- Net income decreased 48% and core
earnings* decreased 69% from second quarter 2015 principally due to
lower property and casualty (P&C) underwriting results and
lower net investment income
- Net income per diluted share decreased
44% and core earnings per diluted share* decreased 66% from second
quarter 2015
- Commercial Lines combined ratio was
95.0, up 2.8 points from second quarter 2015 reflecting higher
current accident year losses, including catastrophe losses;
combined ratio before catastrophes and prior accident year loss
reserve development (PYD)* was 89.8, a 1.4 point deterioration over
second quarter 2015 due to higher property losses and underwriting
expenses, partially offset by better workers' compensation
results
- Personal Lines combined ratio was
112.6, up 13.4 points from second quarter 2015 primarily due to
deterioration in prior and current accident year automobile
results; combined ratio before catastrophes and PYD was 94.2, a 5.1
point deterioration from second quarter 2015
- Book value per diluted share was
$47.02, up 9% from Dec. 31, 2015; book value per diluted share
excluding accumulated other comprehensive income (AOCI)* was
$44.74, a 2% increase from Dec. 31, 2015
- During second quarter 2016, the company
repurchased 7.8 million common shares for a total of $350
million
The Hartford (NYSE:HIG) reported net income of $216 million in
second quarter 2016 ended June 30, a decrease of $197 million from
second quarter 2015, principally due to lower P&C underwriting
results and lower net investment income. P&C underwriting
losses deteriorated $159 million, after-tax, compared with second
quarter 2015 largely due to higher unfavorable PYD for the Personal
Lines automobile and run-off asbestos and environmental (A&E)
lines, higher catastrophe losses and lower current accident year
Personal Lines automobile results. Net investment income declined
$40 million, after-tax, compared with second quarter 2015 primarily
due to a $35 million, after-tax, decline in investment income from
limited partnerships and other alternative investments (LPs). These
items, in addition to a $48 million tax benefit in second quarter
last year, were the principal drivers of the decrease in core
earnings from $389 million in second quarter 2015 to $122 million
in second quarter 2016.
*Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP).
Second quarter 2016 net income per diluted share was $0.54, a
decrease of 44% compared with net income per diluted share of $0.96
in second quarter 2015 due to the decrease in net income slightly
offset by fewer shares outstanding. Second quarter 2016 weighted
average diluted common shares outstanding declined 7% from second
quarter 2015 as a result of the company's equity repurchases over
the last year. Second quarter 2016 core earnings per diluted share
decreased 66% to $0.31 compared with $0.91 in second quarter
2015.
"Although many of our segments continued to generate solid
results, the second quarter bottom line was disappointing,
principally due to Personal Lines auto and P&C Other Operations
asbestos and environmental," said The Hartford's Chairman and CEO
Christopher Swift. "While underlying margins remain strong in
Commercial Lines and Group Benefits, competition is increasingly
aggressive and we continue to feel pressure on investment income
due to lower interest rates."
The Hartford's President Doug Elliot added, "Commercial Lines
had a strong quarter as we remain intensely focused on maintaining
underwriting discipline. Group Benefits had slightly higher life
severity, but we remain pleased with overall margins and results.
In Personal Lines, adverse auto liability claims experience has
contributed to approximately 5 points of deterioration in our
estimate of underlying 2016 auto margins. As a result, our outlook
for the 2016 Personal Lines combined ratio before catastrophes and
prior year development has increased to a range of 93.0 to
94.0."
Swift concluded, "Looking forward, we expect the environment to
remain challenging. Our primary objectives are to maintain margins
in Commercial Lines and Group Benefits and to improve Personal
Lines results. We remain confident that we are taking the right
approach in this environment, emphasizing underwriting discipline
over growth. With our strong capital generation and solid balance
sheet, we have the financial flexibility to invest for the future
in order to continue to strengthen our franchise and to create
long-term shareholder value."
