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Hartford Financial Services Group Q2 2010 Earnings Call Transcript

Hartford Financial Services Group Q2 2010 Earnings Call Transcript

Hartford Financial Services Group (HIG)

Q2 2010 Earnings Call

August 05, 2010 10:00 am ET


Juan Andrade -

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Gregory Mcgreevey - Chief Investment Officer, Executive Vice President, Member of Office of Chairman and President of Hartford Investment Management Company

David Levenson - President of Wealth Management and Chief Operating Officer of Hartford Life Insurance KK

Christopher Swift - Chief Financial Officer and Executive Vice President

Liam McGee - Chairman, Chief Executive Officer, President, Chairman of Executive Committee and Member of Finance/Investment/Risk Management Committee

Richard Costello - Senior Vice President of Investor Relations


Andrew Kligerman - UBS Investment Bank

Thomas Gallagher - Crédit Suisse AG

Eric Berg - Barclays Capital

Darin Arita - Deutsche Bank AG

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Good morning. My name is Ginger and I will be your conference operator today. At this time, I would like to welcome everyone to The Hartford Second Quarter 2010 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Rick Costello, you may begin your conference.

Richard Costello

Thank you, Ginger. Good morning and thank you for joining us for the Hartford's Second Quarter 2010 Financial Results Conference Call. Our earnings release and financial supplement were issued yesterday. The slide presentation for today's call is available on the company's website at

Chief Executive Officer, Liam McGee; and Chief Financial Officer, Chris Swift, will provide prepared remarks this morning and we will finish with Q&A. Also participating on today's call are Juan Andrade, President of Commercial Markets; Dave Levinson, President of Wealth Management; Greg Mcgreevey, Chief Investment Officer; and Alan Kreczko, General Counsel.

Turning to the presentation on Slide 2, please note that we will make certain statements during the call that should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about The Hartford's future results of operations. We caution 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, including those discussed in our press release issued yesterday, our 2010 quarterly reports on Form 10-Q, our 2009 annual report on Form 10-K and other filings we make with the Securities and Exchange Commission. We assume no obligation to update this presentation, which speaks as of today's date.

Today's discussion of The Hartford's financial performance includes financial measures that are not derived from Generally Accepted Accounting Principles or GAAP. Information regarding these non-GAAP and other financial measures, including reconciliations to the most directly comparable GAAP measures, is provided in the investor financial supplement for the second quarter of 2010, and in the press release we issued yesterday, both of which can be found on The Hartford's website at

Now, I will hand the call over to The Hartford's Chairman, President and CEO, Liam McGee.

Liam McGee

Thanks, Rick. Good morning, everyone and thank you for joining us today. Before we get started, I want to welcome Dave Levinson. Last month, as you know, I asked Dave to lead Wealth Management and as we shared with you in April, we see exciting opportunities for this business.

The Hartford performed well in the second quarter. First, we reported good core results, with healthy top line momentum in many of our businesses. Second, we saw significant improvements in the investment portfolio. And third, we are well underway executing the go-forward plan we outlined in April.

As I said, The Hartford reported good overall results in the quarter. Given the economy, the volatile equity markets and as you already know, issues specific to the P&C and life industries, I was pleased that we navigated well through a bumpy quarter. We earned $76 million of net income compared to a net loss of $15 million in the second quarter of 2009. Core earnings were $92 million in the second quarter and included higher-than-expected catastrophes, a DAC unlock, an annual asbestos reserve charge, goodwill impairment and favorable prior-year reserve development in ongoing P&C.

When you account for these items, adjusted core earnings were about $0.92 per diluted share. We believe this figure demonstrates the underlying earnings power of the company. Chris will discuss how we get to that number in detail later in his remarks.

Book value per share was up 6% sequentially to $41.29. And with the market volatility we saw in May and June, I am pleased with the continued strength of our capital position. Revenues, excluding net realized capital gains and trading securities grew 3% year-over-year. We saw good top line momentum in many of our key businesses.

In P&C Small Commercial segment, written premium grew 3% over the prior year, reflecting positive renewal pricing and a 9% increase in new business policy count. In P&C Middle Market, price competition is intense, and we are balancing growth and profitability. So we were pleased that pricing on renewals was flat. And policy count retention increased 2% over the prior year. Chris will talk more about Group Benefits later in the call but results there were below our expectations. We see some near-term challenges in this business and are working hard to address them.

In Wealth Management, sales and deposits increased in many businesses. Retirement plan deposits increased 12% over the prior year. Mutual fund deposits were up 11%, and Life insurance sales grew 8%. Second, over the last year, we have seen significant improvements in the investment portfolio. In the second quarter, we had a 13% increase in net investment income, excluding trading securities, driven by strong partnership returns. Another positive sign was that net unrealized losses declined by more than 50% since March 31 to $1.5 billion. We are also seeing favorable trends on impairments, which declined again this quarter. Barring a severe economic or market reversal and given the actions we've taken today, we believe the worst is behind us on impairments. Over the next several quarters, we expect to see credit losses similar to those we've experienced in the first half of the year.

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