- First quarter 2020 net income available to common stockholders
of $268 million ($0.74 per diluted share) decreased 57% from first
quarter 2019, and core earnings* of $485 million (core earnings per
diluted share* of $1.34) declined 4% from first quarter 2019
- Net income ROE for the trailing 12-month period ended March 31,
2020, was 11.8% and core earnings ROE* for the same period was
13.3%
- Book value per diluted share was $41.42, down 6% from December
31, 2019; book value per diluted share excluding accumulated other
comprehensive income (AOCI)* rose 1% to $44.07
- In the first quarter, The Hartford returned $258 million to
shareholders, consisting of $108 million in common stockholder
dividends paid and $150 million of common share repurchases. The
Company has $650 million remaining under its $1.0 billion share
repurchase authorization. The Company paused share repurchase
activity as it continues to monitor the evolving impacts of
COVID-19
- The impact to The Hartford's underwriting operations from
COVID-19 was approximately $50 million, before tax. The Company
continues to monitor the effects of COVID-19 and will work closely
with our impacted customers
The Hartford (NYSE: HIG) today announced financial results for
the first quarter ended March 31, 2020.
“The COVID-19 pandemic has forced unprecedented change in all
aspects of society and the global economy. My thoughts and prayers
are with those suffering the effects of the virus. I extend my
deepest gratitude to the health care workers and those on the front
line courageously and selflessly fighting this pandemic,” said
Christopher Swift, Chairman and CEO.
* 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
Doug Elliot, President of The Hartford further commented, “As
Chris stated, this crisis has challenged all aspects of daily life
with wide-ranging impacts to our stakeholders. We have adjusted
operational policies to help agents and customers adapt to the
financial effects of this pandemic and I have been inspired by our
employees and their dedication during these difficult times. In the
quarter, pricing momentum in middle market remained strong.
Excluding workers’ compensation, standard commercial rate increases
in this line were 9.4 percent and accelerated during the quarter.
In Global Specialty, the underwriting actions we took to improve
profitability coupled with rigorous execution on renewal pricing,
drove the improvement in our underwriting margins. As the next few
months unfold we will continue to help our customers prevail, while
maintaining a culture of underwriting and pricing discipline for
the long-run."
Chairman and CEO Christopher Swift further commented, “We
entered 2020 in a position of strength, focused on execution to
build on the momentum in our businesses. In the first quarter we
generated an industry leading twelve month ROE on core earnings of
13.3 percent. At The Hartford we live our purpose; we underwrite
Human Achievement. The global pandemic has changed the immediate
circumstances, but we have an unwavering commitment to our people,
customers, partners, and communities. With the combination of our
purpose, talented and dedicated employees, and a strategy for
future success, I am confident we will manage through this
difficult time and continue to thrive."
CONSOLIDATED RESULTS:
Three Months Ended
($ in millions except per share data)
Mar 31 2020
Mar 31 2019
Change1
Net income available to common
stockholders
$268
$625
(57)%
Net income available to common
stockholders per diluted share2
$0.74
$1.71
(57)%
Core earnings
$485
$507
(4)%
Core earnings per diluted share
$1.34
$1.39
(4)%
Book value per diluted share
$41.42
$38.36
8%
Book value per diluted share (ex.
AOCI)
$44.07
$40.79
8%
Net income (loss) available to common
stockholders' return on equity (ROE)3, last 12-months
11.8%
13.5%
(1.7)
Core earnings ROE3, last 12-months
13.3%
11.5%
1.8
[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 net income available to common stockholders per diluted share,
the numerator is net income 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
First quarter 2020 net income available to common stockholders
was $268 million, or $0.74 per diluted share, down 57% from first
quarter 2019. The decrease was principally attributed to net
realized capital losses in 2020, largely driven by both realized
and unrealized losses on our equity investment portfolio, compared
with net realized capital gains in 2019, and to net unfavorable
prior accident year development (PYD) on legacy Navigators reserves
which, while covered by reinsurance, was recognized as a deferred
gain on retroactive reinsurance.