CONSOLIDATED FINANCIAL SUMMARY
($ in millions except per share data)
Three Months
Ended
Jun 302016
Jun 302015
Change¹ Net income
$216 $413
(48)% Less: Unlock benefit, before tax 18
47 (62)% Less: Net realized
capital gains including DAC, before tax, excluded from core
earnings 51 6 NM Less: Restructuring and other costs, before tax —
(2) 100% Less: Loss on extinguishment of debt, before tax — (21)
100% Less: Net reinsurance gain on dispositions, before tax — 8
(100)% Less: Income tax benefit (expense)
25 (14) NM
Core
earnings $122
$389 (69)% Weighted average
diluted common shares outstanding 398.6 428.1 (7)% Net income per
diluted share² $0.54 $0.96 (44)% Core earnings per diluted share²
$0.31 $0.91
(66)%
Select operating data: Net investment
income $735 $796 (8)% Annualized investment yield, before tax,
excluding LPs 4.1%
4.1% — Combined ratio by segment: Commercial
Lines 95.0 92.2 (2.8) Personal Lines
112.6 99.2 (13.4) P&C
combined ratio 112.0 102.8 (9.2) Impact of catastrophes and prior
year development (PYD) on combined ratio 20.4 13.9 (6.5) P&C
combined ratio before catastrophes and PYD
91.7 88.9 (2.8)
Group Benefits net income margin 6.0% 6.3% (0.3)% Group Benefits
core earnings margin* 5.1%
6.3% (1.2)% Book value per
diluted share $47.02 $42.86 10% Book value per diluted share (ex.
AOCI) $44.74
$42.41 5% Net income ROE 7.3% 8.8% (17)% Core
earnings ROE* 7.4%
9.6% (23)%
[1] The Hartford defines increases or decreases
greater than or equal to 200%, or changes from a net gain to a net
loss position, or vice versa, as "NM" or not meaningful[2] Includes
dilutive potential common shares
SEGMENT RESULTS
Three Months Ended ($ in millions)
Jun 30 2016 Jun 30
2015 Change
Netincome
Coreearnings
Netincome
Coreearnings
Netincome
Coreearnings
P&C segments: Commercial Lines $240 $224 $259 $264 $(19) $(40)
Personal Lines (53) (55) 41 42 (94) (97) P&C Other Operations
(154) (154)
(111) (113)
(43) (41) Property & Casualty
33 15
189 193 (156)
(178) Group Benefits
55 46 56
56 (1) (10)
Mutual Funds 20 20
22 22
(2) (2)
Sub-total
108 81
267 271
(159) (190) Talcott Resolution
104 91
217 171
(113) (80) Corporate
4 (50) (71)
(53) 75 3
Total $216
$122 $413
$389 $(197)
$(267)
Second quarter 2016 net income and core earnings included the
following items that increased (decreased) net income and core
earnings compared with second quarter 2015:
Three Months Ended
($ in millions except per share data)
Jun 30 2016
Jun 30 2015 Change
Netincome
Coreearnings
Netincome
Coreearnings
Netincome
Coreearnings
A&E PYD, after-tax $(174)
$(174) $(134)
$(134) $(40) $(40) PYD
(excluding A&E), after-tax (54)
(54) (14)
(14) (40) (40) Litigation
resolution, after-tax —
— 13 13
(13) (13) Unlock benefit, after-tax
12 —
31 — (19)
— Tax benefit (Talcott) —
— 48 48
(48) (48) Tax benefit
(Corporate) 53 —
— —
53 — Net investment income on LPs, after-tax
26 26
61 61 (35)
(35) Net realized capital gains, after-tax
30 — 4
— 26 —
Net increase (decrease)
$(107) $(202)
$9 $(26)
$(116) $(176) Per diluted
share $(0.27)
$(0.51) $0.02
$(0.06) $(0.29)
$(0.45)
Current accident year catastrophe losses,
after-tax
$120
$120
$90
$90
$(30)
$(30)
SEGMENT HIGHLIGHTS
Commercial Lines
($ in millions)
Three Months
Ended
Jun 302016
Jun 302015
Change Net income
$240 $259 (7)%
Underwriting gain* $82
$126 (35)% Net investment income
$226 $239
(5)% Combined ratio 95.0
92.2 (2.8) Small Commercial
92.2 89.2
(3.0) Middle Market 99.8
94.5 (5.3) Specialty
Commercial 92.8
100.4 7.6 Impact of catastrophes and PYD on
combined ratio 5.2
3.9 (1.3) Combined ratio before catastrophes
and PYD 89.8 88.4
(1.4) Small Commercial
86.9 85.1 (1.8)
Middle Market 91.9
89.3 (2.6) Specialty Commercial
95.4 98.8
3.4 Written premiums $1,669
$1,655 1% Standard Commercial
renewal written pricing increases 2%
3% (1.0)
Commercial Lines net income in second quarter 2016 declined to
$240 million from $259 million in second quarter 2015, primarily
due to decreases in both underwriting gain and net investment
income, partially offset by increased net realized capital gains,
after-tax. Commercial Lines underwriting gain was $82 million,
before tax, in second quarter 2016 for a 95.0 combined ratio
compared with a second quarter 2015 underwriting gain of $126
million, before tax, for a 92.2 combined ratio. The decrease in
underwriting gain reflects lower current accident year results,
including higher catastrophe losses, partially offset by lower
unfavorable PYD. Before catastrophes and PYD, second quarter 2016
underwriting gain decreased by $21 million, before tax, compared
with second quarter 2015 due to higher property losses and
underwriting expenses, partially offset by improved workers’
compensation results.
