- Net income available to common stockholders of $524 million
($1.43 per diluted share) increased 21% over third quarter
2018
- Core earnings* of $548 million (core earnings per diluted
share* of $1.50) rose 31% from third quarter 2018
- Net income ROE for the trailing 12-month period ended Sept. 30,
2019, was 12.0% and core earnings ROE* for the same period was
12.3%
- Book value per diluted share was $43.13, up 23% from Dec. 31,
2018; book value per diluted share excluding accumulated other
comprehensive income (AOCI)* rose 8% to $42.55
- During the quarter, The Hartford repurchased 1.1 million common
shares for $63 million and paid $111 million in common dividends;
year-to-date through Sept. 30, 2019 share repurchases totaled 1.6
million common shares for $90 million, with $910 million remaining
under its $1.0 billion authorization
The Hartford (NYSE: HIG) today announced financial results for
the third quarter ended Sept. 30, 2019.
"The Hartford had another outstanding quarter with strong
property casualty margins, excellent group disability results and
solid investment returns producing an impressive 12.0 percent net
income return on equity," said The Hartford's Chairman and CEO
Christopher Swift. "This is our first full quarter with Navigators
and we continue to focus on integration and achieving key
milestones as we operate as an integrated team. Overall, I am
pleased with the execution across all of our businesses as we
utilize our increased capabilities for competitive advantage in a
firming market to generate shareholder value.”
* Denotes financial measure not calculated in accordance with
generally accepted accounting principles (non-GAAP); definitions of
non-GAAP measures and reconciliations to their closest GAAP
measures can be found in this news release under the heading
Discussion of Non-GAAP Financial Measures
The Hartford's President Doug Elliot added, “Commercial and
Personal Lines business units again delivered impressive results
this quarter. Top line performance within Commercial Lines was
strong and we’re achieving pricing momentum in Middle Market and
Specialty lines. Navigators integration efforts are progressing
well, translating into marketplace wins, and we are pleased with
the positive feedback received from distribution partners on our
expanded product breadth."
CONSOLIDATED RESULTS:
Three Months Ended
($ in millions except per share data)
Sep 30 2019
Sep 30 2018
Change1
Net income available to common
stockholders
$524
$432
21%
Net income available to common
stockholders per diluted share2
$1.43
$1.19
20%
Core earnings
$548
$418
31%
Core earnings per diluted share
$1.50
$1.15
30%
Book value per diluted share
$43.13
$34.95
23%
Book value per diluted share (ex.
AOCI)
$42.55
$39.12
9%
Net income (loss) available to common
stockholders' return on equity (ROE)3, last 12-months
12.0%
(14.0)%
NM
Core earnings ROE3, last
12-months
12.3%
10.3%
2.0
[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
Third quarter 2019 net income available to common stockholders
was $524 million, or $1.43 per diluted share, up 21% and 20%,
respectively, from third quarter 2018. The increase was principally
due to:
- Lower current accident year catastrophes, a significantly lower
group disability loss ratio and higher net investment income
- Earnings from the retained 9.7% equity interest in the limited
partnership that acquired the life and annuity business sold in May
2018, and
- An increase in net realized capital gains, partially offset
by
- A loss on extinguishment of debt and higher integration costs
from the recent Navigators acquisition
Core earnings of $548 million and core earnings per diluted
share of $1.50 in third quarter 2019 were up 31% and 30%,
respectively, compared with third quarter 2018, primarily
attributable to lower current accident year catastrophes, a lower
group disability loss ratio and higher net investment income.
Sept. 30, 2019 book value per diluted share of $43.13 rose 23%
from $35.06 at Dec. 31, 2018, due to a 23% increase in common
stockholders' equity resulting primarily from the impact of lower
market interest rates and tighter credit spreads on AOCI and from
net income in excess of common stockholder dividends during the
first nine months of 2019.
Book value per diluted share (excluding AOCI) of $42.55 as of
Sept. 30, 2019 increased 8% from $39.40 at Dec. 31, 2018, primarily
due to the nine month 2019 net income in excess of common
stockholder dividends.
Year-to-date 2019, The Hartford returned $417 million to
shareholders, consisting of $327 million in common stockholder
dividends paid and $90 million of common share repurchases.