Core earnings of $485 million, or $1.34 per diluted share,
declined 4% from first quarter 2019, primarily due to a decrease in
income from our retained investment in Talcott Resolution, lower
net investment income, higher insurance operating costs and other
expenses, and COVID-19 related short-term disability and paid
family leave reserves in first quarter 2020, largely offset by
lower current accident year (CAY) catastrophe (CATs) losses and
favorable mortality on group life business.
- Property & Casualty (P&C) underwriting results were
relatively flat with 2019 as lower CAY CATs were offset by a change
to unfavorable PYD. Underlying underwriting results, which exclude
CATs and PYD, were up slightly from the prior year including the
effect of favorable non-CAT weather and lower auto claim frequency,
largely offset by higher underwriting expenses in Commercial
Lines
- In Group Benefits, the Company incurred an estimated $13
million, after-tax, of short-term disability and New York paid
family leave reserves in March due to COVID-19, though this was
more than offset by better mortality experience in group life,
including favorable emergence on fourth quarter 2019 claims
- Net investment income of $459 million, before tax, was $11
million below first quarter 2019 due to valuation declines on
equity fund investments that mark-to-market through net investment
income, a lower yield on fixed maturity investments resulting from
reinvesting at lower rates and a lower yield on variable rate
investments, partially offset by a higher level of invested assets,
primarily due to the acquisition of Navigators Group
- The Hartford was impacted by approximately $50 million, before
tax, in underwriting operations related to the COVID-19 pandemic
including higher short-term disability claims and new benefits
under New York's revised Disability and Paid Family Leave
legislation in Group Benefits as well as a reduction in estimated
audit premiums receivable and an increase in the allowance for
current expected credit losses (CECL), including on premiums
receivable, reinsurance recoverables and other balances
March 31, 2020 book value per diluted share of $41.42 declined
6% from $43.85 at December 31, 2019, principally due to a $1.1
billion, after-tax, decrease in net unrealized gains on fixed
maturities driven by widening credit spreads, partially offset by
lower interest rates.
Book value per diluted share (excluding AOCI) of $44.07 as of
March 31, 2020, increased 1% from $43.71 at December 31, 2019,
primarily due to net income in excess of stockholder dividends and
share repurchases in the quarter.
In the first quarter, The Hartford returned $258 million to
shareholders, consisting of $108 million in common stockholder
dividends paid and $150 million of common share repurchases. The
Company has $650 million remaining under its $1.0 billion share
repurchase authorization. The Company paused share repurchase
activity as it continues to monitor the evolving impacts of
COVID-19.
The annualized net income available to common stockholder ROE
(net income ROE) at March 31, 2020 was 11.8% compared to net income
ROE of 13.5% in 2019. The core earnings ROE at March 31, 2020 was
13.3% compared to 11.5% in the same period of 2019.
BUSINESS RESULTS: Commercial Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Mar 31 2020
Mar 31 2019
Change
Net income
$121
$363
(67)%
Core earnings
$262
$274
(4)%
Written premiums
$2,408
$1,949
24%
Underwriting gain*
$20
$70
(71)%
Underlying underwriting gain*
$116
$130
(11)%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
59.3
58.4
0.9
Current accident year catastrophes
2.4
3.9
(1.5)
Prior accident year development (PYD)
1.8
(0.6)
2.4
Expenses
35.2
34.0
1.2
Policyholder dividends
0.4
0.3
0.1
Combined ratio
99.1
96.1
3.0
Impact of catastrophes and PYD on combined
ratio
(4.2)
(3.3)
(0.9)
Underlying combined ratio*
94.9
92.7
2.2
First quarter 2020 net income of $121 million decreased $242
million, or 67%, from first quarter 2019 principally due to a
change from net realized capital gains in 2019 to net realized
capital losses in 2020 and unfavorable PYD in first quarter 2020
due to recognizing a deferred gain on retroactive reinsurance
related to Navigators Group, partially offset by an increase in net
investment income, largely driven by the acquisition of Navigators
Group.