Second quarter 2016 combined ratio deteriorated 2.8 points from
second quarter 2015 reflecting a 2.2 point increase in catastrophe
losses and a 1.4 point deterioration in the combined ratio before
catastrophes and PYD, partially offset by a 0.9 point decline in
unfavorable PYD. The Commercial Lines combined ratio before
catastrophes and PYD increased 1.4 points to 89.8 in second quarter
2016 compared with second quarter 2015, reflecting a 1.8 point
deterioration in Small Commercial to 86.9, a 2.6 point
deterioration in Middle Market to 91.9 and a 3.4 point improvement
in Specialty Commercial to 95.4.
Small Commercial combined ratio for second quarter 2016 was
92.2, an increase of 3.0 points compared with 89.2 in second
quarter 2015, principally due to margin deterioration in package
business, including higher property losses, partially offset by
improved workers’ compensation results. Middle Market combined
ratio was 99.8, an increase of 5.3 points from 94.5 in second
quarter 2015, primarily due to higher property losses and a higher
expense ratio. Specialty Commercial combined ratio improved 7.6
points to 92.8 compared with 100.4 in second quarter 2015, due to
better underwriting results in National Accounts.
Second quarter 2016 Commercial Lines written premiums were
$1,669 million, an increase of 1% from second quarter 2015
reflecting growth in Small Commercial, partially offset by a
decline in Specialty Commercial. Second quarter 2016 Standard
Commercial renewal written price increases averaged 2%, resulting
from a 3% increase in Small Commercial and a 1% increase in Middle
Market, exclusive of specialty programs and livestock lines of
business.
Personal Lines
($ in millions)
Three Months
Ended
Jun 302016
Jun 302015
Change Net income (loss)
$(53) $41
NM Underwriting gain (loss) $(123)
$8 NM Net investment
income $33 $34
(3)% Combined ratio
112.6 99.2 (13.4)
Automobile 117.0
98.3 (18.7) Homeowners
102.4 100.7 (1.7)
Impact of catastrophes and PYD on combined ratio
18.5 10.0
(8.5) Combined ratio before catastrophes and PYD
94.2 89.1
(5.1) Automobile 102.7
96.6 (6.1) Homeowners
74.2 72.6
(1.6) Written premiums $992
$1,009 (2)% Renewal written
pricing increases
Automobile
7% 6% 1.0%
Homeowners 9% 8%
1.0%
Personal Lines results in second quarter 2016 deteriorated to a
net loss of $53 million from net income of $41 million in second
quarter 2015, primarily due to deterioration in underwriting
results and a $13 million, after-tax, benefit from the resolution
of litigation in second quarter 2015. Underwriting loss was $123
million, before tax, in second quarter 2016 for a combined ratio of
112.6 compared with second quarter 2015 underwriting gain of $8
million for a combined ratio of 99.2. The second quarter 2016
underwriting loss was primarily a result of unfavorable PYD of $76
million, before tax, compared with no net PYD in second quarter
2015. In addition, current accident year underwriting results
before catastrophes decreased $48 million, before tax, from second
quarter 2015, primarily due to deterioration in automobile
underwriting results and higher homeowners losses. The unfavorable
PYD is due to higher than expected liability frequency and
severity, primarily in accident year 2015, and the deterioration in
current accident year automobile underwriting results is consistent
with the adverse trends emerging in accident year
2015. Catastrophe losses did not have a material impact on the
deterioration in underwriting results, increasing $7 million,
before tax, over second quarter 2015 to $104 million before tax.
