- Second quarter 2020 net income available to common stockholders
of $463 million ($1.29 per diluted share) increased 24% from second
quarter 2019, and core earnings* of $438 million (core earnings per
diluted share* of $1.22) declined 10% from second quarter 2019
- Net income ROE for the trailing 12-month period ended June 30,
2020, was 11.3% and core earnings ROE* for the same period was
12.7%
- In the second quarter, The Hartford incurred $248 million,
before tax, in current accident year (CAY) catastrophes (CATs),
including $110 million, before tax, related to the civil
unrest
- Incurred losses from COVID-19 were $251 million, before tax, or
$198 million, after tax
- Second quarter results included net favorable Property &
Casualty (P&C) reserve development of $268 million, before tax,
or $212 million, after tax, mostly due to $400 million, before tax,
favorable prior year catastrophes, including the subrogation
recoverable from PG&E Corporation
- Launched an operational transformation and expense savings
initiative called Hartford Next, with $500 million annual expense
savings, before tax, expected in 2022
*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 (NYSE: HIG) today announced financial results for
the second quarter ended June 30, 2020.
"Although the second quarter was dominated by the challenges of
the COVID-19 health crisis, the economic shutdown and the
disruption of our everyday lives, the strength of our underlying
business was evident and we delivered core earnings of $438 million
or $1.22 per diluted share, and a 12-month core earnings ROE of
12.7 percent," said The Hartford's Chairman and CEO Christopher
Swift.
The Hartford's President, Doug Elliot, said, "The second quarter
has certainly presented some extraordinary challenges. COVID-19 has
touched nearly all aspects of our business and has significantly
impacted each of our stakeholders. I am proud of the actions we've
taken to soften the impact for our customers affected by the crisis
while we continue to pay claims and remain disciplined in our
underwriting. Pricing remained strong in the quarter. Non-workers'
compensation standard commercial rate increases were 7.8 percent
and U.S. wholesale specialty commercial lines rate increases were
24 percent. Notwithstanding the economic uncertainty, our
underlying foundation is solid and we will continue to advance our
profitability and underwriting objectives."
Swift added, "At The Hartford, we are effectively navigating
through these unprecedented challenges by remaining focused on
supporting customers, responding to distribution partners and
safeguarding the health of our employees. While uncertainty
surrounds the nation's economic recovery over the coming quarters,
our strong risk management, underwriting capabilities and financial
resources position us to continue to achieve our strategic
goals."
CONSOLIDATED RESULTS:
Three Months Ended
($ in millions except per share
data)
Jun 30 2020
Jun 30 2019
Change1
Net income available to common
stockholders
$463
$372
24%
Net income available to common
stockholders per diluted share2
$1.29
$1.02
26%
Core earnings
$438
$485
(10)%
Core earnings per diluted share
$1.22
$1.33
(8)%
Book value per diluted share
$46.59
$41.00
14%
Book value per diluted share (ex.
AOCI)*
$45.25
$41.55
9%
Net income (loss) available to common
stockholders' return on equity (ROE)3, last 12-months
11.3%
11.8%
(0.5)
Core earnings ROE3, last 12-months
12.7%
11.7%
1.0
[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 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
Second quarter 2020 net income available to common stockholders
was $463 million, or $1.29 per diluted share, up 24% from second
quarter 2019. The increase was principally attributable to an
increase in net favorable P&C prior accident year reserve
development (PYD) of $239 million, after tax, the effect of lower
claim incidence on non-COVID-19 group disability claims, lower
inland marine and home CAY loss costs, higher income from the
company's retained equity interest in the former life and annuity
operations of $51 million, after tax, Navigators adverse
development cover premium paid of $72 million, after tax, in second
quarter 2019, and an increase in net realized capital gains in
second quarter 2020. This was partially offset by COVID-19 incurred
losses of $198 million, after tax, in second quarter 2020, and an
increase in CAY CATs of $87 million, after tax, driven by civil
unrest, and lower net investment income.
Core earnings of $438 million, or $1.22 per diluted share,
declined 10% from second quarter 2019, primarily due to incurred
benefits and losses related to COVID-19, an increase in CAY CATs
driven by civil unrest, and lower investment income, partially
offset by net favorable P&C PYD and the effect of lower claim
incidence.