PYD in first quarter 2020 included $29 million of adverse
development related to Navigators Group on 2018 and prior accident
years that is not included in core earnings, principally related to
prior year marine and Lloyd's Syndicate catastrophe reserves. While
this reserve development was economically ceded to National
Indemnity Company under an adverse development cover (ADC), the $29
million ceded to National Indemnity Company in first quarter 2020
was recognized as a deferred gain. Under retroactive reinsurance
accounting, cumulative ceded losses in excess of ceded premium paid
of $91 million are deferred and recognized as a benefit to income
over the period recoveries are received in cash. As of March 31,
2020, the Company has cumulatively ceded $136 million of Navigators
Group losses to National Indemnity Company with $164 million of
limit remaining under the ADC.
First quarter 2020 core earnings of $262 million were down 4%
from $274 million in first quarter 2019 due to:
- Underlying underwriting gain of $116 million, which does not
include the impact of the deferred gain, was down $14 million from
first quarter 2019, primarily due to increased underwriting
expenses, largely driven by an increase in anticipated credit
losses on premiums receivable in first quarter 2020 and the effect
of reductions in state taxes and assessments recognized in first
quarter 2019, partially offset by;
- Lower CAY CATs versus the prior year due to relatively mild
winter weather
- Higher net investment income of $277 million, before tax, which
rose 7% compared to first quarter 2019 reflecting an increased
invested asset base from the Navigators acquisition
First quarter 2020 written premiums of $2.4 billion increased
24% over first quarter 2019, driven by the acquisition of
Navigators Group.
- Excluding Navigators, first quarter 2020 written premiums were
relatively flat as increases in Small Commercial package business
and Middle Market industry verticals were offset by declines in
workers' compensation in both Small Commercial and Middle
Market
- Decreases in Standard Commercial new business and lower premium
retention in Middle Market offset higher premium retention in Small
Commercial
- First quarter 2019 included $32 million of new business from
the 2018 Foremost renewal rights agreement. Excluding the new
business from this agreement, Small Commercial new business was up
10% in first quarter 2020
Combined ratio was 99.1 in first quarter 2020, 3.0 points higher
than 96.1 in first quarter 2019. Underlying combined ratio of 94.9
increased 2.2 points from first quarter 2019 primarily due to the
inclusion of Navigators results in Global Specialty, which
typically runs at a higher combined ratio, a higher underwriting
expense ratio, and ongoing rate pressure in workers' compensation,
principally in Small Commercial, partially offset by lower non-CAT
property losses, primarily on Small Commercial package
business.
Personal Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Mar 31 2020
Mar 31 2019
Change
Net income (loss)
$98
$96
2%
Core earnings (loss)
$117
$82
43%
Written premiums
$744
$771
(4)%
Underwriting gain (loss)
$103
$54
91%
Underlying underwriting gain
$104
$87
20%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
59.8
62.6
(2.8)
Current accident year catastrophes
2.5
4.3
(1.8)
Prior accident year development (PYD)
(2.3)
(0.1)
(2.2)
Expenses
26.7
26.5
0.2
Combined ratio
86.7
93.2
(6.5)
Impact of catastrophes and PYD on combined
ratio
(0.2)
(4.2)
4.0
Underlying combined ratio
86.6
89.1
(2.5)
Net income of $98 million in first quarter 2020 was $2 million
higher than first quarter 2019 as the increase in underwriting gain
was largely offset by a change from net realized capital gains in
2019 to net realized capital losses in 2020.