Underwriting expenses declined $14 million, before tax, due to
lower direct marketing costs as we target better performing
customer segments.
Second quarter 2016 combined ratio deteriorated 13.4 points from
second quarter 2015 reflecting unfavorable PYD of 7.8 points, a 6.8
point deterioration in current accident year results before
catastrophes and a 0.7 point increase in catastrophes, partially
offset by a lower expense ratio. In total, PYD and catastrophes
comprised 18.5 points of the combined ratio in second quarter 2016
compared with 10.0 points in second quarter 2015. Second quarter
2016 combined ratio before catastrophes and PYD of 94.2
deteriorated 5.1 points from second quarter 2015 reflecting higher
automobile liability frequency and severity experience compared to
both the prior year and to original pricing assumptions for 2016.
The company is addressing the deterioration in automobile
underwriting experience with increased rates, agency and direct
marketing actions and underwriting actions.
Second quarter 2016 Personal Lines written premiums declined 2%
compared with second quarter 2015 to $992 million, reflecting a 10%
decrease in Agency partially offset by 1% growth in AARP Direct.
New business declined in both AARP Direct and Agency as a result of
actions taken to improve profitability, including increasing rates.
Automobile new business premium declined 14% compared with second
quarter 2015, while homeowners declined 28%. Renewal written price
increases in second quarter 2016 averaged 7% in automobile and 9%
in homeowners, each 1.0 point higher than in second quarter
2015.
P&C Other Operations
P&C Other Operations net loss in second quarter 2016
increased by $43 million, after-tax, to $154 million compared with
$111 million in second quarter 2015 due to a $40 million,
after-tax, increase in unfavorable PYD as a result of the company's
annual ground-up reserve study for its run-off A&E reserves.
The unfavorable asbestos PYD of $197 million in second quarter 2016
was principally due to greater than expected mesothelioma claim
filings for a small percentage of defendants in specific, adverse
jurisdictions. As a result, aggregate indemnity and defense costs
have not declined as expected. The unfavorable environmental PYD of
$71 million was primarily due to deterioration associated with the
tendering of new sites for policy coverage, increased defense costs
stemming from individual bodily injury liability suits, and
increased clean-up costs associated with waterways.
P&C Other Operations core losses increased $41 million,
after-tax, in second quarter 2016 to $154 million from $113 million
in second quarter 2015 as a result of the increase in unfavorable
PYD.
Group Benefits
($ in millions)
Three Months
Ended
Jun 302016
Jun 302015
Change Fully insured ongoing premiums1
$790 $780
1% Group life loss ratio
78.1 76.2 (1.9) Group
disability loss ratio 79.9
80.8 0.9 Total loss ratio
78.5 77.6
(0.9) Expense ratio 25.1
25.0 (0.1) Net investment income
$88 $95
(7%) Net income $55
$56 (2%) Core earnings
$46 $56
(18%) Net income margin
6.0% 6.3% (0.3) Core
earnings margin 5.1%
6.3% (1.2)
[1] Fully insured ongoing premiums exclude buyout premiums and
premium equivalents
Group Benefits net income in second quarter 2016 was $55
million, a slight decrease from $56 million in second quarter 2015.
The decrease was primarily due to lower group life results and
lower net investment income, partially offset by higher premiums
and net realized capital gains. As a result, second quarter 2016
net income margin declined to 6.0% from 6.3% in second quarter 2015
and the core earnings margin, which excludes net realized capital
gains, declined to 5.1% from 6.3% in second quarter 2016.
Second quarter 2016 total loss ratio was 78.5, an increase of
0.9 point compared with second quarter 2015. The increase in the
total loss ratio compared with second quarter 2015 was due to a 1.9
point increase in the group life ratio partially offset by a 0.9
point improvement in the group disability ratio. The increase in
the group life loss ratio resulted from increased group life claims
severity, while the decline in the group disability loss ratio was
due to increased pricing and improved incidence trends, partially
offset by an increase in long-term disability claim severity. The
expense ratio was essentially flat, increasing 0.1 point from
second quarter 2015 to 25.1 in second quarter 2016.