Third quarter 2019 net income available to common stockholders
ROE was 12.0% compared with net loss ROE of 14.0% in third quarter
2018. The third quarter 2018 net loss ROE was negatively impacted
by:
- The $3.1 billion net loss on discontinued operations recognized
in fourth quarter 2017 from the sale of Talcott Resolution, the
former run-off annuity business of The Hartford, and
- The fourth quarter 2017 charge of $877 million related to U.S.
corporate income tax reform
Core earnings ROE in third quarter 2019 rose to 12.3%, 2.0
points higher than 10.3% in third quarter 2018, driven by a 15%
increase in trailing 12-month core earnings.
BUSINESS RESULTS:
Commercial Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30 2019
Sep 30 2018
Change
Net income
$336
$289
16%
Core earnings
$303
$265
14%
Written Premiums
$2,235
$1,751
28%
Underwriting gain
$82
$70
17%
Underlying underwriting gain
$137
$112
22%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
59.4
59.1
0.3
Current accident year catastrophes
3.3
5.3
(2.0)
Prior accident year development (PYD)
(0.8)
(3.0)
2.2
Expenses
34.0
34.2
(0.2)
Policyholder dividends
0.5
0.4
0.1
Combined ratio
96.4
96.1
0.3
Impact of catastrophes and PYD on combined
ratio
(2.5)
(2.3)
(0.2)
Underlying combined ratio*
93.9
93.7
0.2
Net income of $336 million increased $47 million, or 16%, from
third quarter 2018 principally due to higher net investment income,
higher net realized capital gains and, to a lesser extent, a higher
underwriting gain, partially offset by higher integration costs
related to the Navigators acquisition.
Core earnings of $303 million rose 14% from $265 million in
third quarter 2018:
- The underlying underwriting gain* of $137 million was up $25
million from third quarter 2018 reflecting lower non-catastrophe
property losses and earned premium growth excluding Navigators
- Less net favorable PYD was partly offset by lower current
accident year catastrophes
- Net investment income of $291 million, before tax, rose 16%
compared to $250 million, before tax, in third quarter 2018 driven
by the increased asset base as a result of the Navigators
acquisition and higher returns on LPs offset in part by lower
reinvestment rates
Net favorable PYD of 0.8 point compared to 3.0 points in third
quarter 2018. Third quarter 2019 net favorable PYD was due to lower
loss reserve estimates for workers' compensation claims and package
business partially offset by increases in reserves for auto and
general liability in Middle & Large Commercial.
Written premiums of $2.2 billion increased 28% over third
quarter 2018.
- Excluding Navigators, third quarter 2019 written premiums were
up 4% reflecting strong new business growth and higher renewal
premium in Middle Market, including higher renewal written price
increases as well as growth in industry verticals and National
Accounts
Combined ratio was 96.4 in third quarter 2019, a 0.3 point
deterioration from 96.1 in third quarter 2018. Underlying combined
ratio of 93.9 increased 0.2 point from third quarter 2018 primarily
due to the inclusion of Navigators results in Global Specialty,
which runs a higher underlying combined ratio, which was partially
offset by lower property losses.
Personal Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30 2019
Sep 30 2018
Change
Net income
$94
$51
84%
Core earnings
$87
$47
85%
Written Premiums
$822
$854
(4)%
Underwriting gain
$58
$14
NM
Underlying underwriting gain
$62
$70
(11)%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
66.1
66.5
(0.4)
Current accident year catastrophes
4.0
8.7
(4.7)
Prior accident year development (PYD)
(3.5)
(2.1)
(1.4)
Expenses
26.2
25.2
1.0
Combined ratio
92.8
98.4
(5.6)
Impact of catastrophes and PYD on combined
ratio
(0.5)
(6.6)
6.1
Underlying combined ratio
92.3
91.8
0.5
Net income of $94 million was up $43 million, or 84%, from $51
million in third quarter 2018 primarily due to lower current
accident year catastrophe losses. In addition, higher net
investment income and an increase in net realized capital gains
were partially offset by the effect of lower earned premiums.
Core earnings of $87 million was up $40 million, or 85%, from
third quarter 2018:
- Underwriting gain of $58 million increased $44 million over
third quarter 2018 due primarily to lower current accident year
catastrophe losses and, to a lesser extent, more favorable auto
liability PYD, partially offset by the effect of lower earned
premiums
- Net investment income of $46 million, before tax, rose 18%
compared to $39 million, before tax, benefiting from increased LP
returns, offset in part by lower reinvestment rates
Written premiums of $822 million were down 4% from third quarter
2018 mainly due to non-renewed premiums in excess of new
business.