- P&C underwriting results increased $86 million, before tax,
from second quarter 2019 as a change to net favorable PYD,
primarily driven by the subrogation recoverable from PG&E, and
lower CAY loss costs in marine and homeowners were partially offset
by COVID-19 incurred losses of $213 million, before tax, higher CAY
CAT losses primarily related to civil unrest in May and June, and
higher non-COVID-19 non-CAT property loss costs in Small
Commercial. Underwriting expenses in P&C were down modestly as
lower travel, incentive compensation, and other operating costs
were largely offset by an increase in the allowance for credit
losses on premium receivable and the inclusion of Navigators for a
full three months
- COVID-19 incurred losses in P&C included $141 million,
before tax, for property claims and accruals for legal defense
costs, $35 million, before tax, for workers' compensation claims,
net of favorable frequency, and $37 million, before tax, primarily
in financial lines and other
- In Group Benefits, the company recognized strong claim
recoveries on prior incurral years and lower claim incidence in
group disability, which more than offset COVID-19 incurred benefits
and losses of $38 million, before tax
- Net investment income of $339 million, before tax, compared to
$488 million, before tax, in second quarter 2019, primarily due to
a change to losses on limited partnerships and other alternative
investments in second quarter 2020
June 30, 2020 book value per diluted share of $46.59 rose 6%
from $43.85 at Dec. 31, 2019, principally due to an increase in
AOCI, driven by lower interest rates, partially offset by slightly
higher credit spreads, as well as net income in excess of common
stockholder dividends.
Book value per diluted share (excluding AOCI) of $45.25 as of
June 30, 2020, increased 4% from $43.71 at Dec. 31, 2019, primarily
due to net income in excess of common stockholder dividends and
first quarter 2020 share repurchases.
The net income available to common stockholder ROE (net income
ROE) at June 30, 2020 was 11.3% compared to net income ROE of 11.8%
for the twelve months ended June 30, 2019. The core earnings ROE at
June 30, 2020 was 12.7% compared to 11.7% in the same period of
2019.
BUSINESS RESULTS: Commercial Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Jun 30 2020
Jun 30 2019
Change
Net income (loss)
$(66)
$191
NM
Core earnings (loss)
$(57)
$304
NM
Written premiums
$2,165
$2,078
4%
Underwriting loss*
$(332)
$(5)
NM
Underlying underwriting gain
(loss)*
$(62)
$136
NM
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
68.2
59.3
8.9
Current accident year catastrophes
8.9
4.5
4.4
Prior accident year development (PYD)
3.6
1.1
2.5
Expenses
34.3
35.0
(0.7)
Policyholder dividends
0.3
0.3
—
Combined ratio
115.4
100.3
15.1
Impact of catastrophes and PYD on combined
ratio
(12.5)
(5.6)
(6.9)
Current accident year change in loss
reserves upon acquisition of a business
0
(1.5)
1.5
Underlying combined ratio*
102.9
93.2
9.7
Second quarter 2020 net loss of $66 million compared to net
income of $191 million in second quarter 2019 principally due to
COVID-19 incurred losses and higher CAY CATs driven primarily by
losses from civil unrest in late May and June. Also contributing to
the change was an increase in net unfavorable PYD and lower net
investment income driven by losses on limited partnerships and
other alternative investments in second quarter 2020 as well as
higher non-COVID-19 non-CAT property loss costs in Small
Commercial, partially offset by lower CAY marine losses due to a
higher number of large inland marine losses in the prior year, and
the effect of $72 million, after tax, of ceded premium paid in
second quarter 2019 for the Navigators adverse development
cover.
Second quarter 2020 core losses of $57 million compared to core
earnings of $304 million in second quarter 2019 with the decline
due to:
- Underlying underwriting loss of $62 million, compared to a gain
of $136 million in second quarter 2019, primarily due to incurred
losses from COVID-19 within property, workers' compensation and
financial lines. Underlying underwriting gain (loss) does not
include the charge to earnings from the change in deferred gain on
retroactive reinsurance of $54 million, before tax, in second
quarter 2020 or the increase in Navigators reserves upon
acquisition of the business of $97 million, before tax, in second
quarter 2019
- Higher CAY CATs versus the prior year of $103 million, before
tax, principally due to losses from civil unrest in late May and
June
- An increase in net unfavorable reserve development of $55
million, before tax, driven by a $102 million, before tax, increase
in reserves for sexual molestation and abuse claims, partially
offset by a higher amount of favorable CAT reserve development
COVID-19 incurred losses of $213 million, before tax, included a
net $35 million, before tax, for workers' compensation. Direct
COVID-19 workers' compensation losses of $75 million, before tax,
included reserves for claims in states that presume health care and
other essential workers contracted their COVID-19 illness while on
the job and were partially offset by favorable frequency on other
workers' compensation claims.
