March 31, 2016. The transfer of the
policies did not have a significant impact on policy count
retention in Small Commercial.
First quarter 2016 core earnings in Commercial Lines was $249
million, an increase of $15 million, or 6%, from first quarter 2015
due to improved underwriting results that were partially offset by
lower net investment income on LPs.
Commercial Lines underwriting results were a gain of $145
million, before tax, in first quarter 2016 for a 91.1 combined
ratio compared with a first quarter 2015 underwriting gain of $65
million, before tax, for a 95.9 combined ratio. The increase in
underwriting gain reflects higher favorable PYD, improved current
accident year results and lower catastrophe losses. Excluding
catastrophes and PYD, first quarter 2016 underwriting results
improved by $48 million, before tax, compared with first quarter
2015 due to lower property losses and improved workers'
compensation results.
First quarter 2016 combined ratio before catastrophes and PYD
improved 2.8 points over first quarter 2015 to 89.6, reflecting
improvements in all three business lines. The Small Commercial
combined ratio before catastrophes and PYD was 86.7 in first
quarter 2016, 2.9 points better than first quarter 2015,
principally due to lower property losses, improved workers'
compensation results and a lower expense ratio. The Middle Market
combined ratio before catastrophes and PYD was 92.0 in first
quarter 2016, an improvement of 1.7 points compared with first
quarter 2015, primarily due to lower property losses in marine and
better workers' compensation results. The Specialty Commercial
combined ratio before catastrophes and PYD was 94.3, a 4.8 point
improvement compared with first quarter 2015, due to better
underwriting results in National Accounts and Financial
Products.
First quarter 2016 written premiums in Commercial Lines were
$1,726 million, essentially flat from first quarter 2015 reflecting
growth in Small Commercial and Specialty Commercial premium, offset
by a decline in Middle Market. Small Commercial written premium
increased 2% from first quarter 2015 primarily due to strong
retention and new business growth. Middle Market written premium
decreased 4% from first quarter 2015 primarily due to lower new
business and lower policy retention. First quarter 2016 renewal
written price increases averaged 2% in Standard Commercial,
resulting from a 3% increase in Small Commercial and a 2% increase
in Middle Market, exclusive of the specialty programs and livestock
lines. Policy count retention decreased slightly but remained
strong in Small Commercial at 84%. Middle Market policy count
retention was 74%, which was down from first quarter 2015 primarily
due to the transfer of approximately 1,000 low-premium accounts to
Small Commercial. Excluding the transfer, Middle Market policy
count retention was 79% in first quarter 2016 compared with 81%
over the past four quarters.
PERSONAL LINESFirst Quarter 2016 Highlights:
- Combined ratio before catastrophes and
PYD of 89.7, improved 0.2 point compared with first quarter
2015
- Automobile combined ratio before
catastrophes and PYD increased 1.6 points due to higher loss cost
trends
- Homeowners combined ratio before
catastrophes and PYD improved 4.6 points over first quarter
2015
($ in millions)
Three Months Ended
Mar 31 2016 Mar 31 2015
Change Core earnings $23
$75 (69)% Net income
$20 $76 (74)% Underwriting gain
$1 $75
(99)% Net investment income $31
$35 (11)% Combined ratio
99.9 92.1 (7.8) Catastrophes and
PYD 10.1 2.2
(7.9) Combined ratio before catastrophes and PYD
89.7 89.9 0.2
Automobile 96.2 94.6
(1.6) Homeowners 75.1
79.7 4.6 Written premiums
$953 $939 1%
First quarter 2016 core earnings in Personal Lines decreased to
$23 million from $75 million in first quarter 2015 primarily due to
a decrease in the underwriting gain. Underwriting gain totaled $1
million, before tax, for a combined ratio of 99.9 in first quarter
2016 compared with first quarter 2015 underwriting gain of $75
million for a combined ratio of 92.1. The lower underwriting gain
is a result of unfavorable automobile PYD and higher catastrophe
losses. PYD in first quarter 2016 was unfavorable totaling $52
million, before tax, compared with favorable PYD of $4 million,
before tax, in first quarter 2015. The unfavorable PYD in the first
quarter 2016 reflected increased severity in automobile liability
for accident year 2014 and higher than expected liability frequency
and severity trends in accident year 2015. In addition,
catastrophes increased from $25 million, before tax, in first
quarter 2015 to $47 million, before tax, in first quarter 2016. In
total, catastrophes and PYD added 10.1 points to the first quarter
2016 combined ratio versus 2.2 points in first quarter 2015.
