- Third quarter 2015 core earnings*
decreased 24% from third quarter 2014 principally due to lower net
investment income, unfavorable prior year loss reserve development
and higher catastrophe losses; third quarter 2015 core earnings per
diluted share* decreased 19%
- Third quarter 2015 net income decreased
2% from third quarter 2014, while third quarter net income per
diluted share increased 5% due to the 6% decrease in weighted
average diluted shares, which include the impact of the company's
equity repurchases over the last year
- Net investment income decreased 10%
compared with third quarter 2014 largely due to lower limited
partnership and other alternative investments income
- Commercial Lines third quarter 2015
combined ratio before catastrophes and prior year loss reserve
development* was 91.0, a 1.0 point improvement over third quarter
2014
- Personal Lines third quarter 2015
combined ratio before catastrophes and prior year loss reserve
development was 95.6, a 4.7 point deterioration over third quarter
2014
- Book value per diluted share, excluding
accumulated other comprehensive income*, was $42.99, an 8% increase
from Sept. 30, 2014
The Hartford (NYSE:HIG) reported core earnings of $364 million
for the three months ended Sept. 30, 2015 (third quarter 2015), a
24% or $113 million decrease from core earnings of $477 million in
third quarter 2014. The decrease from third quarter 2014 was
principally due to several items, including a $60 million,
after-tax, decrease in investment income, largely due to lower
returns on limited partnerships and other alternative investments
(LPs), a $31 million, after-tax, increase in unfavorable prior year
loss and loss adjustment expense reserve development (PYD), and a
$23 million, after-tax, increase in catastrophe losses.
“While The Hartford delivered strong underlying performance in
Commercial Lines and Group Benefits, our results this quarter
reflect headwinds in several areas, resulting in a decrease in core
earnings,” said The Hartford's Chairman and CEO Christopher Swift.
“Lower net investment income, adverse prior year development in
Commercial Lines and higher catastrophes and loss costs in Personal
Lines were the primary contributors to the decrease from third
quarter 2014."
*Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP).
The Hartford's President Doug Elliot noted, "Current accident
year Commercial Lines results were strong this quarter with a 1.0
point improvement in the combined ratio versus last year, and Group
Benefits achieved higher core earnings and a margin of 5.5%.
However, Personal Lines results were down due to catastrophes that
were lower than our expectations but higher than third quarter
2014, as well as increased homeowners losses and higher marketing
expenses. We also experienced a slight increase in quarterly auto
frequency trends, although year-to-date trends remain
moderate.”
Swift concluded, "Despite the challenges this quarter, I'm
pleased with several achievements, including increasing 12 month
core earnings return on equity to 9.1%, growing book value per
share by 8%, and increasing core earnings per diluted share for the
first nine months of 2015 by 17%. We remain focused on executing
our strategy and will continue to adapt while maintaining our
underwriting discipline in the evolving environment, including more
competitive market conditions."
Third quarter 2015 core earnings per diluted share declined 19%
to $0.86 compared with $1.06 in third quarter 2014, including the
effect of the 6% decrease in the company's weighted average diluted
common shares outstanding over the past 12 months due to the equity
repurchase program.
Third quarter 2015 net income totaled $381 million, down 2% from
net income of $388 million in third quarter 2014, as the core
earnings reduction was largely offset by a lower unlock charge of
$33 million, after-tax, compared with $102 million, after-tax, in
third quarter 2014. In addition, third quarter 2015 net income
included a $60 million third quarter 2015 income tax benefit in
Corporate, although that was offset by net realized capital losses
of $30 million, after-tax and deferred acquisition costs (DAC),
compared with net realized capital gains of $27 million, after-tax
and DAC, in third quarter 2014.
Third quarter 2015 net income per diluted share was $0.90, an
increase of 5% compared with net income of $0.86 per diluted share
in third quarter 2014, as the 2% decrease in net income was more
than offset by the benefit of the company's equity repurchase
program on net income per diluted share.
CONSOLIDATED FINANCIAL RESULTS
($ in millions except per share data)
Three Months Ended
Sept 302015
Sept 302014
Change2 Core earnings (loss):
Commercial Lines $216 $268 (19)% Personal
Lines $17 $71 (76)% P&C Other Operations $18
$14 29% Property & Casualty
$251 $353 (29)% Group Benefits
$47 $38 24% Mutual Funds
$22 $22 —%
Sub-total $320
$413 (23)% Talcott Resolution
$107 $122 (12)% Corporate
$(63) $(58) (9)%
Core
earnings $364 $477
(24)% Net income $381
$388
(2)% Weighted average diluted
common shares outstanding 423.0 450.8
(6)% Core earnings available to common shareholders
per diluted share¹ $0.86 $1.06
(19)% Net income available to common shareholders per
diluted share¹ $0.90 $0.86
5%
[1] Includes dilutive potential common shares
[2] The Hartford defines increases or decreases greater than or
equal to 200%, or changes from a net gain to a net loss position,
or vice versa, as "NM" or not meaningful
COMMERCIAL LINES
Third Quarter 2015 Highlights:
- Core earnings decreased 19% over third
quarter 2014 primarily due to unfavorable PYD and lower net
investment income
- Combined ratio before catastrophes and
PYD of 91.0 improved 1.0 point over third quarter 2014
- Standard Commercial renewal written
pricing increases averaged 2%
($ in millions)
Three Months
Ended
Sept 302015
Sept 302014
Change Core earnings $216
$268 (19)% Net income $211
$280 (25)% Underwriting gain*
$90 $124 (27)% Net investment
income $208 $250 (17)%
Combined ratio 94.5 92.1
(2.4) Catastrophes and PYD 3.5 0.2
(3.3) Combined ratio before catastrophes and PYD
91.0 92.0 1.0 Small
Commercial:
Combined ratio before catastrophes and PYD
86.8 87.5 0.7 New business premium
$131 $128 2% Policy count
retention 84% 84% —
Middle Market:
Combined ratio before catastrophes and PYD
93.8 93.5 (0.3) New business
premium $117 $107 9%
Policy count retention 81% 80%
1.0 Written premiums $1,639
$1,583 4% Standard Commercial renewal written pricing
increases 2% 4% (2.0)
Third quarter 2015 core earnings in Commercial Lines decreased
$52 million, after-tax, or 19%, to $216 million, after-tax,
compared with third quarter 2014 largely due to a $33 million,
after-tax, decrease in net investment income and a $36 million,
after-tax, increase in unfavorable PYD, which was partially offset
by improved current accident year underwriting results. Net
investment income, before tax, of $208 million declined by $42
million, or 17%, compared with third quarter 2014 as investment
income on LPs decreased by $42 million. Unfavorable PYD in third
quarter 2015 was primarily in the commercial auto liability line as
a result of increased claims severity predominantly in the 2010 to
2013 accident years.
