- Income from continuing operations, net
of tax, available to common stockholders rose to $625 million
($1.71 per diluted share) from $428 million ($1.18 per diluted
share) in first quarter 2018, in part due to net realized capital
gains including unrealized gains on equity securities in first
quarter 2019
- Core earnings* of $507 million rose 10%
from $461 million in first quarter 2018 and core earnings per
diluted share* of $1.39 rose 9% from $1.27 due to higher Group
Benefits core earnings and lower Corporate core losses, partially
offset by lower Property and Casualty (P&C) and Hartford Funds
core earnings
- Book value per diluted share of $38.36
rose 9% from Dec. 31, 2018; book value per diluted share excluding
accumulated other comprehensive income (AOCI)* was $40.79, up
4%
- Net income ROE for the trailing
12-month period ended March 31, 2019, which included high
catastrophe losses in the second half of 2018, was 13.5% and core
earnings ROE for the same period was 11.5%
- In addition to first quarter results,
the company announced that it will purchase an aggregate excess of
loss reinsurance treaty that will provide $300 million of coverage
for unfavorable prior year loss development at The Navigators
Group, Inc. ("Navigators") for a premium of approximately $72
million, after tax, to be incurred in the quarter the acquisition
closes
* Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP); definitions of
non-GAAP measures and reconciliations to their closest GAAP
measures can be found in this news release under the heading
Discussion of Non-GAAP Financial Measures
The Hartford (NYSE: HIG) reported first quarter 2019 income from
continuing operations, net of tax, available to common stockholders
of $625 million, a 46% increase from $428 million in first quarter
2018. On a per diluted share basis, first quarter 2019 income from
continuing operations, net of tax, available to common stockholders
was $1.71 per diluted share compared with $1.18 per diluted share
in first quarter 2018.
The growth in income from continuing operations, net of tax,
available to common stockholders was principally due to a change
from net realized capital losses in 2018 to net realized capital
gains in 2019, primarily driven by appreciation in the value of
equity securities from higher equity market levels. Net realized
capital gains in first quarter 2019 were $163 million, before tax
($128 million, after tax), compared with net realized capital
losses of $30 million, before tax ($23 million, after tax), in
first quarter 2018. The impact of net realized capital gains on net
income was partially offset by no income from discontinued
operations in first quarter 2019, compared with $169 million, after
tax, of income from discontinued operations in first quarter
2018.
Core earnings of $507 million in first quarter 2019 increased
10% from $461 million in first quarter 2018, reflecting higher
Group Benefits core earnings and lower Corporate core losses offset
by lower P&C and Hartford Funds core earnings. The growth in
Group Benefits core earnings was driven by lower loss and expense
ratios, while the reduction in Corporate core losses reflects
income from the company's retained interest in the life and annuity
business sold in 2018, higher net investment income and lower
interest expense. P&C core earnings in both Commercial Lines
and Personal Lines decreased due primarily to higher expenses and
lower favorable prior accident year reserve development (PYD). Core
earnings per diluted share of $1.39 was up 9% from $1.27 per
diluted share, in first quarter 2018.
“First quarter results were strong, and all of The Hartford’s
businesses performed well, making meaningful contributions to
financial results and the execution of strategic goals,” stated
Chris Swift, The Hartford’s Chairman and CEO. “Margins remain in
line or better than our expectations, with the increase in the
property and casualty expense ratio due to planned investments and
marketing spend. In addition, our capital generation and balance
sheet remain strong, supporting our plans to begin share
repurchases in the second quarter under the $1.0 billion
authorization announced this February.”
The Hartford’s President Doug Elliot commented, “This was
another solid quarter across the board. Group Benefits earnings
were excellent with strong disability results and very good sales
in the first quarter. Commercial Lines earnings were in line with
expectations, with solid top line growth. Personal Lines earnings
were strong with new business premium growth driven by increased
marketing initiatives and improved conversion rates. We are looking
forward to closing the Navigators acquisition and will hit the
ground running day one with our combined organizations."
The Hartford also announced today that, subject to regulatory
approval and to be effective after the closing of the acquisition
of Navigators, it has entered into a definitive agreement with
National Indemnity Company (NICO), a subsidiary of Berkshire
Hathaway Inc., for an aggregate excess of loss reinsurance treaty
for Navigators' subsidiaries. The treaty provides up to $300
million of coverage for potential adverse PYD in excess of $100
million above Navigators’ Dec. 31, 2018 loss reserves of $1.8
billion, subject to limited exclusions. The premium paid for the
reinsurance treaty is approximately $91 million, before tax, or $72
million, after tax, and will be recorded in the company's net
income, but not in core earnings, in the quarter the transaction
closes.
“As we discussed at the time of the announcement, we will update
our review of Navigators' reserves after closing, using the most
recent information available and applying our own judgments and
reserve methodologies," stated The Hartford’s Chief Financial
Officer Beth Costello. “In order to provide greater certainty about
the impact this may have to The Hartford, we decided to purchase
from NICO an adverse loss development cover for Navigators'
reserves."