Second quarter 2016 fully insured ongoing premiums were $790
million, up 1% from second quarter 2015. Second quarter 2016 fully
insured ongoing sales were $80 million, which increased 38%
compared with second quarter 2015 due to one new account.
Talcott Resolution
($ in millions)
Three Months Ended
Jun 302016
Jun 302015
Change Net income $104 $217 (52)% Less:
Unlock benefit, before tax 18 47 (62)% Less: Net realized capital
gains including DAC, excluded from core earnings, before tax 3 11
(73)% Less: Net reinsurance gain on dispositions, before tax — 8
(100)% Less: Income tax expense on items not included in core
earnings (8) (20)
60% Core earnings $91
$171 (47)% Variable annuity
contract count (in thousands) 571
634 (10)% Fixed annuity and
other contract count (in thousands) 125
134 (7)%
Talcott Resolution net income in second quarter 2016 was $104
million, a 52% decrease from second quarter 2015, due to a second
quarter 2015 tax benefit and lower investment income from LPs. In
addition, second quarter 2016 had a lower unlock benefit compared
with second quarter 2015 and fee income decreased due to the runoff
of the individual annuity blocks. The second quarter 2015 tax
benefit of $48 million resulted from the conclusion of a federal
tax audit for years 2007 to 2011. Investment income on LPs was $8
million, after-tax, in second quarter 2016 compared with investment
income on LPs of $31 million, after-tax, in second quarter
2015.
Second quarter 2016 core earnings in Talcott Resolution were $91
million compared with $171 million in second quarter 2015. The
majority of the $80 million decrease was due to the $48 million tax
benefit in second quarter 2015 and the decrease in investment
income from LPs.
Variable annuity and fixed annuity contract counts as of
June 30, 2016 declined 3% and 2%, respectively, from March 31,
2016 and declined 10% and 7%, respectively, from June 30,
2015, reflecting normal surrender activity and the impact of the
company’s fixed annuity contractholder initiative, which ended in
November 2015.
Mutual Funds
Mutual Fund net income in second quarter 2016 was $20 million,
down 9% from $22 million in second quarter 2015 due to lower fee
income due to a decrease in assets under management (AUM). Average
total Mutual Funds segment AUM decreased to $90.9 billion at the
end of second quarter 2016 compared with $95.8 billion at the end
of second quarter 2015 primarily due to the steady runoff of
Talcott AUM. Sales for second quarter 2016 were consistent with the
prior year period. Mutual Fund net flows for second quarter 2016
decreased compared with second quarter 2015 due to higher
redemptions.
Corporate
Corporate net income in second quarter 2016 was $4 million
compared with a net loss of $71 million in second quarter 2015.
Corporate results improved $75 million, after-tax, primarily due to
a $53 million tax benefit from the reduction of the deferred tax
valuation allowance on capital loss carryovers in second quarter
2016 and a $14 million charge for loss on extinguishment of debt,
after-tax, in second quarter 2015, both of which are excluded from
core losses.
Corporate core losses were $50 million in second quarter 2016, a
$3 million improvement from core losses of $53 million in second
quarter 2015 due to a $3 million, after-tax, reduction in interest
expense as a result of the company's debt repayments over the past
12 months.
INVESTMENTS
($ in millions before tax)
Three Months Ended
Jun 302016
Jun 302015
Change Total investments
$75,144 $74,440
1% Net investment income $735
$796 (8)% Net investment
income from LPs $40
$94 (57)% Net impairment losses,
including mortgage loan loss reserves
$7 $11 (36)% Annualized
investment yield1 4.2%
4.5% (0.3) Annualized investment yield
from LPs 6.1%
12.9% (6.8) 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
Total investments increased to $75.1 billion at June 30,
2016 compared with $74.4 billion at June 30, 2015. The
increase in total investments reflects a significant decline in
interest rates, partially offset by the impact of the continued
runoff of Talcott Resolution. Invested assets in Talcott Resolution
were $32.6 billion at June 30, 2016, a 2% reduction compared with
June 30, 2015.