Commercial Lines underwriting gain was $90 million, before tax,
in third quarter 2015 for a 94.5 combined ratio compared with a
third quarter 2014 underwriting gain of $124 million, before tax,
for a 92.1 combined ratio. Excluding the impact of PYD on both
periods, third quarter 2015 underwriting results improved by $21
million, before tax, due to improved current accident year results,
including stable catastrophe losses compared with third quarter
2014.
Third quarter 2015 combined ratio before catastrophes and PYD
improved 1.0 point over third quarter 2014 to 91.0, reflecting
improvement in Small Commercial and Specialty Commercial, and a
slight deterioration in Middle Market. The Small Commercial
combined ratio before catastrophes and PYD of 86.8 improved 0.7
point compared with third quarter 2014, driven by margin
improvement in workers' compensation and lower non-catastrophe
property losses. The Middle Market combined ratio before
catastrophes and PYD increased 0.3 point to 93.8 compared with
third quarter 2014 due to a large property loss and higher
underwriting expenses, which were mostly offset by improved
workers' compensation and general liability underwriting results.
Specialty Commercial combined ratio before catastrophes and PYD
improved 6.0 points to 99.1 due to margin improvement in Financial
Products and Bond.
Third quarter 2015 written premiums in Commercial Lines grew 4%
over third quarter 2014 to $1,639 million, reflecting renewal
written price increases and strong retention in Small Commercial
and Middle Market, which together comprise about 86% of Commercial
Lines written premiums. Third quarter 2015 renewal written price
increases averaged 2% in Standard Commercial, resulting from a 3%
increase in Small Commercial and a 1% increase in Middle Market,
exclusive of specialty programs and livestock. Policy count
retention remained strong in both businesses at 84% in Small
Commercial and 81% in Middle Market, stable or slightly improved
compared with second quarter 2015 and third quarter 2014.
PERSONAL LINES
Third Quarter 2015 Highlights:
- Combined ratio before catastrophes and
PYD of 95.6 increased 4.7 points over third quarter 2014
- Automobile combined ratio before
catastrophes and PYD deteriorated 4.6 points compared with third
quarter 2014 due to higher liability and physical damage frequency
and increased marketing expenses
- Homeowners combined ratio before
catastrophes and PYD increased 4.8 points compared with third
quarter 2014 due to increased non-weather related claims
($ in millions)
Three Months
Ended
Sept 302015
Sept 302014
Change Core earnings $17
$71 (76)% Net income $19
$73 (74)% Underwriting gain (loss)
$(11) $71 NM Net investment
income $29 $33 (12)%
Combined ratio 101.1 92.6
(8.5) Catastrophes and PYD 5.6 1.7
(3.9) Combined ratio before catastrophes and PYD
95.6 90.9 (4.7)
Automobile 101.6 97.0
(4.6) Homeowners 82.4 77.6
(4.8) Written premiums $1,034
$1,019 1%
Third quarter 2015 core earnings in Personal Lines were $17
million, a $54 million decrease from $71 million in third quarter
2014 as a result of higher losses due to both catastrophes and
non-catastrophes losses as well as higher marketing expenses in the
direct channel. Third quarter 2015 catastrophe losses increased to
$68 million, before tax, including two large California wildfires,
compared with $32 million, before tax, in third quarter 2014.
Personal Lines underwriting loss totaled $11 million, before
tax, for a combined ratio of 101.1 in third quarter 2015 compared
with third quarter 2014 underwriting gain of $71 million for a
combined ratio of 92.6. Although catastrophe losses were higher
than third quarter 2014, PYD was relatively flat between the two
periods, totaling a favorable $14 million, before tax, in third
quarter 2015 compared with favorable $15 million, before tax, in
third quarter 2014. In total, catastrophes and PYD added 5.6 points
to the third quarter 2015 combined ratio versus 1.7 points in third
quarter 2014.
Third quarter 2015 combined ratio before catastrophes and PYD
was 95.6, an increase of 4.7 points compared with third quarter
2014 due to higher automobile liability and physical damage
frequency, elevated non-weather related homeowners claims and
higher marketing expenses. The automobile combined ratio before
catastrophes and PYD rose from 97.0 in third quarter 2014 to 101.6
in third quarter 2015. The increase in automobile frequency, which
emerged during third quarter 2015, is likely correlated to stronger
economic trends, including higher miles driven. The homeowners
combined ratio before catastrophes and PYD increased from 77.6 in
third quarter 2014 to 82.4 in third quarter 2015, primarily due to
fire and water-related claims that were partially offset by lower
weather-related claims.