March 31, 2019 book value per diluted share was $38.36, up 9%
from $35.06 as of Dec. 31 2018, due to a 10% increase in common
stockholders' equity resulting primarily from an increase in AOCI
over the three month period, as well as net income in excess of
stockholder dividends. Book value per diluted share (excluding
AOCI) of $40.79 as of March 31, 2019 increased 4% from $39.40 at
Dec. 31, 2018. The increase in stockholders' equity, excluding
AOCI, was primarily due to higher net income available to common
stockholders, which was well in excess of common dividends paid.
The company paid $109 million in common stock dividends during
first quarter 2019, and did not repurchase any common stock during
the quarter, leaving $1.0 billion remaining under its share
repurchase authorization, which expires Dec. 31, 2020.
Net income return on equity (ROE)1 was 13.5% in first quarter
2019 compared with net loss ROE of 19.3% in first quarter 2018. The
first quarter 2018 net loss ROE was the result of the trailing
12-month net loss of $2,912 million due to several large losses
including the fourth quarter 2017 loss on sale of Talcott
Resolution, the fourth quarter 2017 charge related to U.S.
corporate income tax reform and the second quarter 2017 pension
settlement charge. Core earnings ROE* in first quarter 2019 was
11.5%, an increase of 3.7 points from 7.8% in first quarter 2018
due to higher trailing 12-month core earnings, which increased 37%
to $1,621 million in first quarter 2019 from $1,187 million in
first quarter 2018.
[1] Net income ROE represents net income (loss) available to
common stockholders ROE
FINANCIAL RESULTS SUMMARY
($ in millions except per share data)
Three
Months Ended
Mar 312019
Mar 312018
Change¹ Net income by segment:
Commercial Lines $363 $298 22% Personal Lines 96 89
8% P&C Other Operations 23
17 35% Property & Casualty 482 404 19% Group
Benefits 118 54 119% Hartford Funds 30
34 (12)%
Sub-total 630
492 28% Corporate —
105 (100)%
Net income
$630 $597
6% Less: Income from discontinued operations, net of tax
— 169 (100)%
Income from continuing operations, net of tax
$630 $428
47% Less: Net realized capital gains (losses), excluded from
core earnings, before tax 160 (30) NM Less: Integration and
transaction costs associated with acquired business, before tax
(10) (12) 17% Less: Income tax benefit (expense), including amounts
related to before tax items excluded from core earnings (32) 9 NM
Less: Preferred stock dividends 5
— NM
Core earnings
$507 $461 10%
Net income available to common stockholders
$625 $597
5% Weighted average diluted common shares outstanding 364.7
363.9 —% Income from continuing operations, net of tax, available
to common stockholders per diluted share2 $1.71 $1.18 45% Net
income available to common stockholders per diluted share2 $1.71
$1.64 4% Core earnings per diluted share2
$1.39 $1.27 9%
Select financial
measures: Common shares outstanding and dilutive potential
common shares 365.1 364.5 —% Book value per diluted share $38.36
$36.06 6% Book value per diluted share (excluding AOCI)*
$40.79 $36.71 11% Net
income (loss) available to common stockholders ROE3, last 12-months
13.5% (19.3)% 32.8 Core earnings ROE3, last 12-months*
11.5% 7.8% 3.7
[1] The Hartford defines increases or decreases greater than or
equal to 200%, or changes from a net gain to a net loss position,
or vice versa, as "NM" or not meaningful[2] Includes dilutive
potential common shares; for income (loss) from continuing
operations, net of tax, available to common stockholders per
diluted share, the numerator is income from continuing operations,
after tax, less preferred dividends[3] Return on equity (ROE) is
calculated based on last 12-months net income available to common
stockholders and core earnings, respectively; for net income ROE,
the denominator is stockholders’ equity including AOCI; for core
earnings ROE, the denominator is stockholders’ equity excluding
AOCI
FIRST QUARTER 2019 SEGMENT FINANCIAL
RESULTS SUMMARY
Three Months Ended ($ in millions)
Mar 312019
Mar 312018
Change¹ Core earnings (losses)
P&C segments: Commercial Lines $274 $302 (9)%
Personal Lines 82 89 (8)% P&C Other Operations
16 17 (6)% Property &
Casualty 372 408 (9)% Group Benefits 122 85 44% Hartford Funds
28 34 (18)%
Sub-total 522 527 (1)% Corporate
(15) (66) 77%
Total $507
$461 10% Select business
metrics: Commercial Lines Combined ratio 96.1 93.3 2.8 Impact
of catastrophes and PYD on combined ratio 3.3 2.9 0.4 Underlying
combined ratio* 92.7 90.4 2.3 Personal Lines Combined ratio 93.2
92.2 1.0 Impact of catastrophes and PYD on combined ratio 4.2 2.5
1.7 Underlying combined ratio 89.1 89.8 (0.7) Group Benefits Loss
ratio 74.7% 77.4% (2.7) Expense ratio 23.4% 24.0% (0.6) Net income
margin 7.7% 3.6% 4.1 Core earnings margin* 8.0% 5.6% 2.4 Hartford
Funds Mutual fund and exchange-traded products (ETP) net flows $874
$678 29% Total Hartford Funds assets under management (AUM)
$117,589 $115,497 2%
Commercial Lines
- Commercial Lines written premiums of
$1.9 billion were up 5% from first quarter 2018 with increases from
all three businesses, while earned premiums rose 4% to $1.8 billion
from $1.7 billion in first quarter 2018
- Small Commercial written premiums
increased 4% from first quarter 2018 driven by 11% growth in new
business and higher retention. The Foremost renewal rights
agreement that was effective in July 2018 contributed to strong
growth in new business
- Middle Market written premiums
increased 7% from first quarter 2018 due to higher renewal premium
in most lines driven by renewal written price increases and higher