Other COVID-19 incurred losses for the quarter included $141
million, before tax, for property and $37 million primarily for
financial lines. Reserves for business interruption property claims
pertain to those policies in Middle and Large Commercial and in
Global Specialty that arise from a small number of property
policies that do not require direct physical loss or damage and
from policies intended to cover specific business needs, including
crisis management and performance disruption. COVID-19 property
losses also include reserves for estimated legal costs of $40
million.
Second quarter 2020 written premiums of $2.2 billion increased
4% over second quarter 2019, driven by the acquisition of
Navigators Group.
- Excluding Navigators, second quarter 2020 written premium
declined 11% due to lower new business across most lines, lower
premium retention in middle market, reduction in estimated audit
premiums receivable, and endorsements reducing premium in workers'
compensation due to a declining exposure base
- Second quarter 2019 included $28 million of new business from
the 2018 Foremost renewal rights agreement. Excluding the new
business from this agreement, Small Commercial new business was
down 24% in second quarter 2020
Combined ratio was 115.4 in second quarter 2020, 15.1 points
higher than 100.3 in second quarter 2019. Underlying combined ratio
of 102.9 increased 9.7 points from second quarter 2019 primarily
due to incurred losses related to COVID-19. Underwriting expenses
were down slightly year-over-year as a reduction in operating
expenses, including travel and incentive compensation, was largely
offset by an increase in credit losses on premiums receivable and
the inclusion of Navigators for a full three months.
Personal Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Jun 30 2020
Jun 30 2019
Change
Net income
$371
$62
NM
Core earnings
$364
$55
NM
Written premiums
$738
$824
(10)%
Underwriting gain
$428
$20
NM
Underlying underwriting gain
$134
$72
86%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
51.3
64.5
(13.2)
Current accident year catastrophes
7.9
6.0
1.9
Prior accident year development (PYD)
(50.3)
0.5
(50.8)
Expenses
29.4
26.5
2.9
Combined ratio
38.3
97.5
(59.2)
Impact of catastrophes and PYD on combined
ratio
42.4
(6.5)
48.9
Underlying combined ratio
80.7
91.0
(10.3)
Net income of $371 million in second quarter 2020 was $309
million higher than second quarter 2019, primarily due to favorable
PYD related to subrogation recoveries and lower CAY losses in auto
resulting from a reduction in claim frequency associated with
shelter-in-place guidelines, partially offset by a reduction in
earned premium, including the effect of premium credits to auto
policyholders, as well as lower net investment income driven
primarily by losses on limited partnerships and alternative
investments in second quarter 2020.
Core earnings of $364 million in second quarter 2020 were $309
million higher than $55 million in second quarter 2019:
- Underlying underwriting gain increased $62 million, before tax,
due to favorable auto frequency that was driven by shelter-in-place
guidelines reducing miles driven and, to a lesser extent, lower
homeowners non-CAT loss costs driven by milder weather, partially
offset by the effects of a decline in earned premium, including $81
million, before tax, of premium credits given to auto policyholders
in second quarter 2020
- CAY CATs increased slightly on wind and hail events
- PYD was a net favorable $349 million, before tax, in second
quarter 2020, driven by lower estimated losses on the 2017 and 2018
California wildfires, including a $260 million, before tax,
subrogation benefit from PG&E
- Net investment income of $28 million, before tax, declined 39%
compared to $46 million, before tax, in second quarter 2019, mostly
due to losses on limited partnerships and other alternative
investments in second quarter 2020
Written premiums of $738 million were down 10% from second
quarter 2019, with reductions in both auto and homeowners. For
auto, written premium in second quarter 2020 included a reduction
for $81 million of premium credits, largely offset by the effect of
a suspension of policy cancellations in second quarter 2020 due to
extending the time policyholders have to pay their premium. Apart
from these effects, written premium for both auto and homeowners
declined despite an increase in new business for auto as the amount
of non-renewed premium exceeded the new business premium. New
business premium of $83 million increased 5% reflecting growth in
auto of 10% while homeowners' new business was down 10%.