Third quarter 2015 Personal Lines written premiums rose 1% over
third quarter 2014 reflecting relatively stable premium retention
and automobile new business growth in AARP Direct and AARP Agency,
partially offset by lower premium in Other Agency. Premium
retention was relatively stable with second quarter 2015 and third
quarter 2014 at 87% for automobile and 90% for homeowners. Total
automobile new business premium increased 3%, while homeowners
declined 15% compared with third quarter 2014. Renewal written
price increases in third quarter 2015 averaged 6% in automobile and
8% in homeowners, consistent with the past several quarters.
GROUP BENEFITS
Third Quarter 2015 Highlights:
- Core earnings of $47 million increased
24% over third quarter 2014 principally due to improved group
disability results
- Core earnings margin* increased to 5.5%
from 4.5% in third quarter 2014
- Fully insured ongoing premiums grew 3%
over third quarter 2014, excluding Association-Financial
Institutions
($ in millions)
Three Months
Ended
Sept 302015
Sept 302014
Change Core earnings $47
$38 24% Net income $42
$37 14% Fully insured ongoing premiums,
excluding A-FI1 $751 $731
3% Loss ratio, excluding A-FI 76.8%
78.3% 1.5 Expense ratio, excluding A-FI
26.8% 27.6% 0.8 Net investment income
$91 $93 (2%) Core
earnings margin* 5.5% 4.5%
1.0
[1] Fully insured ongoing premiums exclude buyout premiums and
premium equivalents; excludes A-FI premiums of $0 million and $7
million in third quarter 2015 and 2014, respectively.
Third quarter 2015 core earnings in Group Benefits rose $9
million, after-tax, to $47 million, a 24% increase from $38 million
in third quarter 2014, primarily due to improved group disability
results and lower expenses. As a result, the core earnings margin
increased to 5.5% in third quarter 2015 from 4.5% in third quarter
2014.
Third quarter 2015 total loss ratio was 76.8%, an improvement of
1.5 points compared with third quarter 2014, excluding the impact
of the Association-Financial Institutions (A-FI) book. The A-FI
book, which was in the group life line, was fully run off as of
Dec. 31, 2014 and does not impact 2015 results, although it did
affect group life loss ratio and Group Benefits expense ratios in
2014. The loss ratio improvement in third quarter 2015 consisted of
a 4.8 point improvement in group disability, partially offset by a
0.5 point deterioration in group life, excluding A-FI. Compared
with third quarter 2014, the improvement in group disability
results includes the benefit of rate increases and good incidence
experience and recovery trends, while the increase in group life
was due to slightly less favorable mortality. The expense ratio,
excluding A-FI, improved 0.8 point compared with third quarter 2014
to 26.8% in third quarter 2015.
Third quarter 2015 fully insured ongoing premiums were $751
million, up 3%, excluding A-FI, from third quarter 2014, reflecting
increased sales, strong persistency and improved pricing. Group
life premiums, which comprise 48% of segment premiums, rose 5% from
third quarter 2014, excluding A-FI, while group disability
premiums, which comprise approximately 46%, were essentially flat.
Third quarter 2015 fully insured ongoing sales rose 7% over third
quarter 2014 to $61 million, reflecting sales growth for group life
of 27% to $33 million, partially offset by an 8% decline in group
disability sales.
MUTUAL FUNDS
Third Quarter 2015 Highlights:
- Core earnings of $22 million were
stable with third quarter 2014
- Mutual Fund net flows, which exclude
Talcott Resolution assets under management (AUM), were $0.3 billion
in the quarter and $1.1 billion year-to-date in 2015
- Solid overall fund performance, with
54%, 60% and 58% of Hartford Mutual Funds outperforming peers on a
1-, 3- and 5-year basis, respectively1
($ in millions)
Three Months
Ended
Sept 302015
Sept 302014
Change
Core earnings $22 $22 —%
Net income $22 $22 —%
Mutual Fund sales $4,192 $3,753
12% Mutual Fund net flows $307
$93 NM Mutual Fund AUM $71,545
$73,295 (2%) Talcott AUM $17,498
$22,867 (23)% Total Mutual Funds
segment AUM $89,043 $96,162
(7)%
Third quarter 2015 core earnings in Mutual Funds were $22
million, stable with third quarter 2014, as decreased fee income
was offset by lower distribution and other operating expenses.
Total AUM for the segment declined 7% due to market depreciation
combined with the continued runoff of Talcott Resolution AUM.
Talcott Resolution AUM decreased 23% over the past twelve months to
$17.5 billion due to continued runoff and the planned asset
transfer of $2.0 billion to Hartford Investment Management Company
in 4Q14. Mutual Fund AUM decreased to $71.5 billion from $73.3
billion due to lower market levels in the quarter partially offset
by positive net flows during the last twelve months. During the
quarter, Mutual Fund net flows were $307 million, benefiting from
higher sales compared with third quarter 2014. Overall Mutual Fund
performance remained solid, with 54%, 60% and 58% of funds
outperforming peers on a 1-, 3- and 5-year basis, respectively.