Core earnings of $117 million in first quarter 2020 were $35
million higher than $82 million in first quarter 2019:
- Underwriting gain of $103 million was $49 million better than
first quarter 2019 due to higher CAY margins before CATS and an
increase in favorable PYD and lower CAY CATs
- Underlying underwriting gain of $104 million increased 20% due
to a lower CAY loss and loss adjustment expense ratio before CATs
in both auto and home, partially offset by the effect of lower
earned premium
- Net investment income of $41 million, before tax, declined 2%
compared to $42 million, before tax, in first quarter 2019
Written premiums of $744 million were down 4% from first quarter
2019 with declines in both auto and homeowners. New business
premiums of $75 million increased 4% reflecting growth in both auto
(up 4%) and homeowners (up 6%).
Combined ratio was 86.7 in first quarter 2020, 6.5 points better
than first quarter 2019. Underlying combined ratio of 86.6 was 2.5
points better than first quarter 2019 principally due to lower auto
claim frequency, driven by both the economic effects of COVID-19
and mild winter weather, and to lower non-CAT property weather
losses in homeowners.
Group Benefits
Three Months Ended
($ in millions, unless otherwise
noted)
Mar 31 2020
Mar 31 2019
Change
Net income
$104
$118
(12)%
Core earnings
$115
$122
(6)%
Fully insured ongoing premiums (ex.
buyout premiums)
$1,323
$1,362
(3)%
Loss ratio
71.9%
74.7%
(2.8)
Expense ratio
26.2%
23.4%
2.8
Net income margin
6.9%
7.7%
(0.8)
Core earnings margin*
7.8%
8.0%
(0.2)
Net income of $104 million decreased $14 million, or 12%, from
first quarter 2019 in part due to net realized capital losses of $8
million, before tax, in first quarter 2020 compared to net realized
capital gains of $5 million, before tax, in first quarter 2019.
Core earnings of $115 million reflect improved life mortality,
continued strong disability incidence and recoveries and estimated
claims related to COVID-19. Results were $7 million, or 6%, lower
than first quarter 2019 primarily due to an increase in insurance
operating costs and other expenses, an increase in the group
disability loss ratio and a decrease in net investment income.
Fully insured ongoing premiums were down 3%, compared to first
quarter 2019, due to lower persistency.
Loss ratio of 71.9% improved 2.8 points from first quarter 2019
due to an improved group life loss ratio partially offset by the
estimated impacts from COVID-19 related claims:
- Total group life loss ratio of 74.6%, was 6.7 points lower than
first quarter 2019 due to lower mortality, including favorable
development on 2019 incurral year claims
- Total disability loss ratio deteriorated 1.9 points to 71.5% as
continued strong incidence and recoveries were offset by estimated
losses related to COVID-19 claims.
Expense ratio of 26.2% was 2.8 points higher than first quarter
2019 due to increased IT and operating expenses as well as a
reduction in state taxes and assessments in first quarter 2019.
Hartford Funds
Three Months Ended
($ in millions, unless otherwise
noted)
Mar 31 2020
Mar 31 2019
Change
Net income
$36
$30
20%
Core earnings
$44
$28
57%
Daily average Hartford Funds
AUM
$119,632
$112,210
7%
Mutual Funds and exchange-traded
products (ETP) net flows
$(1,424)
$874
NM
Total Hartford Funds assets under
management (AUM)
$102,153
$117,589
(13)%
Net income of $36 million and core earnings of $44 million were
up $6 million and $16 million, respectively, compared with first
quarter 2019, primarily due to higher investment management fee
revenue and a reduction in contingent consideration payable related
to the 2016 Lattice acquisition, with the increase in net income
partly offset by a change from net realized capital gains in 2019
to net realized capital losses in 2020.
Despite the decline in equity markets in the latter half of the
first quarter, average daily AUM of $120 billion in first quarter
2020, was up 7% from first quarter 2019.
Total AUM of $102 billion decreased 13% from March 31, 2019,
driven primarily by market depreciation and, to a lesser extent,
net outflows.