Excluding catastrophes and PYD, first quarter 2016 underwriting
results improved slightly with a combined ratio of 89.7, which was
0.2 point better compared with first quarter 2015. The improvement
in underwriting results before catastrophes and PYD was due to
lower fire and weather-related homeowners losses largely offset by
higher automobile losses related to higher severity trends in both
liability and physical damage, and higher liability frequency.
Liability severity and frequency trends in first quarter 2016 were
largely consistent with experience in the second half of 2015, but
higher than experience in the first half of 2015.
First quarter 2016 Personal Lines written premiums rose 1% over
first quarter 2015 reflecting 5% growth in AARP premiums, largely
offset by an 8% decrease in agency. Premium retention continued to
be strong and stable at 87% for automobile and 90% for homeowners
in first quarter 2016. Compared with first quarter 2015, automobile
new business premium increased 9% due to growth in AARP Direct,
while homeowners declined 15%, reflecting the effect of written
pricing increases on sales. Renewal written price increases in
first quarter 2016 averaged 7% in automobile and 9% in homeowners,
with both approximately 1.0 point above the past several
quarters.
GROUP BENEFITSFirst Quarter 2016 Highlights:
- Core earnings of $48 million decreased
8% over first quarter 2015 principally due to lower net investment
income
- Core earnings margin of 5.5% compared
with 5.9% in first quarter 2015
- Fully insured ongoing premiums1 grew 1%
over first quarter 2015
($ in millions)
Three Months Ended
Mar 31 2016 Mar 31 2015
Change Core earnings $48
$52 (8%) Net income
$50 $52 (4%) Fully insured
ongoing premiums1 $772
$763 1% Total loss ratio
77.6 76.7 (0.9) Expense ratio
25.6 26.7 1.1 Net
investment income $88 $97
(9%) Core earnings margin
5.5% 5.9% (0.4)
[1] Fully insured ongoing premiums exclude buyout premiums and
premium equivalents
First quarter 2016 core earnings in Group Benefits were $48
million, after-tax, an 8% decrease from $52 million in first
quarter 2015, due to lower net investment income and increased
losses, partially offset by decreased expenses. As a result, the
core earnings margin declined to 5.5% in first quarter 2016 from
5.9% in first quarter 2015.
First quarter 2016 total loss ratio was 77.6%, an increase of
0.9 point compared with first quarter 2015. The increase in the
total loss ratio in first quarter 2016 was due to a 0.6 point
increase in both the group life loss ratio and in the group
disability loss ratio compared with first quarter of the prior
year. The increase in the group life loss ratio in 2016 reflects
the typical variation in AD&D claims, while the increase in the
group disability loss ratio was due to higher long-term disability
claim severity, partially offset by continued improvements in
pricing and incidence trends. The expense ratio declined 1.1 points
from first quarter 2015 to 25.6%, reflecting premium growth and
lower expenses.
First quarter 2016 fully insured ongoing premiums were $772
million, up 1% from first quarter 2015. Group life premiums, which
comprise 48% of segment premiums, rose 1% from first quarter 2015,
while group disability premiums, which comprise approximately 46%,
were down slightly. First quarter 2016 fully insured ongoing sales
were $266 million, a decline of 11% compared with first quarter
2015. This was our second highest sales quarter over the last six
years, surpassed only by first quarter 2015, which benefited from
an unusually high level of market activity.
MUTUAL FUNDSFirst Quarter 2016 Highlights:
- Core earnings of $20 million declined
from $22 million in first quarter 2015 as market depreciation over
the past 12 months led to lower average assets under management
(AUM) and lower fees
- Mutual Fund net outflows, which exclude
Talcott Resolution AUM, were $186 million in the quarter
- Average AUM was $91.2 billion, down 4%
compared to first quarter 2015
($ in millions)
Three Months Ended
Mar 31 2016 Mar 31 2015
Change1
Core earnings $20 $22
(9%) Net income $20
$22 (9%) Mutual Fund sales
$4,699 $4,710 —%
Mutual Fund net flows $(186)
$529 NM Mutual Fund AUM
$73,619 $75,696 (3%) Talcott
Resolution AUM $16,795
$20,240 (17)% Total Mutual Funds segment AUM
$90,414 $95,936
(6)%
[1] The Hartford defines increased 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
First quarter 2016 core earnings in Mutual Funds were $20
million, down from $22 million in first quarter 2015, primarily due
to lower asset-based fees resulting from lower average AUM. For
first quarter 2016, average AUM was $91.2 billion, down 4% compared
with first quarter 2015, primarily the result of market
depreciation in Mutual Fund AUM and the continued decline in
Talcott Resolution AUM over the past 12 months.