- New business premiums of $79 million increased 34% resulting
from growth in both auto (up 23%) and homeowners (up 75%)
Combined ratio was 92.8 in third quarter 2019, 5.6 points better
than third quarter 2018. Underlying combined ratio of 92.3 was 0.5
point higher than third quarter 2018 principally due to a higher
expense ratio impacted by lower earned premiums, partially offset
by lower losses in homeowners.
Group Benefits
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30 2019
Sep 30 2018
Change
Net income
$146
$77
90%
Core earnings
$141
$102
38%
Fully insured ongoing premiums (ex.
buyout premiums)
$1,337
$1,353
(1)%
Loss ratio
71.1%
75.5%
(4.4)
Expense ratio
24.9%
23.9%
1.0
Net income margin
9.6%
5.1%
4.5
Core earnings margin*
9.4%
6.7%
2.7
Net income of $146 million increased $69 million, or 90%, from
third quarter 2018 resulting from lower group disability loss
ratio, a change to net realized capital gains and the effect of tax
expense in third quarter 2018 due to deferred tax adjustments,
partially offset by higher insurance operating costs and other
expenses. Net realized capital gains of $14 million, before tax, in
third quarter 2019 improved from net realized capital losses of $3
million, before tax, in third quarter 2018.
Core earnings of $141 million were $39 million, or 38% higher
than third quarter 2018 due to a lower disability loss ratio,
partially offset by higher insurance operating costs and other
expenses.
Fully insured ongoing premiums were down slightly by 1% compared
with third quarter 2018, due to lower group life premiums offset by
higher voluntary business and premium increases in group
disability.
Loss ratio of 71.1% improved 4.4 points from third quarter 2018
due to reduction in group disability loss ratio partially offset by
a higher group life loss ratio:
- Total disability loss ratio improved 11.5 points to 64.4%
primarily due to continued favorable incidence trends and strong
recoveries on prior incurral year reserves. This included a total
of 3.8 points of improvement arising from updating our claim
recovery assumptions to reflect more recent experience and the
effect of an experience refund related to the New York Paid Family
Leave product
- Total life loss ratio increased to 80.8%, up 4.2 points from
third quarter 2018 driven by higher mortality
Expense ratio of 24.9% was 1.0 point higher than third quarter
2018 as increased commissions on voluntary product offerings and
investments in technology and claims operations were partially
offset by expense synergies and lower incentive compensation.
Hartford Funds
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30 2019
Sep 30 2018
Change
Net income
40
$41
(2)%
Core earnings
39
$41
(5)%
Daily average Hartford Funds
AUM
$119,738
$119,897
—%
Mutual Funds and exchange-traded
products (ETP) net flows
$(800)
$245
NM
Total Hartford Funds assets under
management (AUM)
$119,981
$121,076
(1)%
Net income of $40 million and core earnings of $39 million were
down $1 million and $2 million, respectively, compared with third
quarter 2018, primarily due to lower investment management fee
revenue driven by fee reductions and a shift to lower fee
funds.
Average daily AUM was $120 billion in third quarter 2019, flat
with third quarter 2018.
Total AUM of $120 billion decreased 1% from Sept. 30, 2018 as
strong equity market returns were offset by net outflows.
Mutual fund and ETP net outflows totaled $800 million in third
quarter 2019, compared with net inflows of $245 million in third
quarter 2018 primarily due to net outflows in equity mutual funds
from higher redemptions partially offset by positive ETP net
flows.
Corporate
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30 2019
Sep 30 2018
Change
Net income (loss)
$(99)
$(35)
183%
Core loss
$(37)
$(45)
(18)%
Net investment income, before
tax
$10
$15
(33)%
Interest and preferred dividend
expense, before tax
$78
$69
13%
Net loss of $99 million increased $64 million from a net loss of
$35 million in third quarter 2018 primarily due to a loss on
extinguishment of debt of $71 million, after tax, in third quarter
2019.
Third quarter 2019 Corporate core losses of $37 million
decreased $8 million compared with third quarter 2018 reflecting an
increase in earnings from the retained 9.7% equity interest in the
limited partnership that acquired the life and annuity business
sold in May 2018.
INVESTMENT INCOME AND PORTFOLIO
DATA:
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30 2019
Sep 30 2018
Change
Net investment income
$490
$444
10%
Annualized investment yield, before
tax
4.0%
4.0%
0.0
Annualized investment yield, before tax,
excluding LPs*
3.6%
3.7%
(0.1)
Annualized LP yield, before tax
15.3%
10.6%
4.7
Annualized investment yield, after tax
3.3%
3.3%
0.0
Third quarter 2019 consolidated net investment income rose 10%
to $490 million, before tax due to higher income from fixed
maturities as a result of higher asset levels from the Navigators
acquisition, and higher income from LPs which were $65 million,
before tax, up 44% from $45 million, before tax, in third quarter
2018, partially offset by lower reinvestment rates.