Combined ratio was 38.3 in second quarter 2020, 59.2 points
better than second quarter 2019. Underlying combined ratio of 80.7
was 10.3 points better than second quarter 2019 principally due to
lower auto claim frequency, driven by both the economic effects of
COVID-19 on auto and lower non-CAT property weather losses in
homeowners, partially offset by a higher expense ratio, primarily
due to the reduction in earned premium from the second quarter 2020
premium credits.
Group Benefits
Three Months Ended
($ in millions, unless otherwise
noted)
Jun 30 2020
Jun 30 2019
Change
Net income
$101
$113
(11)%
Core earnings
$102
$115
(11)%
Fully insured ongoing premiums (ex.
buyout premiums)
$1,349
$1,373
(2)%
Loss ratio
72.0%
74.6%
(2.6)
Expense ratio
25.6%
23.9%
1.7
Net income margin
6.7%
7.3%
(0.6)
Core earnings margin*
6.9%
7.5%
(0.6)
Net income and core earnings of $101 million and $102 million,
respectively, reflect continued strong disability results due to
claim recoveries and favorable incidence but decreased 11% from
second quarter 2019 due to COVID-19 benefits and incurred losses,
lower net investment income, and higher operating expenses related
to an increase in the allowance for credit losses on premium
receivable.
Fully insured ongoing premiums were down 2%, compared to second
quarter 2019, due to lower insured exposure on in-force policies in
group disability and group life, partially offset by higher
voluntary product premiums.
Loss ratio of 72.0% improved 2.6 points from second quarter 2019
due to a lower group disability loss ratio partially offset by
incurred COVID-19 group life claims:
- Total disability loss ratio improved 10.3 points to 62.6% due
to higher claim recoveries on prior incurral years and lower claim
incidence
- Total group life loss ratio increased 8.1 points, primarily due
to COVID-19 claims
COVID-19 incurred benefits and losses in second quarter 2020
included $43 million, before tax, of group life claims, partially
offset by a $5 million reduction in short-term disability and New
York Paid Family Leave claims from first quarter 2020.
Expense ratio of 25.6% was 1.7 points higher than second quarter
2019, primarily due to an increase in the allowance for credit
losses on premium receivable.
Hartford Funds
Three Months Ended
($ in millions, unless otherwise
noted)
Jun 30 2020
Jun 30 2019
Change
Net income
$39
$38
3%
Core earnings
$33
$38
(13)%
Daily average Hartford Funds
AUM
$110,864
$117,875
(6)%
Mutual Funds and exchange-traded
products (ETP) net flows
$(675)
$(105)
NM
Total Hartford Funds assets under
management (AUM)
$117,844
$121,301
(3)%
Net income of $39 million was up $1 million compared with second
quarter 2019, primarily due to an increase in net realized capital
gains due to mark-to-market gains on company assets invested in
some of the funds and lower operating costs and other expenses,
largely offset by a decrease in fee income. Core earnings were down
$5 million, or 13%, due to a decrease in fee income primarily
driven by lower average daily AUM, partially offset by lower
variable operating expenses.
Average daily AUM of $111 billion in second quarter 2020, was
down 6% from second quarter 2019 driven by a decline in equity
markets earlier in 2020 at the onset of the COVID-19 pandemic.
Total AUM of $118 billion decreased 3% from June 30, 2019,
driven primarily by market depreciation and net outflows.
Mutual fund and ETP net outflows totaled $675 million in second
quarter 2020, compared with net outflows of $105 million in second
quarter 2019 primarily due to the decline in markets driven by the
economic effects of COVID-19 pandemic.
Corporate
Three Months Ended
($ in millions, unless otherwise
noted)
Jun 30 2020
Jun 30 2019
Change
Net income (loss)
$18
$(43)
142%
Core loss
$(6)
$(35)
83%
Net investment income, before
tax
$4
$17
(76)%
Interest and preferred dividend
expense, before tax
$62
$63
(2)%
Net income of $18 million in second quarter 2020 compared with a
net loss of $43 million in second quarter 2019, primarily due to
higher income from the company's retained equity interest in
Talcott Resolution, the former life and annuity operations, and an
increase in net realized capital gains, partially offset by a
decrease in net investment income.