[1] Hartford Mutual Funds only on Morningstar net of fee
basis
TALCOTT RESOLUTION
($ in millions)
Three Months Ended
Sept 302015
Sept 302014
Change
Core earnings $107 $122
(12)% Net income $74 $28
164% Variable annuity contract count (in thousands)
618 694 (11)% Fixed annuity and other
contract count (in thousands) 130 143
(9)%
Third quarter 2015 core earnings in Talcott Resolution were $107
million, a $15 million, or 12%, decrease from third quarter 2014,
due to lower net investment income, including lower income on LPs,
and lower fees due to the continued runoff of the annuity business,
partially offset by lower expenses. Investment income on LPs
totaled $9 million, before tax, in third quarter 2015 compared with
$45 million, before tax, in third quarter 2014, although the
decrease was partially offset by higher income on fixed maturities
from make-whole premiums and other non-routine items.
Variable annuity (VA) and fixed annuity contract counts as of
Sept. 30, 2015 declined 3% and 3%, respectively, from June 30,
2015 and 11% and 9%, respectively, from Sept. 30, 2014. The
decline in contract counts during the third quarter 2015 reflects
normal surrender activity for VA contracts and an increase in fixed
annuity surrender activity as a result of a contractholder
initiative launched in June 2015. The decline in contract counts
since Sept. 30, 2014 includes normal surrender activity and the
impact of the company's contractholder initiatives in both VA and
fixed annuity over the past twelve months.
INVESTMENTS
($ in millions)
Three Months
Ended Amounts presented before tax
Sept 302015
Sept 302014
Change Total investments $74,405
$76,231 (2 )% Net investment income on
LPs $22 $100 (78 )% Net
investment income $730 $810
(10 )% Net impairment losses, including mortgage loan loss
reserves $(39) $(14) 179
% Annualized investment yield1 4.1%
4.5% (0.4 ) Annualized investment yield on LPs
2.9% 14.4% (11.5 ) Annualized
investment yield, excluding LPs 4.2%
4.1% 0.1
[1] Yields, before tax, calculated using annualized net
investment income divided by the monthly average invested assets at
cost, amortized cost, or adjusted carrying value, as applicable,
excluding repurchase agreement collateral, if any, and derivatives
book value.
Third quarter 2015 net investment income totaled $730 million,
before tax, a 10% decrease from third quarter 2014 reflecting lower
investment income on LPs. Investment income on LPs decreased in
third quarter 2015 to $22 million, before tax, from $100 million,
before tax, in third quarter 2014, largely due to losses on hedge
funds and real estate partnerships, while income on private equity
partnerships was comparable to third quarter 2014.
Excluding the impact of LPs, net investment income was
essentially flat compared with third quarter 2014 due to a decrease
in invested asset levels resulting from the runoff of Talcott
Resolution, largely offset by income from higher non-routine items,
including make-whole payments on fixed maturities and prepayment
penalties on mortgage loans. New money yields averaged 3.7% in
third quarter 2015 versus 3.2% in third quarter 2014, which was
especially low due to the reinvestment of the proceeds from the
sale of the Japan annuity business in short-term maturities.
Third quarter 2015 annualized investment yield declined to 4.1%,
before tax, from 4.5%, before tax, in third quarter 2014 due to
lower income from LPs. Third quarter 2015 annualized investment
yield on LPs decreased to 2.9%, before tax, compared with 14.4%,
before tax, in third quarter 2014. Third quarter 2015 annualized
investment yield excluding LPs of 4.2%, before tax, was slightly
higher than the 4.1% annualized yield in both second quarter 2015
and third quarter 2014. Excluding LPs and non-routine items such as
make-whole payments, annualized investment yield was 3.9%, down
from 4.0% in third quarter 2014.
The credit performance of the company's portfolio remained
strong in third quarter 2015, although impairment losses increased
compared to the prior year, which were especially favorable. Net
impairment losses, including changes in mortgage loan loss
reserves, in third quarter 2015 totaled $39 million, before tax,
compared with $14 million, before tax, in third quarter 2014. The
increase in net impairment losses primarily reflects impairments on
securities the company intends to sell.
The carrying value of total investments declined to $74.4
billion at Sept. 30, 2015 compared with $76.2 billion at
Sept. 30, 2014. The decline in total investments reflects
stable invested assets in the P&C and Group Benefits
businesses, offset by the impact in Corporate assets of the
company's capital management plans over the past 12 months and by a
6% decrease in invested assets in Talcott Resolution due to the
continued run-off of the annuity blocks and the $1.0 billion in
dividends paid out Talcott Resolution during 2015.
STOCKHOLDERS’ EQUITY
($ in millions)
As of
Sept 302015
Dec 312014
Change Stockholders' equity
$18,204 $18,720 (3)% Stockholders'
equity (ex. AOCI) $18,064 $17,792
2% Book value per diluted share $43.32
$42.84 1% Book value per diluted share
(ex. AOCI) $42.99 $40.71
6% Weighted average common shares outstanding 413.8
429.6 (4)% Weighted average diluted
common shares outstanding 423.0 442.6
(4)%
The Hartford’s stockholders’ equity was $18.2 billion as of
Sept. 30, 2015, a 3% decrease from $18.7 billion as of Dec. 31,
2014. The decrease was primarily due to decreased accumulated other
comprehensive income (AOCI) of $788 million from Dec. 31, 2014 and
the impact of common share repurchases of $800 million and common
dividends of $237 million during the first nine months of 2015,
partially offset by net income of $1,261 million for the first nine
months of 2015. Excluding AOCI, stockholders' equity was $18.1
billion as of Sept. 30, 2015, a 2% increase compared with Dec. 31,
2014.