Total invested assets rose 12% from Dec. 31, 2018, due
principally to the Navigators acquisition and, to a lesser extent,
the impact of lower interest rates and tighter credit spreads
increasing the valuation of fixed maturities available for
sale.
The credit performance on the investment portfolio remains very
strong. Net impairments in the quarter totaled $1 million, flat
with third quarter 2018.
CONFERENCE CALL
The Hartford will discuss its third quarter 2019 financial
results on a webcast at 9 a.m. EST on Tuesday, Nov. 5, 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 Sept. 30, 2019, and
the Third 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
https://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, Connecticut. For
additional details, please read
https://www.thehartford.com/legal-notice.
HIG-F
Some of the statements in this release may be considered
forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. 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. These important risks and
uncertainties include those discussed in our 2018 Annual Report on
Form 10-K, subsequent Quarterly Reports on Forms 10-Q, and the
other filings we make with the Securities and Exchange Commission.
We assume no obligation to update this release, which speaks as of
the date issued.
From time to time, The Hartford may use its website and/or
social media outlets, such as Twitter and Facebook, 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, Twitter
account at www.twitter.com/TheHartford_PR and Facebook at
https://facebook.com/thehartford. 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 https://ir.thehartford.com.
THE HARTFORD FINANCIAL
SERVICES GROUP, INC.
CONSOLIDATING INCOME
STATEMENTS
Three Months Ended September
30, 2019
($ in millions)
Commercial Lines
Personal Lines
P&C Other Ops
Group Benefits
Hartford Funds
Corporate
Consolidated
Earned premiums
$
2,250
$
803
$
—
$
1,337
$
—
$
4
$
4,394
Fee income
8
9
—
45
254
14
330
Net investment income
291
46
21
121
1
10
490
Other revenues
1
23
—
—
—
20
44
Net realized capital gains
60
9
4
14
1
1
89
Total revenues
2,610
890
25
1,517
256
49
5,347
Benefits, losses, and loss adjustment
expenses
1,391
535
—
983
—
5
2,914
Amortization of DAC
356
64
—
14
3
—
437
Insurance operating costs and other
expenses
441
173
3
329
202
19
1,167
Loss on extinguishment of debt
—
—
—
—
—
90
90
Interest expense
—
—
—
—
—
67
67
Amortization of other intangible
assets
7
1
—
10
—
1
19
Total benefits and expenses
2,195
773
3
1,336
205
182
4,694
Income before income taxes
415
117
22
181
51
(133
)
653
Income tax expense
79
23
4
35
11
(34
)
118
Net income (loss)
336
94
18
146
40
(99
)
535
Preferred stock dividends
—
—
—
—
—
11
11
Net income (loss) available to common
stockholders
336
94
18
146
40
(110
)
524
Adjustments to reconcile net income
(loss) available to common stockholders to core earnings
(losses)
Net realized capital losses, excluded from
core earnings, before tax
(59
)
(9
)
(4
)
(15
)
(1
)
—
(88
)
Loss on extinguishment of debt, before
tax
—
—
—
—
—
90
90
Integration and transaction costs, before
tax
19
—
—
9
—
1
29
Income tax expense
7
2
1
1
—
(18
)
(7
)
Core earnings (losses)
$
303
$
87
$
15
$
141
$
39
$
(37
)
$
548
THE HARTFORD FINANCIAL
SERVICES GROUP, INC.