Mutual Fund AUM decreased to $73.6 billion from $75.7 billion
due to market depreciation, while Talcott Resolution AUM decreased
17% over the past 12 months to $16.8 billion due to continued
runoff of VA contract counts. Total Mutual Funds segment AUM
declined 6% from first quarter 2015 due to the impact of market
depreciation on Mutual Fund AUM and the continued decrease in
Talcott Resolution AUM.
During the quarter, Mutual Fund net outflows were $186 million,
resulting from higher redemption levels compared with first quarter
2015.
TALCOTT RESOLUTION
($ in millions)
Three Months Ended
Mar 31 2016 Mar 31 2015
Change Core earnings $77
$111 (31)% Net income
$17 $111 (85)% Variable annuity
contract count (in thousands) 587
653 (10)% Fixed annuity and other
contract count (in thousands) 127
137 (7)%
First quarter 2016 core earnings in Talcott Resolution were $77
million, a $34 million, or 31%, decrease from first quarter 2015
due to lower income from LPs and non-routine investment income,
such as make-whole payments on fixed maturities, and lower fees due
to the continued runoff of the annuity business. Investment loss on
LPs was $1 million, before tax, in first quarter 2016 compared with
investment income on LPs of $40 million, before tax, in first
quarter 2015.
VA and fixed annuity contract counts as of March 31, 2016
declined 3% and 1%, respectively, from Dec. 31, 2015 and declined
10% and 7%, respectively, from March 31, 2015. The decline in
contract counts since March 31, 2015 includes normal surrender
activity and the impact of the company's 2015 contractholder
initiatives in both VA and fixed annuity.
INVESTMENTS
($ in millions before tax)
Three Months Ended
Mar 31 2016 Mar 31 2015
Change Total investments
$73,910 $76,576 (3 )% Net
investment income on LPs $8
$99 (92 )% Net investment income
$696 $809 (14 )% Net
impairment losses, including mortgage loan loss reserves
$23 $15 53 %
Annualized investment yield1 4.0%
4.5% (0.5 ) Annualized investment yield
on LPs 1.2% 13.7%
(12.5 ) 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.
First quarter 2016 net investment income totaled $696 million,
before tax, a 14% decrease from first quarter 2015 principally due
to lower investment income on LPs. First quarter 2016 annualized
investment yield declined to 4.0%, before tax, from 4.5%, before
tax, in first quarter 2015 primarily due to lower investment income
on LPs, which totaled $8 million, before tax, in first quarter 2016
compared with $99 million, before tax, in first quarter 2015. The
decrease in investment income on LPs was largely due to lower
income from real estate partnerships and losses on hedge funds.
First quarter 2016 annualized investment yield on LPs was 1.2%,
before tax, compared with 13.7%, before tax, in first quarter
2015.
Excluding the impact of LPs, net investment income decreased 3%
compared with first quarter 2015 due to lower non-routine
investment income received from make-whole payments on fixed
maturities and prepayment premiums on mortgage loans. First quarter
2016 annualized investment yield excluding LPs was 4.1%, before
tax, consistent with first quarter 2015 although lower reinvestment
rates continue to put pressure on the total portfolio yield.
The credit performance of the investment portfolio remained
strong in first quarter 2016, although net impairment losses,
including mortgage loan loss reserves, increased from $15 million,
before tax, in first quarter 2015 to $23 million, before tax,
largely due to credit impairments related to securities in the
energy sector.
As of March 31, 2016, energy-related holdings totaled $2.4
billion, or 3% of total invested assets, down approximately $1.4
billion compared with $3.7 billion at Dec. 31, 2014. The company
continues to monitor its energy exposure and stress test portfolios
to effectively manage risk.
The carrying value of total investments declined to $73.9
billion at March 31, 2016 compared with $76.6 billion at
March 31, 2015. The decline in total investments reflects
relatively stable invested assets in the P&C and Group Benefits
businesses, and a 7% decrease in invested assets in Talcott
Resolution compared with March 31, 2015.
STOCKHOLDERS’ EQUITY
($ in millions)
As of Mar 31,
2016 Dec 31 2015
Change Stockholders' equity
$18,112 $17,642 3% Stockholders' equity
(ex. AOCI) $17,858
$17,971 (1)% Book value per diluted share
$44.90 $42.96 5%
Book value per diluted share (ex. AOCI)
$44.27 $43.76 1% Common shares
outstanding 395.6 401.8
(2)% Common shares outstanding and dilutive potential
common shares 403.4 410.7
(2)%
The Hartford’s stockholders’ equity was $18.1 billion as of
March 31, 2016, a 3% increase from $17.6 billion as of Dec.
