Hartford Financial Services Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Hartford Financial Services Group (HIG)

Q4 2011 Earnings Call

February 08, 2012 9:00 am ET

Executives

Sabra Purtill - Head of Investor Relations and Senior Vice President

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

Christopher John Swift - Chief Financial Officer and Executive Vice President

David N. Levenson - President of Wealth Management Group

Douglas G. Elliot - President of Commercial Markets

Andy Napoli - Executive Vice President and President of Consumer Markets

Analysts

Jay Gelb - Barclays Capital, Research Division

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

Meyer Shields - Stifel, Nicolaus & Co., Inc., Research Division

Andrew Kligerman - UBS Investment Bank, Research Division

Robert Glasspiegel - Langen McAlenney

Presentation

Operator

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Good morning. My name is Keesha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hartford Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. Miss Purtill, you may begin your conference.

Sabra Purtill

Thank you. Good morning, and welcome, everyone, to the Hartford's Fourth Quarter 2011 Financial Earnings Conference Call. The press release, financial supplement and slide presentation for today's call are posted in the investor information section of our website. Liam McGee, The Hartford's Chairman, President and CEO has some opening comments, after which, Chris Swift, our CFO, will provide a financial overview. We will then open the call for questions. Other members of our senior management team are also present for our call, including Doug Elliot, Alan Kreczko, Dave Levenson, Andy Napoli, Bob Rupp and Hugh Whelan.

Please note that as discussed on Page 2 of the presentation, any statements made today concerning The Hartford's future results or actions should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, and actual results may differ materially. We assume no obligation to update these statements.

You should also consider the important risks and uncertainties that could cause actual results to differ, which are listed in our press release, our third quarter 10-Q, 2010 10-K and other filings we make with the SEC.

In our presentation, we use some financial measures that are not derived from Generally Accepted Accounting Principles or GAAP. Definitions and reconciliations of these measures to the comparable GAAP measures are provided in our financial filings. I'll now turn the call over to Liam.

Liam E. McGee

Thank you, Sabra. Good morning, everyone, and thank you for joining us today. Last evening, we announced fourth quarter results that were in line with what we discussed in December, with book value per diluted share up 17% over the last year. Results were improved from the third quarter, but 2011 was a challenging year with the weak macroeconomic environment and unusually bad weather.

We're encouraged by some of the recent economic developments. Domestic business activity, employment data and consumption trends all suggest a return to moderate GDP growth. And the European Central Bank's additional support measures have had a positive impact in the marketplace. But we remain cautious about the operating environment for 2012. Many of the factors -- low interest rates and market volatility -- are likely to continue to have some impact in 2012.

So given this environment, as we said in December, we are aggressively managing the levers within our control to increase profitability and generate shareholder value. Across the organization, as you'll hear, we are prioritizing profit over sales volume, driving greater expense efficiencies and growing where we are generating appropriate return.

In Commercial Markets, we achieved accelerated rate increase across most P&C Commercial lines. As we expected, pricing crossed the inflection point and exceeded loss costs for most of our lines in the fourth quarter. As these written pricing changes earn in over 2012, we expect to see margin expansion throughout the P&C Commercial portfolio, particularly in our Middle Market book.

Doug and his team have accomplished a great deal since his arrival. They're making material improvements across their business like building our property capabilities to move us to a more diversified P&C Commercial book. We now have dedicated property specialists in each of our Middle Market regions. And in addition, we've hired several senior underwriters to strengthen our core property team and have significantly enhanced our property risk tools. This focused effort has already turned several strong prospects into Hartford customers.

We've also realigned the sales force against customer segments for both Commercial and Consumer Markets. This will increase our responsiveness to customers, brokers and agents, while heightening accountability for results.

In Consumer Markets, Andy and his team have focused the book on a more targeted, preferred customer segment. This strategy is paying off with notable margin improvement in the fourth quarter.

The AARP relationship continues to be a competitive advantage for us. Along with strong new business growth in the AARP Direct business, we are seeing good momentum with the AARP products sold through the agency channel. About 80% of new business is hitting our targeted, mature preferred demographic.

For Wealth Management, as you know, we separated several of the division's businesses into a Runoff segment in December. The financials are broken out for the first time this quarter, so you can better evaluate progress on our ongoing businesses as well as those in Runoff.

Earlier this week, we appointed a new, separate, dedicated leadership team for the group, with Dave Bedard, the former CFO for Wealth Management, heading the team. Dave is a 26-year finance veteran with expert knowledge of these and other complex financial products. Dave will be joined by Aidan Kidney, who was the CEO and President of our Japan business; and Peter Sannizzaro, who was most recently CFO of the Global Annuity business. I'm pleased that Dave, Aidan and Peter are taking on these important new roles.

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