CONSOLIDATING INCOME
STATEMENTS
Three Months Ended September
30, 2018
($ in millions)
Commercial Lines
Personal Lines
P&C Other Ops
Group Benefits
Hartford Funds
Corporate
Consolidated
Earned premiums
$
1,785
$
849
$
—
$
1,353
$
—
$
—
$
3,987
Fee income
9
10
—
43
267
15
344
Net investment income
250
39
22
117
1
15
444
Other revenues
(1
)
24
—
—
—
6
29
Net realized capital gains (losses)
29
5
3
(3
)
—
4
38
Total revenues
2,072
927
25
1,510
268
40
4,842
Benefits, losses, and loss adjustment
expenses
1,097
621
11
1,054
—
3
2,786
Amortization of DAC
264
68
—
12
4
—
348
Insurance operating costs and other
expenses
359
173
3
319
212
25
1,091
Interest expense
—
—
—
—
—
69
69
Amortization of other intangible
assets
2
1
—
15
—
—
18
Total benefits and expenses
1,722
863
14
1,400
216
97
4,312
Income (loss) before income
taxes
350
64
11
110
52
(57
)
530
Income tax expense (benefit)
61
13
2
33
11
(17
)
103
Income (loss) from continuing
operations, net of tax
289
51
9
77
41
(40
)
427
Income from discontinued operations, net
of tax
—
—
—
—
—
5
5
Net income (loss)
289
51
9
77
41
(35
)
432
Adjustments to reconcile net income to
core earnings (losses)
Net realized capital losses (gains),
excluded from core earnings, before tax
(28
)
(5
)
(3
)
3
—
(4
)
(37
)
Integration and transaction costs, before
tax
—
—
—
12
—
—
12
Income tax expense (benefit)
4
1
2
10
—
(1
)
16
Income from discontinued operations, net
of tax
—
—
—
—
—
(5
)
(5
)
Core earnings (losses)
$
265
$
47
$
8
$
102
$
41
$
(45
)
$
418
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 third 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
Sep 30 2019
Sep 30 2018
Sep 30 2019
Sep 30 2018
Sep 30 2019
Sep 30 2018
Consolidated
P&C
Group Benefits
Annualized investment yield, before
tax
4.0
%
4.0
%
4.0
%
4.1
%
4.2
%
4.1
%
Impact on annualized investment yield of
limited partnerships and other alternative investments, before
tax
(0.4
)%
(0.3
)%
(0.4
)%
(0.3
)%
(0.4
)%
(0.2
)%
Annualized investment yield excluding
limited partnerships and other alternative investments, before
tax
3.6
%
3.7
%
3.6
%
3.8
%
3.8
%
3.9
%
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
Sep 30 2019
Dec 31 2018
Change
Book value per diluted share
$43.13
$35.06
23%
Per diluted share impact of AOCI
$0.58
$(4.34)
NM
Book value per diluted share (excluding
AOCI)
$42.55
$39.40
8%
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, any deferred gain resulting from
retroactive reinsurance and subsequent changes in the deferred
gain, integration and transaction costs in connection with an
acquired business, loss on extinguishment of debt, gains and losses
on reinsurance transactions, change in loss reserves upon
acquisition of a business, 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.
Deferred gain resulting from retroactive reinsurance and
subsequent changes in the deferred gain are excluded from core
earnings given that these reinsurance agreements economically
transfer risk to the reinsurers and including the benefit from
retroactive reinsurance in core earnings provides greater insight
into the economics of the business.
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. The changes to loss reserves upon
acquisition of a business are excluded from core earnings because
such changes could obscure the ability to compare results in
periods after the acquisition to results of periods prior to the
acquisition as such trends are valuable to our investors' ability
to assess the company's financial performance.
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 Sept. 30, 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 Sept. 30,
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 Sept. 30, 2019 and 2018, is set forth below.
Three Months Ended
Margin
Sep 30 2019
Sep 30 2018
Change
Net income margin
9.6%
5.1%
4.5
Adjustments to reconcile net income
margin to core earnings margin
Net realized capital losses (gains)
excluded from core earnings, before tax
(0.9)%
0.2%
(1.1)
Integration and transaction costs
associated with acquired business, before tax
0.6%
0.8%
(0.2)
Income tax benefit
0.1%
0.6%
(0.5)
Core earnings margin
9.4%
6.7%
2.7
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 Sept. 30, 2019 and
2018 is provided in the table below.