retention
- Specialty Commercial written premiums
were up 10% compared with first quarter 2018 primarily resulting
from increases in bond and financial products
- Commercial Lines net income of $363
million increased 22% from $298 million in first quarter 2018
primarily due to net realized capital gains of $91 million, after
tax, including unrealized gains on equity securities in first
quarter 2019 compared with net realized capital losses of $6
million, after tax in first quarter 2018
- Core earnings of $274 million decreased
9% from $302 million in first quarter 2018 due to a lower
underwriting gain*, while net investment income was relatively flat
year-over-year
- The underwriting gain of $70 million
decreased from $114 million in first quarter 2018 principally due
to the impact of higher current accident year losses and loss
adjustment expenses, higher underwriting expenses and lower net
favorable PYD, offset in part by the effect of higher earned
premiums. Current accident year catastrophe losses of $70 million,
before tax, were essentially flat compared to $69 million, before
tax, in first quarter 2018
- The underlying underwriting gain* of
$130 million decreased 21% from $164 million in first quarter 2018
due to lower margins on workers' compensation and higher
underwriting expenses, consistent with expectations, and higher
property losses, partially offset by the effect of higher earned
premiums
- Net investment income, before tax, was
$259 million, relatively flat with first quarter 2018, as higher
investment yields were offset by lower limited partnerships and
other alternative investments (LPs)
- The combined ratio of 96.1 was 2.8
points higher than 93.3 in first quarter 2018 primarily due to a
2.3 point increase in the underlying combined ratio and lower net
favorable PYD by 0.5 point; current accident year catastrophe
losses were largely consistent with the prior year period at 3.9
points in first quarter 2019 and 4.0 points in first quarter 2018.
The combined ratios for Small Commercial and Middle Market
increased by 2.6 points and 4.7 points, respectively, while the
combined ratio for Specialty Commercial decreased by 2.9 points
- The underlying combined ratio of 92.7
was 2.3 points higher than first quarter 2018, reflecting a 1.6
point increase in the current accident year loss and loss
adjustment expense ratio before catastrophes and a 0.6 point
increase in the expense ratio- The increase in current accident
year loss and loss adjustment expense ratio before catastrophes was
principally due to higher loss ratios in workers' compensation and
higher property losses- The increase in the expense ratio reflected
higher operating expenses consistent with the company's digital and
technology initiatives, partially offset by reductions in estimated
premium taxes and state assessments
- Small Commercial underlying combined
ratio increased by 1.6 points to 89.1 driven by higher underwriting
expenses and a higher workers' compensation loss ratio
- Middle Market underlying combined ratio
rose by 4.5 points to 96.7 principally due to higher property and
workers' compensation loss ratios and a higher underwriting expense
ratio
- Specialty Commercial underlying
combined ratio of 96.2 was 1.3 points better than first quarter
2018 primarily due to a lower expense ratio
Personal Lines
- Personal Lines written premiums of $771
million declined 4% from first quarter 2018 as strong new business
premium growth, renewal written price increases, and improved
retention rates did not fully offset the loss of premium from
non-renewals. In first quarter 2019, new business premium of $72
million rose $26 million, or 57%, over first quarter 2018,
reflecting the impact of the company's increased marketing efforts
over the past year. Premium retention improved for auto to 87% from
85% in first quarter 2019 while homeowners' premium retention was
relatively flat at 89%
- Personal Lines net income of $96
million increased 8% from $89 million in first quarter 2018 due to
net realized capital gains of $15 million, after tax, in first
quarter 2019 compared with no net realized capital gains or losses,
after tax, in first quarter 2018
- Core earnings of $82 million were down
8% from $89 million in first quarter 2018 principally due to a $13
million, before tax, decrease in the underwriting gain that was
driven by a 7% decline in earned premiums and a 1.0 point increase
in the combined ratio. The underlying underwriting gain was $87
million, essentially flat with first quarter 2018
- The combined ratio of 93.2 increased
from 92.2 in first quarter 2018 primarily due to a 1.4 points
decline in net favorable PYD and a 0.3 point increase in the
current accident year catastrophe loss ratio
- The underlying combined ratio of 89.1
was 0.7 point better than first quarter 2018, as a 2.6 point
increase in the expense ratio largely due to planned marketing and
sales expenses was more than offset by a 3.3 point improvement in
the current accident year loss and loss adjustment expense ratio
before catastrophes, reflecting improvement in both auto and
homeowners
- The auto combined ratio of 93.1 was
flat with first quarter 2018 as a higher expense ratio and lower
net favorable PYD were offset by lower current accident year
losses. The auto underlying combined ratio of 93.6 was 0.6 points
better than in first quarter 2018 due to earned pricing increases
in excess of loss cost trends
- The homeowners combined ratio rose 3.3
points to 93.1 from 89.8 in first quarter 2018 primarily due to a
3.2 point change in PYD with first quarter 2019 net unfavorable PYD
