The Hartford Reports Third Quarter 2013 Financial Results

The Hartford (NYSE:HIG) reported core earnings of $505 million for the three months ended Sept. 30, 2013 (third quarter 2013), up 17% from $433 million in third quarter 2012. Core earnings per diluted share rose 14% to $1.03 from $0.90 in third quarter 2012. The improvement from the prior year quarter was principally due to higher core earnings in P&C Commercial, Group Benefits, Talcott Resolution and Corporate.

The company reported third quarter 2013 net income of $293 million, or $0.60 per diluted share, which included realized capital losses of $105 million, after-tax, principally from variable annuity (VA) hedging programs, and an unlock charge of $67 million after-tax. Third quarter 2012 net income totaled $13 million, or $0.01 per diluted share, which included realized capital gains of $62 million, after-tax, principally from VA hedging programs, and an unlock charge of $79 million, after-tax. Third quarter 2012 net income was also impacted by a net loss of $388 million, after-tax, related to the company's sale of its Individual Life business.

“The Hartford’s third quarter and year-to-date results demonstrate our significant progress transforming the company,” said The Hartford’s Chairman, President and CEO Liam E. McGee. “Margins are improving in our go-forward businesses, contributing to a 17% year-over-year increase in core earnings, and the company continues to reduce its overall risk profile. We are ahead of plan in executing the strategy we outlined in March 2012 and, with continued strong surrenders in Talcott, the variable annuity block is running off faster than anticipated.”

*Denotes financial measures not calculated based on generally accepted accounting principles (“non-GAAP").

“With our focus on margin improvement, pricing in Property & Casualty Standard Commercial was a strong 8%, consistent with the past four quarters, and Group Benefits has meaningfully improved profitability over the last several quarters. Overall Property & Casualty written premiums were up 2%, with 2% growth in Small Commercial and Middle Market and 3% growth in Consumer Markets. Consumer Markets grew written premiums for the fourth consecutive quarter while expanding underlying margins. We are also pleased that Mutual Funds generated 35% sales growth and solid fund performance this quarter,” added McGee.

CONSOLIDATED FINANCIAL RESULTS
       
($ in millions except per share data) Three Months Ended
        Sept. 30 2013   Sept. 30 2012   Change 2
Core earnings (losses):                  
Property & Casualty         $263   $275   (4)%
Group Benefits         $36   $23   57%
Mutual Funds         $18   $19   (5)%
Sub-Total         $317   $317   —%
Talcott Resolution         $204   $192   6%
Corporate         ($16)   ($76)  

79%
Core earnings         $505   $433   17%
   
Net income         $293   $13   NM
Net income available to common shareholders per diluted share 1         $0.60   $0.01   NM
Weighted average diluted common shares outstanding         490.6   482.7   2%
Core earnings available to common shareholders per diluted share 1         $1.03   $0.90   14%

[1] Includes dilutive potential common shares and, in second quarter 2012, assumed conversion of preferred 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

Third quarter 2013 net income and core earnings included the following items that increased net income and core earnings by a total of $87 million, after-tax, or $0.18 per diluted share, compared with items that increased net income and core earnings by a total of $133 million, after-tax, or $0.28 per diluted share, in third quarter 2012:
  • Third quarter 2013 catastrophe losses favorable to the company's forecast by $43 million, after-tax, or $0.09 per diluted share compared with third quarter 2012 catastrophe losses favorable to forecast by $68 million, after-tax, or $0.14 per diluted share;
  • Third quarter 2013 unfavorable prior year loss and loss adjustment expense reserve development (PYD) of $11 million, after-tax, or $0.02 per diluted share, compared with third quarter 2012 favorable PYD of $21 million, after-tax, or $0.04 per diluted share;
  • A third quarter 2013 benefit of $18 million, after-tax, or $0.04 per diluted share, from the resolution of items under the company's spin-off agreement with its former parent;
  • A $37 million, after-tax, or $0.08 per diluted share, third quarter 2013 insurance recovery from the company's insurers for past legal expenses associated with closed litigation; and
  • Core earnings of $44 million, or $0.09 per diluted share, in third quarter 2012 from the Retirement Plans and Individual Life businesses that were sold in first quarter 2013.

PROPERTY & CASUALTY (CONSOLIDATED)Third Quarter 2013 Highlights:
  • Combined ratio, before catastrophes and PYD, improved to 92.8 from 96.3 in third quarter 2012
  • Written premiums grew 2% over third quarter 2012
  • Core earnings declined 4% from third quarter 2012 due to higher catastrophe losses and unfavorable PYD
PROPERTY & CASUALTY
($ in millions)         Three Months Ended
         

Sept. 30 2013
 

Sept. 30 2012
  Change
Underwriting gain*         $95   $115   (17)%
Investment income         $296   $295   —%
Core earnings         $263   $275   (4)%
Net income         $264   $282   (6)%
Expense ratio         28.1   27.3   (0.8)
Combined ratio         96.2   95.4   (0.8)
Combined ratio before catastrophes and PYD         92.8   96.3   3.5
PYD, before tax         $17   $(33)   NM
Current accident year catastrophe losses, before tax         $66   $10   NM
Written premiums         $2,556   $2,512   2%

Third quarter 2013 P&C (Consolidated) net income was $264 million and core earnings were $263 million, decreases of 6% and 4%, respectively, from third quarter 2012. The decreases were primarily due to higher catastrophe losses in P&C Commercial and Consumer Markets and less favorable PYD in Consumer Markets, partially offset by an increase in current accident year margins before catastrophes. Third quarter 2013 combined ratio and underwriting gain were 96.2 and $95 million, respectively, compared with 95.4 and $115 million in third quarter 2012, reflecting the impact of these items.

If you liked this article you might like

Buffett's Berkshire, Rivals Brace for Billions in Hurricane Harvey Claims

Cramer: Let's Handicap Hurricane Harvey's Best Stock Bets

Mid-afternoon Musings; Amazon Shorting: Doug Kass' Views

Truth Is, Intrinsic Value, not Price, Is Truth in Investing

Takeaways and Observations; Church of What Is Working Now: Doug Kass' Views