Three Months Ended
Sep 30 2019
Sep 30 2018
Change
PER SHARE DATA
Diluted earnings per common share:
Net income available to common
stockholders per share1
$1.43
$1.19
20%
Income from discontinued operations, after
tax
—
0.02
(100)%
Income from continuing operations, net
of tax, available to common stockholders
$1.43
$1.17
22%
Adjustment made to reconcile income
from continuing operations, net of tax, available to common
stockholders to core earnings per share
Net realized capital losses (gains),
excluded from core earnings, before tax
(0.24)
(0.10)
(140)%
Loss on extinguishment of debt, before
tax
0.25
—
NM
Integration and transaction costs
associated with an acquired business, before tax
0.08
0.03
167%
Income tax expense (benefit) on items
excluded from core earnings
(0.02)
0.05
NM
Core earnings per share
$1.50
$1.15
30%
[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
Sep 30 2019
Sep 30 2018
Net income (loss) available to common
stockholders ROE
12.0%
(14.0)%
Adjustments to reconcile net income
(loss) available to common stockholders ROE to core earnings
ROE
Net realized capital gains excluded from
core earnings, before tax
(1.1)
(0.8)
Loss on extinguishment of debt, before
tax
0.6
—
Loss on reinsurance transactions, before
tax
0.6
—
Integration and transaction costs
associated with an acquired business, before tax
0.6
0.3
Changes in loss reserves upon acquisition
of a business, before tax
0.7
—
Income tax expense (benefit) on items not
included in core earnings
(0.7)
6.1
Loss (income) from discontinued
operations, after tax
—
18.8
Impact of AOCI, excluded from core
earnings ROE
(0.4)
(0.1)
Core earnings ROE
12.3%
10.3%
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. Net investment income is the most directly
comparable GAAP measure.
Three Months Ended
Sep 30 2019
Sep 30 2018
Sep 30 2019
Sep 30 2018
Sep 30 2019
Sep 30 2018
Consolidated
P&C
Group Benefits
Total net investment income
$490
$444
$358
$311
$121
$117
Income from limited partnerships and other
alternative assets
(65
)
(45
)
(52
)
(35
)
(13
)
(10
)
Net investment income excluding limited
partnerships and other alternative investments
$425
$399
$306
$276
$108
$107
Underlying combined ratio: is a
non-GAAP financial measure that represents the combined ratio
before catastrophes, prior accident year development and current
accident year change in loss reserves upon acquisition of a
business. 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. 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 and
current accident year change in loss reserves upon acquisition of a
business. 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, prior accident year
loss and loss adjustment expense reserve development. The changes
to loss reserves upon acquisition of a business are excluded from
underlying combined ratio because such changes could obscure the
ability to compare results in periods after the acquisition to
results of periods prior to the acquisition as such trends are
valuable to our investors' ability to assess the company's
financial performance. 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 "Business Results"
for "Commercial Lines" and "Personal Lines."
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 Sept. 30, 2019 and 2018, is set forth
below.
Underlying underwriting gain
(loss): represents underwriting gain (loss) before current
accident year catastrophes, PYD and current accident year change in
loss reserves upon acquisition of a business. 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. The changes to loss reserves upon acquisition of a business
are also excluded from underlying underwriting gain (loss) because
such changes could obscure the ability to compare results in
periods after the acquisition to results of periods prior to the
acquisition as such trends are valuable to our investors' ability
to assess the company's financial performance. A reconciliation of
net income (loss) to underlying underwriting gain (loss) for
individual reporting segments for the quarterly periods ended Sept.
30, 2019 and 2018, is set forth below:
COMMERCIAL LINES
Three Months Ended
Sept 30 2019
Sept 30 2018
Net income
$
336
$
289
Adjustments to reconcile net income to
underwriting gain
Net servicing loss (income)
(2
)
1
Net investment income
(291
)
(250
)
Net realized capital gains
(60
)
(29
)
Other expense (income)
20
(2
)
Income tax expense
79
61
Underwriting gain
82
70
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
74
95
Prior accident year development
(19
)
(53
)
Underlying underwriting gain
$
137
$
112
PERSONAL LINES
Three Months Ended
Sept 30 2019
Sept 30 2018
Net income
$
94
$
51
Adjustments to reconcile net income to
underwriting gain
Net servicing income
(4
)
(5
)
Net investment income
(46
)
(39
)
Net realized capital gains
(9
)
(5
)
Other income
—
(1
)
Income tax expense
23
13
Underwriting gain
58
14
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
32
74
Prior accident year development
(28
)
(18
)
Underlying underwriting gain
$
62
$
70
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; the impacts associated with the withdrawal
of the United Kingdom (“U.K.”) from the European Union (“E.U.”) on
our international operations in the U.K. and E.U.;
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 capital requirements due
to various factors, including many that are outside the company’s
control, such as National Association of Insurance Commissioners
risk based capital formulas, Funds at Lloyd's and Solvency Capital
Requirements, 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;
state and international 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; 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 federal, state and
international 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/20191104005978/en/
Media Contacts: Michelle Loxton 860-547-7413
michelle.loxton@thehartford.com
Matthew Sturdevant 860-547-8664
matthew.sturdevant@thehartford.com Investor Contact: Susan
Spivak Bernstein 860-547-6233 susan.spivak@thehartford.com
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