Mutual fund and ETP net outflows totaled $1.4 billion in first
quarter 2020, compared with net inflows of $874 million in first
quarter 2019 primarily due to the decline in markets driven by the
economic effects of COVID-19 pandemic.
Corporate
Three Months Ended
($ in millions, unless otherwise
noted)
Mar 31 2020
Mar 31 2019
Change
Net income (loss)
$(91)
$—
NM
Core loss
$(64)
$(15)
NM
Net investment income, before
tax
$9
$24
(63)%
Interest and preferred dividend
expense, before tax
$69
$69
—%
Net loss of $91 million in first quarter 2020 compared with no
net income or loss in first quarter 2019, primarily due to a change
from net realized capital gains in 2019 to net realized capital
losses in 2020, lower net investment income, and a change from
earnings of $28 million, before tax, in 2019 to a loss of $4
million, before tax, in 2020 on the Company's retained equity
interest in Talcott Resolution.
First quarter 2020 core losses of $64 million increased $49
million compared with first quarter 2019 mostly due to lower net
investment income and the reduction in earnings from the Company's
retained equity interest in Talcott Resolution.
INVESTMENT INCOME AND PORTFOLIO DATA:
Three Months Ended
($ in millions, unless otherwise
noted)
Mar 31 2020
Mar 31 2019
Change
Net investment income, before
tax
$459
$470
(2)%
Annualized investment yield, before
tax
3.7%
4.1%
(0.4)
Annualized investment yield, before
tax, excluding LPs*
3.3%
3.7%
(0.4)
Annualized LP yield, before tax
13.2%
13.4%
(0.2)
Annualized investment yield, after
tax
3.0%
3.4%
(0.4)
First quarter 2020 consolidated net investment income declined
2% to $459 million, before tax, due to valuation declines on equity
fund investments that mark-to-market through net investment income,
a lower yield on fixed maturity investments resulting from
reinvesting at lower rates and a lower yield on variable rate
investments, partially offset by higher asset levels from
Navigators. Income from LPs was $58 million, before tax, in first
quarter 2020, up 4% from $56 million, before tax, in first quarter
2019 due to higher valuations of private equity funds.
Total invested assets declined 5% from December 31 2019, due to
a decrease in the valuation of fixed maturities driven by the
widening of credit spreads, a decline in short-term investments due
to the pay down of $500 million in debt, and mark-to-market losses
on equity securities from a decline in equity market levels.
During the quarter, the Company recorded net impairments of $17
million, pre-tax, consisting of $12 million that were credit
related primarily to a single issuer in the cruise line industry,
and $5 million of intent to sell impairments mostly related to an
energy sector issuer and one emerging market issuer.
Near the end of the first quarter, we began reinvesting interest
receipts and proceeds of maturing fixed maturities into short-term
instruments to enhance liquidity.