Weighted average common shares outstanding decreased by 4% since
Dec. 31, 2014 to 413.8 million at Sept. 30, 2015. The decrease in
weighted average common shares outstanding was largely the result
of the company's repurchase of 18.6 million common shares for $800
million, at an average price of $42.97 per share. Weighted average
diluted common shares outstanding as of Sept. 30, 2015 decreased 4%
from Dec. 31, 2014 to 423.0 million.
Under the current capital management plan, the company has
$4.375 billion of equity repurchase authorization for the period
Jan. 1, 2014 through Dec. 31, 2016. As of October 23, 2015, the
company has spent $2.690 billion for equity repurchases under this
program, including $94 million since Sept. 30, 2015, leaving
approximately $1.7 billion for equity repurchases through Dec. 31,
2016.
Book value per diluted common share was $43.32 as of Sept. 30,
2015, up 1% compared with Dec. 31, 2014, as the 3% decline in
stockholders' equity was offset by the impact of share repurchases
on weighted average diluted common shares outstanding. Excluding
AOCI, book value per diluted common share rose 6% to $42.99 as of
Sept. 30, 2015 from $40.71 as of Dec. 31, 2014. The increase in
book value per diluted common share, excluding AOCI, was due to a
2% increase in stockholders' equity, excluding AOCI, and a 4%
reduction in weighted average diluted common shares
outstanding.
CONFERENCE CALL
The Hartford will discuss its third quarter 2015 financial
results in a webcast on Tuesday, Oct. 27, 2015, at 9 a.m. EDT. The
webcast can be accessed live or as a replay through the investor
relations section of The Hartford's website at http://ir.thehartford.com.
More detailed financial information can be found in The
Hartford's Quarterly Report on Form 10-Q, the Investor Financial
Supplement for Sept. 30, 2015, and the Third Quarter 2015 Financial
Results Presentation, all of which are available at
http://ir.thehartford.com.
ABOUT THE HARTFORD
With more than 200 years of expertise, The Hartford (NYSE:HIG)
is a leader in property and casualty insurance, group benefits and
mutual funds. The company is widely recognized for its service
excellence, sustainability practices, trust and integrity. More
information on the company and its financial performance is
available at www.thehartford.com.
From time to time, The Hartford uses its website to disseminate
material company information. Financial and other important
information regarding The Hartford is routinely accessible through
and posted on our website at http://ir.thehartford.com. In
addition, you may automatically receive email alerts and other
information about The Hartford when you enroll your email address
by visiting the “Email Alerts” section at
http://ir.thehartford.com.
HIG-F
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
CONSOLIDATING INCOME STATEMENTS Three Months Ended
September 30, 2015 ($ in millions)
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate Consolidated Earned premiums
$ 2,625 $ 752 $ — $ 27 $
— $ 3,404 Fee income — 17 182 248 1 448 Net investment
income 267 91 — 367 5 730 Other revenues 24 — — — — 24 Net realized
capital gains (losses) (16 ) (6 ) —
(19 ) (3 ) (44 )
Total revenues
2,900 854 182 623 3 4,562
Benefits, losses, and loss adjustment expenses 1,747 591 — 372 —
2,710 Amortization of deferred policy acquisition costs 329 8 5 92
— 434 Insurance operating costs and other expenses 494 198 143 123
9 967 Interest expense — — — — 88 88 Net reinsurance gain on
dispositions — — — (20 ) — (20 ) Restructuring and other costs
— — — —
4 4
Total benefits and
expenses 2,570 797 148 567
101 4,183 Income (loss) from continuing
operations, before income taxes 330 57 34
56 (98 ) 379 Income tax expense
(benefit) 91 15 12
(16 ) (95 ) 7
Income (loss) from
continuing operations, after tax 239 42 22
72 (3 ) 372 Income from discontinued
operations, after-tax 7 —
— 2 — 9
Net
income (loss) 246 42 22 74
(3 ) 381 Less: Unlock charge, after-tax — — —
(33 ) — (33 ) Less: Net realized capital gains (losses), after-tax
and DAC, excluded from core earnings (12 ) (5 ) — (15 ) 2 (30 )
Less: Restructuring and other costs, after-tax — — — — (2 ) (2 )
Less: Net reinsurance gain on dispositions, after-tax — — — 13 — 13
Less: Income tax benefit from reduction in valuation allowance — —
— — 60 60 Less: Income from discontinued operations, after-tax
7 — — 2
— 9
Core earnings
(losses) $ 251 $ 47 $
22 $ 107 $ (63 ) $
364 THE HARTFORD FINANCIAL SERVICES GROUP,
INC. PROPERTY & CASUALTY CONSOLIDATING INCOME
STATEMENTS Three Months Ended September 30, 2015 ($ in
millions)
CommercialLines
PersonalLines
P&COther
Property &Casualty
Written premiums $ 1,639 $ 1,034 $ 1
$ 2,674 Change in unearned premium reserve
(8 ) 57 — 49
Earned premiums 1,647 977 1
2,625 Losses and loss adjustment expenses Current accident
year before catastrophes 952 682 — 1,634 Current accident year
catastrophes 8 68 — 76 Prior year development 50
(14 ) 1 37
Total losses and loss adjustment expenses 1,010