Second quarter 2016 net investment income totaled $735 million,
before tax, an 8% decrease from second quarter 2015 principally due
to lower investment income on LPs, which totaled $40 million,
before tax, in second quarter 2016 compared with $94 million,
before tax, in second quarter 2015. The decrease in investment
income on LPs was largely due to lower income from private equity
and real estate partnerships. Excluding the impact of LPs, net
investment income was down 1% compared with second quarter
2015.
Second quarter 2016 annualized investment yield declined to
4.2%, before tax, from 4.5%, before tax, in second quarter 2015
primarily due to lower investment income on LPs. Second quarter
2016 annualized investment yield on LPs was 6.1%, before tax,
compared with 12.9%, before tax, in second quarter 2015. Second
quarter 2016 annualized investment yield excluding LPs was 4.1%,
before tax, consistent with second quarter 2015, although low
reinvestment rates will continue to impact the total annualized
investment yield.
The credit performance of the investment portfolio remained
strong in second quarter 2016, with net impairment losses totaling
$7 million, before tax, compared with $11 million, before tax, in
second quarter 2015.
STOCKHOLDERS’ EQUITY
($ in millions)
As of
Jun 30,2016
Dec 312015
Change Stockholders' equity
$18,559 $17,642
5% Stockholders' equity (ex. AOCI)
$17,659 $17,971
(2)% Book value per diluted share
$47.02 $42.96 9%
Book value per diluted share (ex. AOCI)
$44.74 $43.76 2% Common
shares outstanding 387.9
401.8 (3)% Common shares outstanding
and dilutive potential common shares
394.7 410.7 (4)%
The Hartford’s stockholders’ equity was $18.6 billion as of
June 30, 2016, a 5% increase from $17.6 billion as of Dec. 31,
2015. The increase was largely due to a $1.2 billion increase in
AOCI from Dec. 31, 2015, which largely reflects the impact of lower
interest rates on the company's fixed income investment portfolio.
The company's common share repurchases of $700 million and common
share dividends of $166 million during the first six months of 2016
exceeded net income of $539 million.
Excluding AOCI, stockholders' equity was $17.7 billion as of
June 30, 2016, a 2% decrease compared with Dec. 31, 2015, as
the company's common share repurchases and common share dividends
exceeded net income for the first six months of 2016.
Common shares outstanding at June 30, 2016 decreased 3%
from Dec. 31, 2015 to 387.9 million due to the repurchase of 16.2
million common shares, slightly offset by the issuance of shares
for stock-based compensation awards. Common shares outstanding and
dilutive potential common shares as of June 30, 2016 decreased
4% from Dec. 31, 2015 to 394.7 million due to share repurchases,
slightly offset by stock-based compensation awards and the
conversion of warrant shares into common equity.
The company's current capital management plan authorized $4.375
billion for equity repurchases from Jan. 1, 2014 through Dec. 31,
2016. As of July 27, 2016, the company has repurchased $3.834
billion of common shares and warrants, including $89 million of
common shares since June 30, 2016, leaving approximately $541
million for equity repurchases through Dec. 31, 2016.
Book value per diluted share was $47.02 as of June 30,
2016, up 9% compared with Dec. 31, 2015, as a result of a 5%
increase in stockholders' equity due principally to the increase in
AOCI during the first half of 2016 and the 4% decrease in common
shares outstanding and dilutive potential common shares.
Excluding AOCI, book value per diluted share as of June 30,
2016 rose 2% to $44.74 from $43.76 as of Dec. 31, 2015. The
increase in book value per diluted share, excluding AOCI, was due
to a 4% decrease in common shares outstanding and dilutive
potential common shares, partially offset by a 2% decrease in
stockholders' equity, excluding AOCI.
CONFERENCE CALL
The Hartford will discuss its second quarter 2016 financial
results in a webcast at 9 a.m. EDT on Friday, July 29, 2016. The
webcast can be accessed live or as a replay through the investor
relations section of The Hartford's website at
https://ir.thehartford.com.
More detailed financial information can be found in The
Hartford's Investor Financial Supplement for June 30, 2016 and
the Second Quarter 2016 Financial Results Presentation, both of
which are available at https://ir.thehartford.com.