of 2.1 points compared with net favorable PYD of 1.1 points in
first quarter 2018. The homeowners underlying combined ratio was
78.4, a 0.5 point improvement over first quarter 2018 primarily due
to earned pricing increases and lower fire, water and
weather-related losses, offset in part by a higher expense
ratio
Group Benefits
- Fully insured ongoing premiums,
excluding buyouts, of $1.4 billion were flat with first quarter
2018 due to lower sales, offset by strong persistency
- Fully insured ongoing sales, excluding
buyouts, of $407 million were down 10% from $454 million in first
quarter 2018, which included significant new sales from the New
York Paid Family Leave product
- Group Benefits net income of $118
million grew significantly from $54 million in first quarter 2018
due to a $37 million increase in core earnings and a change to net
realized capital gains of $3 million, after tax, in first quarter
2019 from net realized capital losses of $20 million, after tax, in
first quarter 2018
- The net income margin rose to 7.7% from
3.6% in first quarter 2018 as a result of the increase in net
income
- Core earnings were $122 million, up $37
million or 44%, from $85 million in first quarter 2018 primarily
due to lower disability losses and lower expenses
- The core earnings margin was 8.0%
compared with 5.6% in first quarter 2018
- The total loss ratio of 74.7% improved
2.7 points from first quarter 2018 due to a significant reduction
in the group disability loss ratio, which was partially offset by a
slight increase in the group life loss ratio
- The 5.3 point decrease in the group
disability loss ratio from first quarter 2018 was due primarily to
continued favorable incidence trends on current and prior incurral
years and, to a lesser extent, strong recoveries driving favorable
development on prior incurral year reserves
- The 0.4 point increase in the group
life loss ratio from first quarter 2018 was due to higher mortality
experience, partially offset by favorable prior incurral year
development on group life premium waiver
- The expense ratio of 23.4% decreased
0.6 point from first quarter 2018 primarily driven by lower state
taxes and assessments and lower intangible asset amortization
Hartford Funds
- Hartford Funds reported net income of
$30 million and core earnings of $28 million, down from net income
and core earnings of $34 million in first quarter 2018 primarily
due to lower fee income resulting from a 4% decrease in average
daily assets under management (AUM) compared with first quarter
2018
- Hartford Funds AUM at March 31, 2019,
rose to $118 billion, up 2% from March 31, 2018 primarily due to
higher market values in first quarter 2019, offset by decreases in
Talcott Resolution life and annuity separate account AUM. Hartford
Funds AUM rose 12% from Dec. 31, 2018, due to strong equity market
performance and positive net flows
- Mutual fund and ETP net inflows totaled
$0.9 billion in first quarter 2019, compared with net inflows of
$0.7 billion in first quarter 2018
Corporate
- Net loss available to common
stockholders was $5 million in first quarter 2019 compared with net
income available to common stockholders of $105 million in first
quarter 2018, which included $169 million of income from
discontinued operations, net of tax
- Corporate core losses declined $51
million, after tax, to $15 million from $66 million in first
quarter 2018 due to an increase in other revenue, higher net
investment income and lower interest expense
- Other revenue was $34 million in first
quarter 2019 as a result of $28 million, before tax, of income
related to the company's 9.7% equity ownership in Hopmeadow
Holdings, the acquirer of Talcott Resolution
- Net investment income of $24 million,
before tax, increased significantly from $7 million, before tax, in
first quarter 2018 due to higher average invested assets, including
proceeds from the sale of Talcott Resolution, and higher short-term
interest rates
SELECT INVESTMENT INCOME AND PORTFOLIO
DATA
($ in millions)
Three Months Ended
Mar 312019
Mar 312018
Change Net investment income $470
$451 4% Annualized investment yield, before
tax 4.1% 4.2% (0.1) Annualized investment yield, before tax,
excluding LPs* 3.7% 3.7% — Annualized LP yield, before tax 13.4%
18.6% (5.2) Annualized investment yield, after tax
3.4% 3.5% (0.1) P&C net
investment income $323 $322 —% P&C annualized investment yield,
before tax 4.2% 4.3% (0.1) P&C annualized investment yield,
before tax, excluding LPs* 3.8% 3.7% 0.1 P&C annualized
investment yield, after tax 3.6%
3.5% 0.1 Group Benefits net investment income $121
$121 —% Group Benefits annualized investment yield, before tax 4.2%
4.3% (0.1) Group Benefits annualized investment yield, before tax,
excluding LPs* 3.9% 3.8% 0.1 Group Benefits annualized investment
yield, after tax 3.4% 3.5%
(0.1)
First quarter 2019 consolidated net investment income rose 4% to
$470 million, before tax, from $451 million, before tax, in first
quarter 2018. The growth was due to a higher level of invested
assets in Corporate and P&C, in addition to reinvestment rates
above the sales and maturity yield over the past year and higher
short-term interest rates. These factors were partially offset by
lower income from LPs as first quarter 2019 investment income from
LPs was $56 million, before tax, down 23% from $73 million, before
tax, in first quarter 2018. Reflecting a generally benign credit
environment, net impairment losses were $2 million, before tax, in
the quarter, compared with no impairment losses in first quarter
2018.