736 1 1,747 Amortization of DAC 239 90 — 329
Underwriting expenses 304 162 8 474 Dividends to policyholders
4 — — 4
Underwriting gain (loss) 90 (11
) (8 ) 71 Net investment income 208 29
30 267 Net realized capital gains (losses) (18 ) 4 (2 ) (16
)
Net servicing and other income 7 (1 )
2 8
Income from continuing
operations before income taxes 287 21 22
330 Income tax expense 83 2
6 91
Income from
continuing operations, after-tax 204 19 16 239 Income from
discontinued operations, after-tax 7 —
— 7
Net income 211
19 16 246 Less: Net realized capital gains (losses), after-tax and
DAC, excluded from core earnings (12 ) 2 (2 ) (12
)
Less: Income from discontinued operations, after-tax
7 — — 7
Core earnings $ 216 $ 17
$ 18 $ 251
THE HARTFORD FINANCIAL SERVICES GROUP, INC. CONSOLIDATING
INCOME STATEMENTS Three Months Ended September 30, 2014
($ in millions)
Property &Casualty
GroupBenefits
MutualFunds
TalcottResolution
Corporate Consolidated Earned premiums
$ 2,542 $ 738 $ — $ 57 $
— $ 3,337 Fee income — 15 185 322 2 524 Net investment
income 316 93 — 396 5 810 Other revenues 29 — — — — 29 Net realized
capital gains (losses) 24 (3 ) —
37 11 69
Total
revenues 2,911 843 185 812
18 4,769 Benefits, losses, and loss adjustment
expenses 1,600 584 — 440 — 2,624 Amortization of deferred policy
acquisition costs 318 8 6 248 — 580 Insurance operating costs and
other expenses 472 205 143 130 4 954 Interest expense — — — — 93 93
Restructuring and other costs — —
— — 22 22
Total benefits and expenses 2,390 797
149 818 119 4,273 Income (loss) from
continuing operations before income taxes 521 46
36 (6 ) (101 ) 496 Income
tax expense (benefit) 154 9
14 (34 ) (35 ) 108
Income (loss) from continuing operations, after tax
367 37 22 28 (66 )
388 Net income (loss) 367 37 22
28 (66 ) 388 Less: Unlock charge,
after-tax — — — (102 ) — (102 ) Less: Net realized capital gains
(losses) and other, after-tax and DAC, excluded from core earnings
14 (1 ) — 8 6 27 Less: Restructuring and other costs, after-tax
— — — —
(14 ) (14 )
Core earnings (losses)
$ 353 $ 38 $ 22 $
122 $ (58 ) $ 477
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
PROPERTY & CASUALTY CONSOLIDATING INCOME
STATEMENTS Three Months Ended September 30, 2014 ($ in
millions)
CommercialLines
PersonalLines
P&COther
Property &Casualty
Written premiums $ 1,583 $ 1,019 $ 1
$ 2,603 Change in unearned premium reserve 5
55 1 61
Earned
premiums 1,578 964 — 2,542 Losses
and loss adjustment expenses Current accident year before
catastrophes 931 639 — 1,570 Current accident year catastrophes 8
32 — 40 Prior year development (5 ) (15 )
10 (10 )
Total losses and loss adjustment
expenses 934 656 10 1,600
Amortization of DAC 230 88 — 318 Underwriting expenses 286 149 8
443 Dividends to policyholders 4 —
— 4
Underwriting gain
(loss) 124 71 (18 ) 177 Net
investment income 250 33 33 316 Net realized capital gains (losses)
18 4 2 24 Net servicing and other income (expense) 4
(1 ) 1 4
Income from
continuing operations before income taxes 396 107
18 521 Income tax expense 116
34 4 154
Net
income 280 73 14 367 Less: Net realized capital gains (losses),
after-tax and DAC, excluded from core earnings 12
2 — 14
Core
earnings (losses) $ 268 $ 71
$ 14 $ 353
DISCUSSION OF NON-GAAP FINANCIAL MEASURESThe Hartford
uses non-GAAP financial measures in this press release to assist
investors in analyzing the company's operating performance for the
periods presented herein. Because The Hartford's calculation of
these measures may differ from similar measures used by other
companies, investors should be careful when comparing The
Hartford's non-GAAP financial measures to those of other companies.
Definitions and calculations of other financial measures used in
this press release can be found below and in The Hartford's
Investor Financial Supplement for third quarter 2015, which is
available on The Hartford's website, http://ir.thehartford.com.
Book value per diluted common share
excluding accumulated other comprehensive income ("AOCI”):
Book value per diluted common share excluding AOCI is a non-GAAP
financial measure based on a GAAP financial measure. It is
calculated by dividing (a) common stockholders' equity excluding
AOCI, after-tax, by (b) common shares outstanding and dilutive
potential common shares. The Hartford provides book value per
diluted common share excluding AOCI to enable investors to analyze
the company’s stockholders’ equity excluding the effect of changes
in the value of the company’s investment portfolio and other assets
due to interest rates, currency and other factors. The Hartford
believes book value per diluted common share excluding AOCI is
useful to investors because it eliminates the effect of items that
can fluctuate significantly from period to period, primarily based
on changes in market value. Book value per diluted common share is
the most directly comparable GAAP measure. A reconciliation of book
value per diluted common share, including AOCI to book value per
diluted common share, excluding AOCI is set forth below.