31, 2015. The increase was largely due to a $583 million increase
in AOCI from Dec. 31, 2015 and net income of $323 million,
partially offset by the company's common share repurchases of $350
million and common dividends of $84 million during first quarter
2016. The increase in AOCI largely reflects the impact of lower
interest rates on the company's fixed income investment portfolio.
Excluding AOCI, stockholders' equity was $17.9 billion as of
March 31, 2016, a 1% decrease compared with Dec. 31, 2015, as
the company's common share repurchases and common share dividends
more than offset first quarter 2016 net income.
Common shares outstanding at March 31, 2016 decreased 2%
from Dec. 31, 2015 to 395.6 million due to the repurchase of 8.4
million common shares, slightly offset by the issuance of shares
for stock-based awards. Common shares outstanding and dilutive
potential common shares as of March 31, 2016 decreased 2% from
Dec. 31, 2015 to 403.4 million, also as a result of the 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 April 27, 2016, the company has repurchased $3.5
billion of common shares and warrants, including $105 million of
common shares since March 31, 2016, leaving approximately $875
million for equity repurchases through Dec. 31, 2016.
Book value per diluted share was $44.90 as of March 31,
2016, up 5% compared with Dec. 31, 2015, as a result of a 3%
increase in stockholders' equity, due principally to the increase
in AOCI during first quarter 2016, and the effect of a 2% decrease
in common shares outstanding and dilutive potential common shares
as a result of the company's common share repurchases. Excluding
AOCI, book value per diluted share rose 1% to $44.27 as of
March 31, 2016, from $43.76 as of Dec. 31, 2015. The increase
in book value per diluted share, excluding AOCI, was due to a 2%
decrease in common shares outstanding and dilutive potential common
shares, partially offset by a 1% decrease in stockholders' equity,
excluding AOCI.
CONFERENCE CALL
The Hartford will discuss its first quarter 2016 financial
results in a webcast at 9 a.m. EDT on Friday, April 29, 2016. The
webcast can be accessed live or as a replay through the investor
relations section of The Hartford's website at
http://ir.thehartford.com.
More detailed financial information can be found in The
Hartford's Investor Financial Supplement for March 31, 2016
and the First Quarter 2016 Financial Results Presentation, both of
which are available at http://ir.thehartford.com.
ABOUT THE HARTFORD
With more than 200 years of expertise, The Hartford (NYSE:HIG)
is a leader in property and casualty insurance, group benefits and
mutual funds. The company is widely recognized for its service
excellence, sustainability practices, trust and integrity. More
information on the company and its financial performance is
available at www.thehartford.com.
From time to time, The Hartford uses its website to disseminate
material company information. Financial and other important
information regarding The Hartford is routinely accessible through
and posted on our website at http://ir.thehartford.com. In
addition, you may automatically receive email alerts and other
information about The Hartford when you enroll your email address
by visiting the “Email Alerts” section at
http://ir.thehartford.com.
HIG-F
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended March
31, 2016 ($ in millions)
Property & Casualty Group Benefits
Mutual Funds Talcott Resolution
Corporate Consolidated Earned premiums
$ 2,598 $ 778 $ — $ 28
$ — $ 3,404 Fee income — 17 167 241 1 426 Net
investment income 272 88 — 325 11 696 Other revenues 20 — — — — 20
Net realized capital gains (losses) (41
) 2 — (112 ) (4 )
(155 )
Total revenues 2,849 885 167
482 8 4,391 Benefits, losses, and loss
adjustment expenses 1,669 618 — 354 — 2,641 Amortization of
deferred policy acquisition costs 331 8 5 30 — 374 Insurance
operating costs and other expenses 473 194 131 105 6 909 Interest
expense — —
— — 86 86
Total
benefits and expenses 2,473 820 136
489 92 4,010 Income (loss) before income
taxes 376 65 31 (7 )
(84 ) 381 Income tax expense (benefit)
111 15 11
(24 ) (55 ) 58
Net income (loss)
265 50 20 17 (29 )
323 Less: Unlock benefit, after-tax — — — 9 — 9 Less: Net
realized capital gains (losses), after-tax and DAC, excluded from
core earnings (26 ) 2 — (69 ) (3 ) (96 ) Less: Income tax benefit
from reduction in valuation allowance —
— — — 25
25
Core earnings (losses)
$ 291 $ 48
$ 20 $ 77
$ (51 ) $
385 THE HARTFORD FINANCIAL SERVICES
GROUP, INC. PROPERTY & CASUALTY CONSOLIDATING
INCOME STATEMENTS Three Months Ended March 31, 2016 ($
in millions)
Commercial
Lines Personal Lines P&C Other
Property & Casualty Written premiums
$ 1,726 $ 953 $ — $ 2,679
Change in unearned premium reserve 103
(22 ) — 81
Earned
premiums 1,623 975 — 2,598 Losses
and loss adjustment expenses Current accident year before
catastrophes 913 632 — 1,545 Current accident year catastrophes 44
47 — 91 Prior accident year development
(20 ) 52 1 33
Total
losses and loss adjustment expenses 937 731
1 1,669 Amortization of DAC 242 89 — 331 Underwriting
expenses 295 154 7 456 Dividends to policyholders