Second quarter 2020 core losses of $6 million decreased $29
million compared with second quarter 2019 mostly due to higher
income from the company's retained equity interest in Talcott
Resolution, partially offset by a decrease in net investment
income.
On July 30, 2020, the company launched Hartford Next, an
operational transformation and expense reduction plan that will
contribute to The Hartford's goal of reducing the 2022 P&C
expense ratio by about 2.0 to 2.5 points and reducing the 2022
Group Benefits expense ratio by about 1.5 to 2.0 points. Through
headcount reductions, IT investments, and other activities, annual
expense savings of $500 million are expected by 2022. In order to
achieve the savings, The Hartford plans to spend $320 million from
now through 2022 and $40 million thereafter, with approximately
$120 million over the remaining two quarters of 2020.
INVESTMENT INCOME AND PORTFOLIO DATA:
Three Months Ended
($ in millions, unless otherwise
noted)
Jun 30 2020
Jun 30 2019
Change
Net investment income, before
tax
$339
$488
(31)%
Annualized investment yield, before
tax
2.7%
4.2%
(1.5)
Annualized investment yield, before
tax, excluding LPs*
3.4%
3.8%
(0.4)
Annualized LP yield, before tax
(15.3)%
13.9%
(29.2)
Annualized investment yield, after
tax
2.2%
3.4%
(1.2)
Second quarter 2020 consolidated net investment income declined
31% to $339 million, before tax, due to losses on limited
partnerships and other alternative investments (LPs) in second
quarter 2020, driven by lower valuations of the underlying fund
investments. Also contributing to the decrease was a lower yield on
fixed income maturity investments resulting from reinvesting at
lower rates and a lower yield on floating rate investments,
partially offset by a higher level of invested assets, primarily
due to the acquisition of Navigators Group. Losses from LPs were
$71 million, before tax, in second quarter 2020, compared with
income of $60 million, before tax, in second quarter 2019. Income
(loss) from LPs is generally reported on a three-month lag as
private equity investments and other funds are generally reported
on a quarter delay.
Total invested assets of $53 billion were flat from Dec. 31,
2019, as the payment of $500 million of senior notes and the return
of collateral related to the decline in the company's securities
lending program was offset by increased valuations driven by a
decline in interest rates.
During the quarter, the company recorded an increase in the
allowance for credit losses of $20 million on fixed maturities,
primarily from a private placement investment in an aircraft
lessor, and $22 million on commercial mortgage loans, primarily a
result of giving increased weight to recession scenarios in
response to the COVID-19 pandemic, as well as due to lower
estimated property values and operating income.
CONFERENCE CALL
The Hartford will discuss its second quarter 2020 financial
results on a webcast at 9 a.m. EDT on Friday, July 31, 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 June 30, 2020, and the
Second 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
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 June 30,
2020
($ in millions)
Commercial Lines
Personal Lines
P&C Other Ops
Group Benefits
Hartford Funds
Corporate
Consolidated
Earned premiums
$
2,157
$
694
$
—
$
1,378
$
—
$
5
$
4,234
Fee income
5
9
—
45
227
12
298
Net investment income
204
28
10
92
1
4
339
Other revenues
(1
)
21
—
—
—
68
88
Net realized capital gains
64
8
2
3
8
24
109
Total revenues
2,429
760
12
1,518
236
113
5,068
Benefits, losses, and loss adjustment
expenses
1,742
62
4
1,033
—
6
2,847
Amortization of DAC
351
61
—
13
3
1
429
Insurance operating costs and other
expenses
404
167
3
340
183
28
1,125
Interest expense
—
—
—
—
—
57
57
Amortization of other intangible
assets
7
2
—
9
—
—
18
Total benefits, losses and
expenses
2,504
292
7
1,395
186
92
4,476
Income (loss) before income
taxes
(75
)
468
5
123
50
21
592
Income tax expense (benefit)
(9
)
97
—
22
11
3
124
Net income (loss)
(66
)
371
5
101
39
18
468
Preferred stock dividends
—
—
—
—
—
5
5
Net income (loss) available to common
stockholders
(66
)
371
5
101
39
13
463
Adjustments to reconcile net income
(loss) available to common stockholders to core earnings
(losses)
Net realized capital gains, excluded from
core earnings, before tax
(61
)
(8
)
(2
)
(2
)
(8
)
(26
)
(107
)
Change in deferred gain on retroactive
reinsurance, before tax
54
—
—
—
—
—
54
Integration and transaction costs
associated with an acquired business, before tax
8
—
—
5
—
—
13
Income tax expense (benefit)
8
1
(1
)
(2
)
2
7
15
Core earnings (losses)
$
(57
)
$
364
$
2
$
102
$
33
$
(6
)
$
438
THE HARTFORD FINANCIAL
SERVICES GROUP, INC.