The annualized investment yield, before tax, was 4.1% for first
quarter 2019, down slightly from 4.2% in first quarter 2018
principally due to lower returns on LPs. The annualized investment
yield, after tax, also decreased slightly, from 3.5% in first
quarter 2018 to 3.4% in first quarter 2019, for the same reason.
LPs produced a strong annualized before tax return of 13.4% in
first quarter 2019, but lower than an exceptionally strong level of
18.6% in first quarter 2018. Excluding LPs, the annualized
investment yield, before tax, was flat compared with first quarter
2018 at 3.7% for both periods.
The P&C annualized investment yield, before tax, was 4.2% in
first quarter 2019, down slightly from 4.3% in first quarter 2018
due principally to lower returns on LPs, which were 13.0% in
P&C compared with 17.0% in the prior year quarter. The P&C
annualized yield, after tax, was 3.6%, up slightly from 3.5% in
first quarter 2018 and the P&C annualized investment yield,
after tax, excluding LPs, was also up slightly to 3.2% from 3.1%,
both due to higher reinvestment and short-term rates.
The Group Benefits annualized investment yield, before tax, was
4.2% in first quarter 2019, down slightly from 4.3% in first
quarter 2018 principally due to lower returns on LPs, which were
15.6% in first quarter 2019, down from 28.3% in first quarter 2018.
The Group Benefits annualized investment yield, after tax, was
3.4%, also down slightly from 3.5% in first quarter 2019 due to LP
returns. The annualized investment yield, after tax, excluding LPs
was flat at 3.2% in both periods.
CONFERENCE CALL
The Hartford will discuss its first quarter 2019 financial
results on a webcast at 8 a.m. EDT on Thursday, May 2, 2019. The
call can be accessed via a live listen-only webcast or as a replay
through the Investor Relations section of The Hartford's website at
https://ir.thehartford.com. The replay
will be accessible approximately one hour after the conclusion of
the call and be available along with a transcript of the event for
at least one year.
More detailed financial information can be found in The
Hartford's Investor Financial Supplement for March 31, 2019,
and the First Quarter 2019 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 at https://www.thehartford.com/legal-notice.
HIG-F
From time to time, The Hartford may use 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 https://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
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended March
31, 2019 ($ in millions)
CommercialLines
PersonalLines
P&COther Ops
GroupBenefits
HartfordFunds
Corporate Consolidated
Earned premiums $ 1,777 $ 799
$ — $ 1,364 $ —
$ — $ 3,940 Fee income 9 9 — 45 238 13 314 Net
investment income 259 42 22 121 2 24 470 Other revenues — 19 — — —
34 53 Net realized capital gains 115
19 9 5
2 13
163
Total revenues 2,160 888 31
1,535 242 84 4,940 Benefits, losses,
and loss adjustment expenses 1,097 533 — 1,053 — 2 2,685
Amortization of DAC 274 65 — 13 3 — 355 Insurance operating costs
and other expenses 345 170 3 315 202 13 1,048 Interest expense — —
— — — 64 64 Amortization of other intangible assets
2 1 —
10 — —
13
Total benefits and expenses
1,718 769 3 1,391 205 79
4,165 Income before income taxes 442
119 28 144 37 5 775
Income tax expense 79 23
5 26
7 5 145
Income
from continuing operations, after tax
363 96
23 118
30 —
630 Net income 363 96 23
118 30 — 630 Preferred stock dividends
— —
— — —
5 5
Net income (loss)
available to common stockholders 363 96 23
118 30 (5 ) 625 Less: Net
realized capital losses, excluded from core earnings, before tax
113 18 9 5 2 13 160 Less: Integration and transaction costs, before
tax (1 ) — — (9 ) — — (10 ) Less: Income tax expense (23 ) (4 ) (2
) — — (3 ) (32 )
Core earnings (losses)
$ 274 $ 82
$ 16 $
122 $ 28
$ (15 ) $
507 THE HARTFORD FINANCIAL SERVICES GROUP,
INC. CONSOLIDATING INCOME STATEMENTS Three Months
Ended March 31, 2018 ($ in millions)
CommercialLines
PersonalLines
P&COther Ops
GroupBenefits
HartfordFunds
Corporate Consolidated
Earned premiums $ 1,711 $ 859
$ — $ 1,357 $ —
$ — $ 3,927 Fee income 9 10 — 44 258 2 323 Net
investment income 258 40 24 121 1 7 451 Other revenues 1 19 — — — —
20 Net realized capital gains (losses) (8 )
— (1 ) (25 )
— 4 (30 )
Total revenues 1,971 928 23
1,497 259 13 4,691 Benefits, losses,
and loss adjustment expenses 1,021 587 — 1,085 — 2 2,695
Amortization of DAC 257 71 — 10 4 — 342 Insurance operating costs
and other expenses 327 159 3 321 212 15 1,037 Interest expense — —
— — — 80 80 Amortization of other intangible assets
— 1 —
17 — —
18
Total benefits and expenses
1,605 818 3 1,433 216 97
4,172 Income (loss) before income taxes 366
110 20 64 43 (84 )
519 Income tax expense (benefit) 68
21 3
10 9 (20 )
91
Income (loss) from continuing operations, after
tax 298 89 17 54 34
(64 ) 428 Income from discontinued operations,
after tax
—
— —
— —
169 169 Net income
298 89 17 54 34 105
597 Less: Net realized capital gains (losses), excluded from
core earnings, before tax (6 ) (1 ) (1 ) (26 ) — 4 (30 ) Less:
Integration and transaction costs, before tax — — — (12 ) — — (12 )
Less: Income tax benefit (expense) 2 1 1 7 — (2 ) 9 Less: Income
from discontinued operations, after tax —
— —
— — 169
169
Core earnings (losses)
$ 302 $ 89
$ 17
$ 85 $ 34
$ (66 ) $
461
DISCUSSION OF NON-GAAP FINANCIAL MEASURES
The Hartford uses non-GAAP financial measures in this press
release to assist investors in analyzing the company's operating
performance for the periods presented herein. Because The
Hartford's calculation of these measures may differ from similar
measures used by other companies, investors should be careful when
comparing The Hartford's non-GAAP financial measures to those of
other companies. Definitions and calculations of other financial
measures used in this press release can be found below and in The
Hartford's Investor Financial Supplement for first quarter 2019,
which is available on The Hartford's website, https://ir.thehartford.com.