4 — — 4
Underwriting gain (loss) 145 1
(8 ) 138 Net investment income 209 31 32 272
Net realized capital losses (33 ) (5 ) (3 ) (41 ) Net servicing and
other income 5 —
2 7
Income before income taxes
326 27 23 376 Income tax expense
98 7 6
111
Net income 228 20 17 265 Less: Net
realized capital losses, after-tax and DAC, excluded from core
earnings (21 ) (3 ) (2 )
(26 )
Core earnings
$ 249 $ 23
$ 19 $ 291
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended March
31, 2015 ($ in millions)
Property & Casualty Group Benefits
Mutual Funds Talcott Resolution
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) 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 benefit, after-tax — — — 19 — 19 Less: Net realized capital
gains (losses) and other, 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)
Commercial Lines Personal
Lines P&C Other Property &
Casualty 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 accident 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
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
DISCUSSION OF NON-GAAP FINANCIAL MEASURESThe 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 2016, which is
available on The Hartford's website, http://ir.thehartford.com.
Book value per diluted share excluding
accumulated other comprehensive income ("AOCI”): Book value
per diluted 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 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 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 share is the most directly comparable GAAP
measure. A reconciliation of book value per diluted share,
including AOCI to book value per diluted share, excluding AOCI is
set forth below.
As of Mar 31 2016
Dec 31 2015 Change Book value
per diluted share, including AOCI $44.90 $42.96
5% Less: Per diluted share impact of AOCI
$0.63 $(0.80) NM
Book value per diluted share, excluding AOCI
$44.27 $43.76
1%
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, unearned
revenue reserves 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, 2016 and 2015, 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, 2016.
Core earnings per diluted share:
Core earnings 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 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 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 per diluted share when reviewing the company's
performance. A reconciliation of core earnings per diluted share to
net income (loss) per diluted common share for the quarterly
periods ended March 31, 2016 and 2015 is provided in the table
below.
Three Months Ended Mar 31
2016 Mar 31 2015
Change PER SHARE DATA
Diluted earnings (losses) per common share:
Core earnings per
share $0.95 $1.04 (9)% Add: Unlock
benefit, after-tax 0.02 0.04 (50)% Add: Net realized capital gains
(losses), after-tax and DAC, excluded from core earnings (0.24)
0.01 NM Add: Restructuring and other costs, after-tax — (0.01) 100%
Add: Income tax benefit from reduction in valuation allowance 0.06
— 100%
Net income per share
$0.79 $1.08 (27)%
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 ended March 31, 2016 and 2015, is set forth below.
Three Months Ended Margin
3/31/2016
3/31/2015 Change Net income margin 5.7%
5.9% (0.2) Less: Effect of net capital
realized gains, net of tax on after-tax margin
0.2% —% 0.2
Core earnings
margin 5.5%
5.9% (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 ended March 31, 2016 and 2015, is set forth
below.
Three Months Ended Mar 31
2016 Mar 31 2015 Commercial Lines
Net income $228 $240 Add: Income tax expense 98 95 Less: Other
income 1 1 Less: Net realized capital gains (losses) (33) 8 Less:
Net investment income 209 257 Less: Net servicing income
4 4
Underwriting gain
$145 $65 Personal Lines Net income $20
$76 Add: Income tax expense 7 35 Less: Other expenses — (1) Less:
Net realized capital gains (losses) (5) 1 Less: Net investment
income 31 35 Less: Net servicing income
— 1
Underwriting gain
$1 $75
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 (also known as a loss 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 2015 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; 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 management, 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 significant uncertainties that limit our
ability to estimate the ultimate reserves necessary 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 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, as a result of, among other factors, the
inability to exclude coverage for terrorist attacks from workers'
compensation policies and limitations on reinsurance coverage from
the federal government under applicable laws; the uncertain effects
of emerging claim and coverage issues; actions by our competitors,
many of which are larger or have greater financial resources than
we do; technology changes, such as usage-based methods of
determining premiums, advancement 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 Strategic and 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/20160428006941/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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