CONSOLIDATING INCOME
STATEMENTS
Three Months Ended June 30,
2019
($ in millions)
Commercial Lines
Personal Lines
P&C Other Ops
Group Benefits
Hartford Funds
Corporate
Consolidated
Earned premiums
$
1,987
$
801
$
—
$
1,377
$
—
$
1
$
4,166
Fee income
9
10
—
45
251
11
326
Net investment income
281
46
21
121
2
17
488
Other revenues
—
23
—
—
—
9
32
Net realized capital gains
54
8
4
7
—
7
80
Total revenues
2,331
888
25
1,550
253
45
5,092
Benefits, losses, and loss adjustment
expenses
1,291
569
9
1,062
—
3
2,934
Amortization of DAC
310
65
—
14
3
—
392
Insurance operating costs and other
expenses
402
176
3
324
203
33
1,141
Loss on reinsurance transaction
91
—
—
—
—
—
91
Interest expense
—
—
—
—
—
63
63
Amortization of other intangible
assets
2
2
—
11
—
—
15
Total benefits, losses and
expenses
2,096
812
12
1,411
206
99
4,636
Income (loss) before income
taxes
235
76
13
139
47
(54
)
456
Income tax expense (benefit)
44
14
2
26
9
(11
)
84
Net income (loss)
191
62
11
113
38
(43
)
372
Preferred stock dividends
—
—
—
—
—
—
—
Net income (loss) available to common
stockholders
191
62
11
113
38
(43
)
372
Adjustments to reconcile net income
(loss) available to common stockholders to core earnings
(losses)
Net realized capital gains (losses),
excluded from core earnings, before tax
(54
)
(8
)
(3
)
(6
)
—
(8
)
(79
)
Loss on reinsurance transaction, before
tax
91
—
—
—
—
—
91
Integration and transaction costs, before
tax
6
—
—
10
—
15
31
Change in loss reserves upon acquisition
of a business, before tax
97
—
—
—
—
—
97
Income tax expense (benefit)
(27
)
1
—
(2
)
—
1
(27
)
Core earnings (losses)
$
304
$
55
$
8
$
115
$
38
$
(35
)
$
485
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 second 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
Jun 30 2020
Jun 30 2019
Jun 30 2020
Jun 30 2019
Jun 30 2020
Jun 30 2019
Consolidated
P&C
Group Benefits
Annualized investment yield, before
tax
2.7
%
4.2
%
2.6
%
4.2
%
3.2
%
4.2
%
Impact on annualized investment yield of
limited partnerships and other alternative investments, before
tax
0.7
%
(0.4
)%
0.9
%
(0.4
)%
0.4
%
(0.3
)%
Annualized investment yield excluding
limited partnerships and other alternative investments, before
tax
3.4
%
3.8
%
3.5
%
3.8
%
3.6
%
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
Jun 30 2020
Dec 31 2019
Change
Book value per diluted share
$46.59
$43.85
6%
Per diluted share impact of AOCI
$(1.34)
$(0.14)
NM
Book value per diluted share (excluding
AOCI)
$45.25
$43.71
4%
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 June 30, 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 June 30,
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 June
30, 2020 and 2019, is set forth below.