CONFERENCE CALL
The Hartford will discuss its first quarter 2020 financial
results on a webcast at 9 a.m. EDT on Thursday, Apr. 30, 2020. 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 March 31, 2020, and
the First Quarter 2020 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 2019 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 March 31,
2020
($ in millions)
Commercial Lines
Personal Lines
P&C Other Ops
Group Benefits
Hartford Funds
Corporate
Consolidated
Earned premiums
$
2,265
$
774
$
—
$
1,348
$
—
$
4
$
4,391
Fee income
8
9
—
43
247
13
320
Net investment income
277
41
16
115
1
9
459
Other revenues
—
19
—
—
—
(2
)
17
Net realized capital losses
(143
)
(23
)
(7
)
(8
)
(11
)
(39
)
(231
)
Total revenues
2,407
820
9
1,498
237
(15
)
4,956
Benefits, losses, and loss adjustment
expenses
1,439
464
—
1,007
—
6
2,916
Amortization of DAC
356
64
—
13
4
—
437
Insurance operating costs and other
expenses
456
168
3
339
189
21
1,176
Interest expense
—
—
—
—
—
64
64
Amortization of other intangible
assets
7
1
—
11
—
—
19
Total benefits, losses and
expenses
2,258
697
3
1,370
193
91
4,612
Income (loss) before income
taxes
149
123
6
128
44
(106
)
344
Income tax expense (benefit)
28
25
1
24
8
(15
)
71
Net income (loss)
121
98
5
104
36
(91
)
273
Preferred stock dividends
—
—
—
—
—
5
5
Net income (loss) available to common
stockholders
121
98
5
104
36
(96
)
268
Adjustments to reconcile net income
(loss) available to common stockholders to core earnings
(losses)
Net realized capital losses, excluded from
core earnings, before tax
143
23
7
8
11
40
232
Change in deferred gain on retroactive
reinsurance, before tax
29
—
—
—
—
—
29
Integration and transaction costs
associated with an acquired business, before tax
8
—
—
5
—
—
13
Income tax benefit
(39
)
(4
)
(1
)
(2
)
(3
)
(8
)
(57
)
Core earnings (losses)
$
262
$
117
$
11
$
115
$
44
$
(64
)
$
485
THE HARTFORD FINANCIAL
SERVICES GROUP, INC.
CONSOLIDATING INCOME
STATEMENTS
Three Months Ended March 31,
2019
($ in millions)
Commercial Lines
Personal Lines
P&C Other Ops
Group Benefits
Hartford Funds
Corporate
Consolidated
Earned premiums
$
1,777
$
799
$
—
$
1,364
$
—
$
—
$
3,940
Fee income
9
9
—
45
238
13
314
Net investment income
259
42
22
121
2
24
470
Other revenues
—
19
—
—
—
34
53
Net realized capital gains
115
19
9
5
2
13
163
Total revenues
2,160
888
31
1,535
242
84
4,940
Benefits, losses, and loss adjustment
expenses
1,097
533
—
1,053
—
2
2,685
Amortization of DAC
274
65
—
13
3
—
355
Insurance operating costs and other
expenses
345
170
3
315
202
13
1,048
Interest expense
—
—
—
—
—
64
64
Amortization of other intangible
assets
2
1
—
10
—
—
13
Total benefits, losses and
expenses
1,718
769
3
1,391
205
79
4,165
Income before income taxes
442
119
28
144
37
5
775
Income tax expense
79
23
5
26
7
5
145
Net income
363
96
23
118
30
—
630
Preferred stock dividends
—
—
—
—
—
5
5
Net income (loss) available to
common stockholders
363
96
23
118
30
(5
)
625
Adjustments to reconcile net income
(loss) available to common stockholders to core earnings
(losses)
Net realized capital gains, excluded from
core earnings, before tax
(113
)
(18
)
(9
)
(5
)
(2
)
(13
)
(160
)
Integration and transaction costs, before
tax
1
—
—
9
—
—
10
Income tax expense
23
4
2
—
—
3
32
Core earnings (losses)
$
274
$
82
$
16
$
122
$
28
$
(15
)
$
507
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 first quarter 2020,
which is available on The Hartford's website, https://ir.thehartford.com.
Annualized investment yield, excluding
limited partnerships and other alternative investments -
This non-GAAP measure is calculated as (a) the annualized net
investment income, on a Consolidated, P&C or Group Benefits
level, excluding limited partnerships and other alternative
investments, divided by (b) the 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.
Annualized investment yield is the most directly comparable GAAP
measure.
Three Months Ended
Mar 31 2020
Mar 31 2019
Mar 31 2020
Mar 31 2019
Mar 31 2020
Mar 31 2019
Consolidated
P&C
Group Benefits
Annualized investment yield, before
tax
3.7
%
4.1
%
3.6
%
4.2
%
4.0
%
4.2
%
Impact on annualized investment yield of
limited partnerships and other alternative investments, before
tax
(0.4
)%
(0.4
)%
(0.4
)%
(0.4
)%
(0.3
)%
(0.3
)%
Annualized investment yield excluding
limited partnerships and other alternative investments, before
tax
3.3
%
3.7
%
3.2
%
3.8
%
3.7
%
3.9
%
Book value per diluted share (excluding
AOCI) - This is a non-GAAP per share measure that 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 that excluding AOCI from the
numerator 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.