Annualized investment yield, excluding
limited partnerships and other alternative investments is
the annualized net investment income on a Consolidated, P&C or
Group Benefits level excluding limited partnerships and other
alternative investments divided by such monthly average invested
assets at amortized cost, excluding repurchase agreement and
securities lending collateral, derivatives book value, and limited
partnerships and other alternative investments. The company
believes that annualized investment yield, excluding limited
partnerships and other alternative investments, provides investors
with an important measure of the trend in investment earnings
because it excludes the impact of the volatility in returns related
to limited partnerships and other alternative investments.
Three Months Ended
Mar 312019
Mar 312018
Mar 312019
Mar 312018
Mar 312019
Mar 312018
Consolidated
P&C Group Benefits
Annualized investment yield 4.1% 4.2%
4.2% 4.3% 4.2%
4.3% Less: Impact on annualized investment yield of limited
partnerships and other alternative investments 0.4% 0.5% 0.4% 0.6%
0.3% 0.5% Annualized investment yield excluding limited
partnerships and other alternative investments
3.7% 3.7% 3.8%
3.7% 3.9% 3.8%
Book value per diluted share (excluding
AOCI) is calculated based upon non-GAAP financial measures.
It is calculated by dividing (a) common stockholders' equity,
excluding AOCI, after tax, by (b) common shares outstanding
and dilutive potential common shares. The Company provides this
measure to enable investors to analyze the amount of the Company's
net worth that is primarily attributable to the Company's business
operations. The Company believes it is useful to investors because
it eliminates the effect of items that can fluctuate significantly
from period to period, primarily based on changes in interest
rates. Book value per diluted share is the most directly comparable
U.S. 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 312019
Dec 312018
Change Book value per diluted share
$38.36 $35.06 9% Less:
Per diluted share impact of AOCI $(2.43)
$(4.34) 44%
Book value per diluted
share (excluding AOCI) $40.79
$39.40 4%
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, integration and transaction
costs in connection with an acquired business, loss on
extinguishment of debt, gains and losses on reinsurance
transactions, income tax benefit from reduction in deferred income
tax valuation allowance, and results of discontinued operations.
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) 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. These net realized
gains and losses are directly related to an offsetting item
included in the income statement such as net investment income.
Results from discontinued operations are excluded from core
earnings for businesses held for sale because such results could
obscure trends in our ongoing businesses that are valuable to our
investors' ability to assess the company's financial
performance.
Core earnings are net of preferred stock dividends declared
since they are a cost of financing more akin to interest expense on
debt and are expected to be a recurring expense as long as the
preferred stock is outstanding.
Net income (loss), net income (loss) available to common
stockholders and income from continuing operations, net of tax,
available to common stockholders (during periods when the company
reports significant discontinued operations) are the most directly
comparable U.S. GAAP measures to core earnings. Income from
continuing operations, net of tax, available to common stockholders
is net income available to common stockholders, excluding the
income (loss) from discontinued operations, net of tax. Core
earnings should not be considered as a substitute for net income
(loss),net income (loss) available to common stockholders or income
(loss) from continuing operations, net of tax, available to common
stockholders and does not reflect the overall profitability of the
company’s business. Therefore, The Hartford believes that it is
useful for investors to evaluate net income (loss), net income
(loss) available to common stockholders, income (loss) from
continuing operations, net of tax, available to common stockholders
and core earnings when reviewing the company’s performance.
A reconciliation of net income (loss) to core earnings for the
quarterly periods ended March 31, 2019 and 2018, 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
March 31, 2019.
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, 2019 and 2018, is set forth below.