As of
Sept 302015
Dec 312014
Change Book value per diluted common share,
including AOCI $43.32 $42.84 1% Less:
Per diluted share impact of AOCI $0.33
$2.13 (85)%
Book value per diluted common share,
excluding AOCI $42.99
$40.71 6%
Core Earnings: The Hartford uses
the non-GAAP measure core earnings as an important measure of the
company’s operating performance. The Hartford believes that the
measure core earnings provides investors with a valuable measure of
the performance of the company’s ongoing businesses because it
reveals trends in our insurance and financial services businesses
that may be obscured by including the net effect of certain
realized capital gains and losses, certain restructuring charges,
pension settlements, loss on extinguishment of debt, reinsurance
gains and losses on business disposition transactions, income tax
benefit from reduction in valuation allowance, discontinued
operations, and the impact of Unlocks to deferred policy
acquisition costs ("DAC"), sales inducement assets ("SIA"),
unearned revenue reserves ("URR") and death and other insurance
benefit reserve balances. Some realized capital gains and losses
are primarily driven by investment decisions and external economic
developments, the nature and timing of which are unrelated to the
insurance and underwriting aspects of our business.
Accordingly, core earnings excludes the effect of all realized
gains and losses (net of tax and the effects of DAC) that tend to
be highly variable from period to period based on capital market
conditions. The Hartford believes, however, that some realized
capital gains and losses are integrally related to our insurance
operations, so core earnings includes net realized gains and losses
such as net periodic settlements on credit derivatives and net
periodic settlements on the Japan fixed annuity cross-currency
swap. These net realized gains and losses are directly related to
an offsetting item included in the income statement such as net
investment income. Net income (loss) is the most directly
comparable U.S. GAAP measure. Core earnings should not be
considered as a substitute for net income (loss) and does not
reflect the overall profitability of the company’s business.
Therefore, the Hartford believes that it is useful for investors to
evaluate both net income (loss) and core earnings when reviewing
the company’s performance.
A reconciliation of core earnings to net income (loss) for the
quarterly periods ended Sept. 30, 2015 and 2014, is included
in this press release. A reconciliation of core earnings to net
income (loss) for individual reporting segments can be found in
this press release under the heading "The Hartford Financial
Services Group, Inc. Consolidating Income Statements" and in The
Hartford's Investor Financial Supplement for the quarter ended
Sept. 30, 2015.
Core earnings available to common
shareholders per diluted share: Core earnings available to
common shareholders per diluted share is calculated based on the
non-GAAP financial measure core earnings. It is calculated by
dividing (a) core earnings, by (b) diluted common shares
outstanding. The Hartford believes that the measure core earnings
available to common shareholders per diluted share provides
investors with a valuable measure of the company's operating
performance for the same reasons applicable to its underlying
measure, core earnings. Net income (loss) per diluted common share
is the most directly comparable GAAP measure. Core earnings
available to common shareholders per diluted share should not be
considered as a substitute for net income (loss) per diluted share
and does not reflect the overall profitability of the company's
business.
Therefore, The Hartford believes that it is useful for investors
to evaluate both net income (loss) per diluted share and core
earnings available to common shareholders per diluted share when
reviewing the company's performance. A reconciliation of core
earnings available to common shareholders per diluted share to net
income (loss) per diluted common share for the quarterly periods
ended Sept. 30, 2015 and 2014 is provided in the table
below.
Three Months Ended
Sept 302015
Sept 302014
Change PER SHARE DATA
Diluted earnings (losses) per common share:
Core
earnings available to common shareholders $0.86
$1.06 (19)% Add: Unlock charge, after-tax (0.08)
(0.23) 65% Add: Net realized capital gains (losses), after-tax and
DAC, excluded from core earnings (0.07) 0.06 NM Add: Restructuring
and other costs, after-tax — (0.03)
NM
Add: Net reinsurance gain on dispositions, after-tax 0.03 — NM Add:
Income tax benefit from reduction in valuation allowance 0.14 — NM
Add: Income from discontinued operations, after-tax
0.02 — NM
Net income (loss)
available to common shareholders $0.90
$0.86 5%
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 Sept. 30, 2015 and 2014, is set forth below.
Three Months Ended Sept 30, Margin
2015 2014
Change Net income margin 4.9% 4.4%
0.5 Less: Effect of net capital realized gains (losses), net
of tax on after-tax margin (0.6)%
(0.1)% (0.5)
Core earnings margin
5.5% 4.5%
1.0
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 Sept. 30, 2015 and 2014, is set forth
below.
Three Months Ended
Sept 302015
Sept 302014
Commercial Lines Net income $211 $280 Less:
Income from discontinued operations 7 — Add: Income tax expense 83
116 Less: Other income (expense) 1 (1) Less: Net realized capital
gains (losses) (18) 18 Less: Net investment income 208 250 Less:
Net servicing income 6 5
Underwriting gain $90 $124 Personal
Lines Net income $19 $73 Add: Income tax expense 2 34 Less:
Other expenses (1) (3) Less: Net realized capital gains 4 4 Less:
Net investment income 29 33 Less: Net servicing income
— 2
Underwriting gain (loss)
$(11) $71
Combined ratio before catastrophes and
prior year development: Combined ratio before catastrophes
and prior year development (PYD) is a non-GAAP financial measure.
Combined ratio is the most directly comparable GAAP measure. The
combined ratio is the sum of the loss and loss adjustment expense
ratio, the expense ratio and the policyholder dividend ratio. This
ratio measures the cost of losses and expenses for every $100 of
earned premiums. A combined ratio below 100 demonstrates a positive
underwriting result. A combined ratio above 100 indicates a
negative underwriting result. The combined ratio before
catastrophes and PYD represents the combined ratio for the current
accident year, excluding the impact of current accident year
catastrophes. The company believes this ratio is an important
measure of the trend in profitability since it removes the impact
of volatile and unpredictable catastrophe losses and prior accident
year loss and loss adjustment expense reserve. A reconciliation of
the combined ratio to the combined ratio before catastrophes and
PYD for individual reporting segments can be found in this press
release under the headings Commercial Lines and Personal Lines.