As of
Mar 31 2020
Dec 31 2019
Change
Book value per diluted share
$41.42
$43.85
(6%)
Per diluted share impact of AOCI
$2.65
$(0.14)
NM
Book value per diluted share (excluding
AOCI)
$44.07
$43.71
1%
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
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 items.
Therefore, the following items are excluded from core earnings:
- Certain realized capital gains and losses - 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 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.
- Integration and transaction costs in connection with an
acquired business - As transaction costs are incurred upon
acquisition of a business and integration costs are completed
within a short period after an acquisition, they do not represent
ongoing costs of the business.
- Loss on extinguishment of debt - Largely consisting of
make-whole payments or tender premiums upon paying debt off before
maturity, these losses are not a recurring operating expense of the
business.
- Gains and losses on reinsurance transactions - Gains or losses
on reinsurance, such as those entered into upon sale of a business
or to reinsure loss reserves, are not a recurring operating expense
of the business.
- Change in loss reserves upon acquisition of a business - These
changes in loss reserves 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.
- Change in valuation allowance on deferred taxes related to
non-core components of pre-tax income - These changes in valuation
allowances are excluded from core earnings because they relate to
non-core components of pre-tax income, such as tax attributes like
capital loss carryforwards.
- Results of discontinued operations - These results are excluded
from core earnings for businesses sold or held for sale because
such results could obscure the ability to compare period over
period results for our ongoing businesses.
- Deferred gain resulting from retroactive reinsurance and
subsequent changes in the deferred gain - Retroactive reinsurance
agreements economically transfer risk to the reinsurers and
including the full benefit from retroactive reinsurance in core
earnings provides greater insight into the economics of the
business.
In addition to the above components of net income available to
common stockholders that are excluded from core earnings, preferred
stock dividends declared, which are excluded from net income
available to common stockholders, are included in the determination
of core earnings. Preferred stock dividends 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.
Net income (loss) and net income (loss) available to common
stockholders are the most directly comparable U.S. GAAP measures to
core earnings. Core earnings should not be considered as a
substitute for net income (loss) or net income (loss) 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, and core earnings when
reviewing the Company’s performance.
A reconciliation of net income (loss) to core earnings for the
quarterly periods ended March 31, 2020 and 2019, 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 March 31,
2020.
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, calculated by
dividing net income by revenues, 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) as
well as other items excluded in the calculation of core earnings.
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
March 31, 2020 and 2019, is set forth below.
Three Months Ended
Margin
Mar 31 2020
Mar 31 2019
Change
Net income margin
6.9%
7.7%
(0.8)
Adjustments to reconcile net income
margin to core earnings margin
Net realized capital losses (gains)
excluded from core earnings, before tax
0.6%
(0.3)%
0.9
Integration and transaction costs
associated with acquired business, before tax
0.3%
0.6%
(0.3)
Income tax benefit
(0.1)%
—%
(0.1)
Impact of excluding buyouts from
denominator of core earnings margin
0.1%
—%
0.1
Core earnings margin
7.8%
8.0%
(0.2)
Core earnings per diluted
share - This non-GAAP per share measure is calculated
using the non-GAAP financial measure core earnings rather than the
GAAP measure net income. The Company believes that 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 is 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 and does
not reflect the overall profitability of the Company's business.
Therefore, the Company believes that it is useful for investors to
evaluate net income (loss) 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
March 31, 2020 and 2019 is provided in the table below.