ABOUT THE HARTFORD
The Hartford is a leader in property and casualty insurance,
group benefits and mutual funds. With more than 200 years of
expertise, The Hartford is widely recognized for its service
excellence, sustainability practices, trust and integrity. More
information on the company and its financial performance is
available at https://www.thehartford.com. Follow us on Twitter
at www.twitter.com/TheHartford_PR.
The Hartford Financial Services Group Inc., (NYSE: HIG) operates
through its subsidiaries under the brand name, The Hartford, and is
headquartered in Hartford, Conn. For additional details, please
read The Hartford’s legal notice.
HIG-F
THE HARTFORD FINANCIAL SERVICES GROUP, INC. CONSOLIDATING
INCOME STATEMENTS Three Months Ended June 30, 2016 ($ in
millions)
CommercialLines
PersonalLines
P&COther Ops
GroupBenefits
MutualFunds
TalcottResolution
Corporate
Consolidated Earned premiums $ 1,650
$ 976 $ — $ 790
$ — $ 28 $ —
$ 3,444 Fee income — — — 18 172 231 1 422 Net investment
income 226 33 33 88 1 348 6 735 Other revenues 23 — — — — — — 23
Net realized capital gains (losses) 25
4 6 16
— 3
(1 ) 53
Total revenues
1,924 1,013 39 912 173
610 6 4,677 Benefits, losses, and loss
adjustment expenses 1,024 869 269 634 — 346 — 3,142 Amortization of
deferred policy acquisition costs 242 89 — 7 6 24 — 368 Insurance
operating costs and other expenses 320 141 6 196 135 115 (1 ) 912
Interest expense — —
— —
— — 85
85
Total benefits and expenses
1,586 1,099 275 837 141
485 84 4,507 Income (loss) before income
taxes 338 (86 ) (236 )
75 32 125 (78 ) 170
Income tax expense (benefit) 98
(33 ) (82 ) 20
12 21 (82 )
(46 )
Net income (loss) 240 (53
) (154 ) 55 20 104
4 216 Less: Unlock benefit, before tax — — — — — 18 —
18 Less: Net realized capital gains (losses) including DAC,
excluded from core earnings, before tax 25 4 6 15 — 3 (2 ) 51 Less:
Income tax benefit (expense) (9 )
(2 ) (6 ) (6 ) —
(8 ) 56
25
Core earnings (losses)
$ 224 $ (55
) $ (154 )
$ 46 $ 20
$ 91 $
(50 ) $ 122
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended June
30, 2015 ($ in millions)
CommercialLines
PersonalLines
P&COther Ops
GroupBenefits
MutualFunds
Talcott Resolution
Corporate Consolidated Earned
premiums $ 1,623 $ 966 $ — $ 780 $ — $ 22 $ — $ 3,391 Fee income —
— — 16 184 266 3 469 Net investment income 239 34 34 95 — 390 4 796
Other revenues 20 — — — — — — — Net realized capital gains (losses)
(7 ) (1 ) 2
2 — 11
2 9
Total revenues 1,875 999 36 893
184 689 9 4,685 Benefits, losses, and
loss adjustment expenses 972 713 199 618 — 310 — 2,812 Amortization
of deferred policy acquisition costs 237 90 — 8 6 50 — 391
Insurance operating costs and other expenses 302 135 6 191 144 119
11 908 Interest expense — — — — — — 89 89 Loss on extinguishment of
debt — — — — — — 21 21 Net reinsurance gain on dispositions — — — —
— (8 ) — (8 ) Restructuring and other costs —
— —
— — —
2 2
Total benefits and
expenses 1,511 938 205 817
150 471 123 4,215 Income (loss)
before income taxes 364 61 (169 )
76 34 218 (114 ) 470
Income tax expense (benefit) 105
20 (58 ) 20
12 1 (43 )
57
Net income (loss) 259
41 (111 ) 56 22 217
(71 ) 413 Less: Unlock benefit, before tax — —
— — — 47 — 47 Less: Net realized capital gains (losses) including
DAC, excluded from core earnings, before tax (8 ) (1 ) 2 — — 11 2 6
Less: Restructuring and other costs, before tax — — — — — — (2 ) (2
) Less: Loss on extinguishment of debt, before tax — — — — — — (21
) (21 ) Less: Net reinsurance gain on dispositions, before tax — —
— — — 8 — 8 Less: Income tax benefit (expense)
3 — —
— — (20 )
3 (14 )
Core earnings
(losses) $ 264
$ 42 $ (113
) $ 56
$ 22 $ 171
$ (53 )
$ 389
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 second 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
Jun 302016
Dec 312015
Change Book value per diluted share,
including AOCI $47.02 $42.96
9% Less: Per diluted share impact of AOCI
$2.28 $(0.80)
NM
Book value per diluted share, excluding AOCI
$44.74
$43.76 2%
Core Earnings: The Hartford uses
the non-GAAP measure core earnings as an important measure of the
company’s operating performance. The Hartford believes that the