SAFE HARBOR STATEMENT
Some of the statements in this release should be considered
forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements can be
identified by words such as “anticipates,” “intends,” “plans,”
“seeks,” “believes,” “estimates,” “expects,” “projects” and similar
references to the future. Examples of forward-looking statements
include, but are not limited to, statements the company makes
regarding future results of operations. The Hartford cautions
investors that these forward-looking statements are not guarantees
of future performance, and actual results may differ materially.
Investors should consider the important risks and uncertainties
that may cause actual results to differ. These important risks and
uncertainties include: challenges related to the Company’s current
operating environment, including global political, economic and
market conditions, and the effect of financial market disruptions,
economic downturns or other potentially adverse macroeconomic
developments on the attractiveness of our products, the returns in
our investment portfolios and the hedging costs associated with our
runoff annuity block; financial risk related to the continued
reinvestment of our investment portfolios and performance of our
hedge program for our runoff annuity block; market risks associated
with our business, including changes in interest rates, credit
spreads, equity prices, market volatility and foreign exchange
rates, commodities prices and implied volatility levels, as well as
continuing uncertainty in key sectors such as the global real
estate market; the impact on our investment portfolio if our
investment portfolio is concentrated in any particular segment of
the economy; risk associated with the use of analytical models in
making decisions in key areas such as underwriting, capital,
hedging, reserving, and catastrophe risk management; the potential
for further acceleration of deferred policy acquisition cost
amortization; the potential for further impairments of our goodwill
or the potential for changes in valuation allowances against
deferred tax assets; the potential for differing interpretations of
the methodologies, estimations and assumptions that underlie the
valuation of the Company’s financial instruments that could result
in changes to investment valuations; the difficulty in predicting
the Company’s potential exposure for asbestos and environmental
claims; the subjective determinations that underlie the Company’s
evaluation of other-than-temporary impairments on
available-for-sale securities; the impact on our statutory capital
of various factors, including many that are outside the Company’s
control, which can in turn affect our credit and financial strength
ratings, cost of capital, regulatory compliance and other aspects
of our business and results; risks to our business, financial
position, prospects and results associated with negative rating
actions or downgrades in the Company’s financial strength and
credit ratings or negative rating actions or downgrades relating to
our investments; losses due to nonperformance or defaults by
others, including reinsurers, sourcing partners, derivative
counterparties and other third parties; the potential for losses
due to our reinsurers' unwillingness or inability to meet their
obligations under reinsurance contracts and the availability,
pricing and adequacy of reinsurance to protect us against losses;
the possibility of unfavorable loss development including with
respect to long-tailed exposures; the possibility of a pandemic,
earthquake, or other natural or man-made disaster that may
adversely affect our businesses; weather and other natural physical
events, including the severity and frequency of storms, hail,
winter storms, hurricanes and tropical storms, as well as climate
change and its potential impact on weather patterns; the uncertain
effects of emerging claim and coverage issues; the Company’s
ability to effectively price its property and casualty policies,
including its ability to obtain regulatory consents to pricing
actions or to non-renewal or withdrawal of certain product lines;
technology innovations, such as telematics and other usage-based
methods of determining premiums, auto technology advancements that
improve driver safety and technologies that facilitate ride or home
sharing, that may alter demand for the Company’s products, impact
the frequency or severity of losses and/or impact the way the
Company markets, distributes and underwrites its products; the
possible occurrence of terrorist attacks and the Company’s ability
to contain its exposure, including limitations on coverage from the
federal government under applicable reinsurance terrorism laws;
volatility in our statutory and United States ("U.S.") GAAP
earnings and potential material changes to our results resulting
from our adjustment of our risk management program to emphasize
protection of economic value; the cost and other effects of
increased regulation as a result of the implementation of the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010,
and the potential effect of other domestic and foreign regulatory
developments, including those that could adversely impact the
demand for the Company’s products, operating costs and required
capital levels; unfavorable judicial or legislative developments;
regulatory limitations on the ability of the Company and certain of
its subsidiaries to declare and pay dividends; the impact of
changes in federal or state tax laws; the impact of potential
changes in accounting principles and related financial reporting
requirements; regulatory requirements that could delay, deter or
prevent a takeover attempt that shareholders might consider in
their best interests; the risks, challenges and uncertainties
associated with our expense reduction initiatives and other
actions, which may include acquisitions, divestitures or
restructurings; 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; actions by our competitors, many of which are larger
or have greater financial resources than we do; the Company’s
ability to market, distribute and provide investment advisory
services in relation to our products through current and future
distribution channels and advisory firms; the Company’s ability to
maintain the availability of its systems and safeguard the security
of its data in the event of a disaster, cyber or other information
security incident or other unanticipated event; the risk that our
framework for managing operational risks may not be effective in
mitigating material risk and loss to the Company; the potential for
difficulties arising from outsourcing and similar third-party
relationships; the Company’s ability to protect its intellectual
property and defend against claims of infringement; and other
factors described in such forward-looking statements or in The
Hartford's 2014 Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q and other filings The Hartford makes with the Securities
and Exchange Commission.
Any forward-looking statement made by the company in this
release speaks only as of the date of this release. Factors or
events that could cause the company's actual results to differ may
emerge from time to time, and it is not possible for the company to
predict all of them. The company undertakes no obligation to
publicly update any forward-looking statement, whether as a result
of new information, future developments or otherwise.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151026006545/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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