Three Months Ended Margin
Mar 312019
Mar 312018
Change Net income margin 7.7%
3.6% 4.1 Less: Net realized capital gains (losses)
excluded from core earnings, before tax 0.3% (1.7)% 2.0 Less:
Integration and transaction costs associated with acquired
business, before tax (0.6)% (0.8)% 0.2 Less: Income tax benefit
—% 0.5% (0.5)
Core earnings margin 8.0%
5.6% 2.4
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), available to
common stockholders per diluted common share and income (loss) from
continuing operations, net of tax, available to common stockholders
per diluted common share are the most directly comparable GAAP
measures. Core earnings per diluted share should not be considered
as a substitute for net income (loss) available to common
stockholders per diluted common share or income (loss) from
continuing operations, net of tax, available to common stockholders
per diluted common 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 net income (loss) available to common stockholders per
diluted common share, income (loss) from continuing operations, net
of tax, available to common stockholders per diluted common share
and core earnings per diluted share when reviewing the company's
performance. A reconciliation of net income (loss) available to
common stockholders per diluted common share to core earnings per
diluted share for the quarterly periods ended March 31, 2019
and 2018 is provided in the table below.
Three Months Ended
Mar 312019
Mar 312018
Change PER SHARE DATA
Diluted earnings per common share:
Net income
available to common stockholders per share1
$1.71 $1.64 4% Less: income from discontinued
operations, after tax — 0.46
(100)%
Income from continuing operations, net of
tax, available to common stockholders $1.71 $1.18
45% Less: Net realized capital gains (losses), excluded from
core earnings, before tax 0.44 (0.08) NM Less: Integration and
transaction costs associated with an acquired business, before tax
(0.03) (0.03) —% Less: Income tax benefit (expense) on items
excluded from core earnings (0.09) 0.02
NM
Core earnings per share
$1.39 $1.27
9%
[1] Net income (loss) available to common stockholders includes
dilutive potential common shares
Core Earnings Return on Equity: The
company provides different measures of the return on stockholders'
equity (“ROE”). Net income (loss) available to common stockholders
ROE ("net income (loss) ROE) is calculated by dividing (a) net
income (loss) available to common stockholders for the prior four
fiscal quarters by (b) average common stockholders' equity,
including AOCI. Core earnings ROE is calculated based on non-GAAP
financial measures. Core earnings ROE is calculated by dividing
(a) core earnings for the prior four fiscal quarters by
(b) average common stockholders' equity, excluding AOCI. Net
income ROE is the most directly comparable U.S. GAAP measure. The
company excludes AOCI in the calculation of core earnings ROE 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 consolidated net income (loss) ROE to
Consolidated Core earnings ROE is set forth below.
Last Twelve Months Ended
Mar 31 2019 Mar 31 2018
Net income (loss) available to common stockholders ROE
13.5% (19.3)% Less: Net realized
capital gains excluded from core earnings, before tax 0.5 0.7 Less:
Pension settlement, before tax — (5.0) Less: Integration and
transaction costs associated with an acquired business, before tax
(0.3) (0.2) Less: Income tax benefit (expense) on items not
included in core earnings 0.3 (4.3) Less: Income (loss) from
discontinued operations, after tax 1.1 (18.4) Less: Impact of AOCI,
excluded from core earnings ROE 0.4
0.1
Core earnings ROE
11.5% 7.8%
Net investment income, excluding limited
partnerships and other alternative investments: is the
amount of net investment income, on a Consolidated, P&C or
Group Benefits level earned from such invested assets excluding the
net investment income related to limited partnerships and other
alternative investments. The company believes that net investment
income, excluding limited partnerships and other alternative
instruments, provides investors with an important measure of the
trend in investment earnings because it excludes the impact of the
volatility in returns related to limited partnerships and other
alternative instruments.
Three Months Ended
Mar 312019
Mar 312018
Mar 312019
Mar 312018
Mar 312019
Mar 312018
Consolidated
P&C Group Benefits
Total net investment income $470 $451
$323 $322 $121
$121 Less: Income from limited partnerships and other
alternative assets 56 73
46 58
10 15
Net investment
income excluding limited partnerships and other alternative
investments $414
$378 $277
$264 $111
$106
Underlying combined ratio:
Represents the combined ratio before catastrophes and prior
accident year development (PYD) and 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 underlying combined ratio 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 underlying
combined ratio for individual reporting segments can be found in
this press release under the heading "First Quarter 2019 Segment
Financial Results Summary."