measure core earnings provides investors with a valuable measure of
the performance of the company’s ongoing businesses because it
reveals trends in our insurance and financial services businesses
that may be obscured by including the net effect of certain
realized capital gains and losses, certain restructuring charges,
pension settlements, loss on extinguishment of debt, reinsurance
gains and losses on business disposition transactions, income tax
benefit from reduction in valuation allowance, discontinued
operations, and the impact of Unlocks to deferred policy
acquisition costs ("DAC"), sales inducement assets, 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 net income (loss) to core earnings for the
quarterly periods ended June 30, 2016 and 2015, is included in
this press release. A reconciliation of net income (loss) to core
earnings 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 June 30,
2016.
Return on Equity - Core Earnings:
The company provides different measures of the return on
stockholders' equity (“ROE”). ROE - Core earnings is calculated
based on non-GAAP financial measures. ROE - Core earnings is
calculated by dividing (a) core earnings for the prior four
fiscal quarters by (b) average common stockholders' equity,
excluding AOCI. ROE - Net income is the most directly comparable
U.S. GAAP measure. ROE - Net income is calculated by dividing
(a) net income for the prior four fiscal quarters by
(b) average common stockholders' equity, including AOCI. The
company excludes AOCI in the calculation of ROE - Core earnings to
provide investors with a measure of how effectively the company is
investing the portion of the company's net worth that is primarily
attributable to the company's business operations. The company
provides to investors return-on-equity measures based on its
non-GAAP core earnings financial measures for the reasons set forth
in the related discussion above. A reconciliation of net
income (loss) to core earnings for the quarterly periods ended June
30, 2016 and 2015, is included in this press release.
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 net income (loss) per diluted
common share to core earnings per diluted share for the quarterly
periods ended June 30, 2016 and 2015 is provided in the table
below.
Three Months Ended
Jun 302016
Jun 302015
Change PER SHARE DATA
Diluted earnings (losses) per
common share:
Net income per share $0.54 $0.96
(44)% Less: Unlock benefit, before tax 0.05 0.11 (55)% Less:
Net realized capital gains including DAC, excluded from core
earnings, before tax 0.13 0.01 NM Less: Loss on extinguishment of
debt, before tax — (0.05) 100% Less: Net reinsurance gain on
dispositions, before tax — 0.02 (100)% Less: Income tax benefit
(expense) on items excluded from core earnings
0.05 (0.04) NM
Core earnings per share
$0.31 $0.91
(66)%
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 June 30, 2016 and 2015, is set forth below.
Three Months Ended Margin
6/30/2016
6/30/2015 Change Net income margin 6.0%
6.3% (0.3) Less: Effect of net capital
realized gains, net of tax on after-tax margin
0.9% —% 0.9
Core earnings
margin 5.1%
6.3% (1.2)
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 June 30, 2016 and 2015, is set forth
below.
Three Months Ended
Jun 302016
Jun 302015
Commercial Lines Net income $240 $259 Add: Income tax
expense 98 105 Less: Other income — 2 Less: Net realized capital
gains (losses) 25 (7) Less: Net investment income 226 239 Less: Net
servicing income 5
4
Underwriting gain $82 $126
Personal Lines Net income (loss) $(53) $41 Add: Income tax
expense (benefit) (33) 20 Less: Other income — 18 Less: Net
realized capital gains (losses) 4 (1) Less: Net investment income
33 34 Less: Net servicing income —
2
Underwriting gain (loss)
$(123) $8
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
conditions, financial impacts relating to the announcement of the
referendum vote on June 23, 2016 by the United Kingdom to leave the
European Union, 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/20160728006626/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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