Three Months Ended
Mar 31 2020
Mar 31 2019
Change
PER SHARE DATA
Diluted earnings per common share:
Net income available to common
stockholders per share1
$0.74
$1.71
(57)%
Adjustment made to reconcile net income
available to common stockholders per share to core earnings per
share
Net realized capital losses (gains),
excluded from core earnings, before tax
0.64
(0.44)
NM
Integration and transaction costs
associated with an acquired business, before tax
0.04
0.03
33%
Change in deferred gain on retroactive
reinsurance, before tax
0.08
—
NM
Income tax expense (benefit) on items
excluded from core earnings
(0.16)
0.09
NM
Core earnings per share
$1.34
$1.39
(4)%
[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). Core earnings ROE is
calculated based on non-GAAP financial measures. Core earnings ROE
is calculated by dividing (a) the non-GAAP measure core earnings
for the prior four fiscal quarters by (b) the non-GAAP measure
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 measure for the reasons set forth
in the core earnings definition.
A reconciliation of consolidated net income (loss) ROE to
Consolidated Core earnings ROE is set forth below.
Last Twelve Months
Ended
Mar 31 2020
Mar 31 2019
Net income (loss) available to common
stockholders ROE
11.8%
13.5%
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
—
(0.5)
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
—
Change in deferred gain on retroactive
reinsurance, before tax
0.3
—
Income tax expense (benefit) on items not
included in core earnings
(0.6)
(0.3)
Loss (income) from discontinued
operations, after tax
—
(1.1)
Impact of AOCI, excluded from core
earnings ROE
(0.7)
(0.4)
Core earnings ROE
13.3%
11.5%
Net investment income, excluding
limited partnerships and other alternative investments
-This non-GAAP measure is the amount of net investment income, on a
Consolidated, P&C or Group Benefits level earned from 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
Mar 31 2020
Mar 31 2019
Mar 31 2020
Mar 31 2019
Mar 31 2020
Mar 31 2019
Consolidated
P&C
Group Benefits
Total net investment income
$459
$470
$334
$323
$115
$121
Income from limited partnerships and other
alternative assets
(58
)
(56
)
(48
)
(46
)
(10
)
(10
)
Net investment income excluding limited
partnerships and other alternative investments
$401
$414
$286
$277
$105
$111
Underlying combined ratio-
This non-GAAP financial measure of underwriting results 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 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 and 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 non-GAAP
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 March 31, 2020 and 2019, is set
forth below.
Underlying underwriting gain
(loss) - This non-GAAP measure of underwriting
profitability 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 March
31, 2020 and 2019, is set forth below:
COMMERCIAL LINES
Three Months Ended
Mar 31 2020
Mar 31 2019
Net income
$
121
$
363
Adjustments to reconcile net income to
underwriting gain
Net servicing loss (income)
(1
)
1
Net investment income
(277
)
(259
)
Net realized capital gains
143
(115
)
Other expense (income)
6
1
Income tax expense
28
79
Underwriting gain
20
70
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
55
70
Prior accident year development
41
(10
)
Underlying underwriting gain
$
116
$
130
PERSONAL LINES
Three Months Ended
Mar 31 2020
Mar 31 2019
Net income
$
98
$
96
Adjustments to reconcile net income to
underwriting gain
Net servicing income
(2
)
(3
)
Net investment income
(41
)
(42
)
Net realized capital losses (gains)
23
(19
)
Other expense
—
(1
)
Income tax expense (benefit)
25
23
Underwriting gain
103
54
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
19
34
Prior accident year development
(18
)
(1
)
Underlying underwriting gain
$
104
$
87
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 2019 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 the Pandemic Caused by
the Spread of the Novel Strain of Coronavirus, specifically
identified as the Coronavirus Disease 2019 (“COVID-19”): impacts of
COVID-19 including on the Company's insurance and product related,
regulatory/legal, recessionary and other global economic, capital
and liquidity and operational risks;
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 foreign currency exchange rates; 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 discontinuance 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/20200429005878/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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