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 net income to underwriting results for the
quarterly periods ended March 31, 2019 and 2018, is set forth
below:
Underlying underwriting gain
(loss): represents underwriting gain (loss) before current
accident year catastrophes and PYD. The most directly
comparable GAAP measure is net income (loss). The
Company believes underlying underwriting gain (loss) is
important to understand the Company’s periodic earnings because the
volatile and unpredictable nature (i.e., the timing and amount) of
catastrophes and prior accident year reserve development could
obscure underwriting trends. A reconciliation of net income (loss)
to underlying underwriting gain (loss) for individual reporting
segments for the quarterly periods ended March 31, 2019 and
2018, is set forth below:
PROPERTY & CASUALTY
Three Months Ended Mar
31 2019 Mar 31 2018 Net income $
482 $ 404 Less: Net investment income 323 322 Less:
Net realized capital gains (losses) 143 (9 ) Less: Net servicing
and other income 2 5 Add back: Income tax expense
107 92
Underwriting gain
(loss) 121 178 Add back: Current accident year
catastrophes 104 103 Add back: Prior accident year development
(11 ) (32 )
Underlying
underwriting gain $ 214
$ 249
COMMERCIAL LINES
Three Months Ended Mar
31 2019 Mar 31 2018 Net income $
363 $ 298 Less: Net servicing loss (1 ) — Less: Net
investment income 259 258 Less: Net realized capital gains (losses)
115 (8 ) Less: Other income (expense) (1 ) 2 Add back: Income tax
expense 79 68
Underwriting gain 70 114 Add back: Current
accident year catastrophes 70 69 Add back: Prior accident year
development (10 ) (19 )
Underlying underwriting gain $
130 $ 164
PERSONAL LINES
Three Months Ended Mar
31 2019 Mar 31 2018 Net income $ 96
$ 89 Less: Net servicing income 3 4 Less: Net
investment income 42 40 Less: Net realized capital gains 19 — Less:
Other income (expense) 1 (1 ) Add back: Income tax expense
23 21
Underwriting
gain 54 67 Add back: Current accident year
catastrophes 34 34 Add back: Prior accident year development
(1 ) (13 )
Underlying underwriting
gain $ 87
$ 88
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 2018 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, Political and
Global Market 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, changes in trade
regulation including tariffs and other barriers or other
potentially adverse macroeconomic developments on the demand for
our products and returns in our investment portfolios; financial
risk related to the continued reinvestment of our investment
portfolios; market risks associated with our business, including
changes in credit spreads, equity prices, interest rates, inflation
rate and market volatility; the impact on our investment portfolio
if our investment portfolio is concentrated in any particular
segment of the economy; the impacts of changing climate and weather
patterns on our businesses, operations and investment portfolio
including on claims, demand and pricing of our products, the
availability and cost of reinsurance, our modeling data used to
evaluate and manage risks of catastrophes and severe weather
events, the value of our investment portfolios and credit risk with
reinsurers and other counterparties; the risks associated with the
change in or replacement of the London Inter-Bank Offered Rate
(LIBOR) on the securities we hold or may have issued, other
financial instruments and any other assets and liabilities whose
value is tied to LIBOR;
Insurance Industry and Product-Related
Risks: the possibility of unfavorable loss development
including with respect to long-tailed exposures; the significant
uncertainties that limit our ability to estimate the ultimate
reserves necessary for asbestos and environmental claims; 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 intensity and
frequency of storms, hail, wildfires, flooding, 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 inability 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 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; actions by
competitors that may be larger or have greater financial resources
than we do; technological changes, such as usage-based methods of
determining premiums, advancements in automotive safety features,
the development of autonomous vehicles, and platforms that
facilitate ride sharing, which may alter demand for the company's
products, impact the frequency or severity of losses, and/or impact
the way the company markets, distributes and underwrites its
products; the company's ability to market, distribute and provide
insurance products and investment advisory services through current
and future distribution channels and advisory firms; the uncertain
effects of emerging claim and coverage issues;
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 credit risk with counterparties associated with
investments, derivatives, premiums receivable, reinsurance
recoverables and indemnifications provided by third parties in
connection with previous dispositions; 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;
regulatory limitations on the ability of the company and certain of
its subsidiaries to declare and pay dividends;
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, reserving, and catastrophe risk management; the
potential for differing interpretations of the methodologies,
estimations and assumptions that underlie the company’s fair value
estimates for its investments and the evaluation of
other-than-temporary impairments on available-for-sale securities;
the potential for further impairments of our goodwill or the
potential for changes in valuation allowances against deferred tax
assets;
Strategic and Operational Risks:
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 potential for difficulties arising from outsourcing and
similar third-party relationships; the risks, challenges and
uncertainties associated with capital management plans, expense
reduction initiatives and other actions, which may include
acquisitions, divestitures or restructurings; failure to complete
our proposed acquisition of The Navigators Group, Inc. may cause
volatility in our securities; risks associated with acquisitions
and divestitures including the challenges of integrating acquired
companies or businesses or separating from our divested businesses
that may result in our not being able to achieve the anticipated
benefits and synergies and may result in unintended consequences;
difficulty in attracting and retaining talented and qualified
personnel including key employees, such as executives, managers and
employees with strong technological, analytical and other
specialized skills; and the company’s ability to protect its
intellectual property and defend against claims of
infringement;
Regulatory and Legal Risks: the
cost and other potential effects of changes in regulatory and
legislative developments, including those that could adversely
impact the demand for the company’s products, operating costs and
required capital levels; unfavorable judicial or other legal
developments; the impact of changes in federal or state tax laws;
regulatory requirements that could delay, deter or prevent a
takeover attempt that stockholders might consider in their best
interests; and the impact of potential changes in accounting
principles and related financial reporting requirements.
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: https://www.businesswire.com/news/home/20190501006013/en/
Media ContactsMichelle
Loxton860-547-7413michelle.loxton@thehartford.comMatthew
Sturdevant860-547-8664matthew.sturdevant@thehartford.comInvestor
ContactSabra Purtill,
CFA860-547-8691sabra.purtill@thehartford.com
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