Three Months Ended
Margin
Jun 30 2020
Jun 30 2019
Change
Net income margin
6.7%
7.3%
(0.6)
Adjustments to reconcile net income
margin to core earnings margin
Net realized capital losses (gains)
excluded from core earnings, before tax
(0.1)%
(0.4)%
0.3
Integration and transaction costs
associated with acquired business, before tax
0.3%
0.7%
(0.4)
Income tax benefit
(0.1)%
(0.1)%
—
Impact of excluding buyouts from
denominator of core earnings margin
0.1%
—%
0.1
Core earnings margin
6.9%
7.5%
(0.6)
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
June 30, 2020 and 2019 is provided in the table below.
Three Months Ended
Jun 30 2020
Jun 30 2019
Change
PER SHARE DATA
Diluted earnings per common share:
Net income available to common
stockholders per share1
$1.29
$1.02
26%
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
(0.30)
(0.22)
(36)%
Loss on reinsurance transactions, before
tax
—
0.25
(100)%
Integration and transaction costs
associated with an acquired business, before tax
0.04
0.08
(50)%
Change in deferred gain on retroactive
reinsurance, before tax
0.15
—
NM
Change in loss reserves upon acquisition
of a business, before tax
—
0.27
(100)%
Income tax expense (benefit) on items
excluded from core earnings
0.04
(0.07)
NM
Core earnings per diluted share
$1.22
$1.33
(8)%
[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
Jun 30 2020
Jun 30 2019
Net income (loss) available to common
stockholders ROE
11.3%
11.8%
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
(0.2)
(0.7)
Loss on extinguishment of debt, before
tax
0.6
—
Loss on reinsurance transactions, before
tax
—
0.7
Integration and transaction costs
associated with an acquired business, before tax
0.5
0.5
Changes in loss reserves upon acquisition
of a business, before tax
—
0.7
Change in deferred gain on retroactive
reinsurance, before tax
0.6
—
Income tax expense (benefit) on items not
included in core earnings
(0.3)
(0.5)
Loss (income) from discontinued
operations, after tax
—
—
Impact of AOCI, excluded from core
earnings ROE
0.2
(0.8)
Core earnings ROE
12.7%
11.7%
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
Jun 30 2020
Jun 30 2019
Jun 30 2020
Jun 30 2019
Jun 30 2020
Jun 30 2019
Consolidated
P&C
Group Benefits
Total net investment income
$339
$488
$242
$348
$92
$121
Loss (income) from limited partnerships
and other alternative assets
71
(60
)
62
(50
)
9
(10
)
Net investment income excluding limited
partnerships and other alternative investments
$410
$428
$304
$298
$101
$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 June 30, 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 June
30, 2020 and 2019, is set forth below:
COMMERCIAL LINES
Three Months Ended
Jun 30 2020
Jun 30 2019
Net income
$
(66
)
$
191
Adjustments to reconcile net income to
underwriting gain
Net servicing loss (income)
—
(2
)
Net investment income
(204
)
(281
)
Net realized capital gains
(64
)
(54
)
Other expense (income)
11
6
Loss on reinsurance transaction
—
91
Income tax expense
(9
)
44
Underwriting gain
(332
)
(5
)
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
193
90
Prior accident year development
77
22
Current accident year change in loss
reserves upon acquisition of a business
—
29
Underlying underwriting gain
$
(62
)
$
136
PERSONAL LINES
Three Months Ended
Jun 30 2020
Jun 30 2019
Net income
$
371
$
62
Adjustments to reconcile net income to
underwriting gain
Net servicing income
(3
)
(4
)
Net investment income
(28
)
(46
)
Net realized capital losses (gains)
(8
)
(8
)
Other expense
(1
)
2
Income tax expense (benefit)
97
14
Underwriting gain
428
20
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
55
48
Prior accident year development
(349
)
4
Underlying underwriting gain
$
134
$
72
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; market risks
associated with our business, including changes in credit spreads,
equity prices, interest rates, inflation rate, foreign currency
exchange rates 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
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, including usage-based methods of
determining premiums, advancements in automotive safety features,
the development of autonomous vehicles, and platforms that
facilitate ride sharing; 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: 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 to our
investments; capital requirements which are subject to many
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; 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 the company 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,
pricing, capital management, reserving, investments, reinsurance
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
intent-to-sell impairments and allowances for credit losses 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, which may result in
our inability 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 increased 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 legislative developments; the impact of changes in
federal, state of foreign 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/20200730006014/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
Hartford Financial Servi... (NYSE:HIG)
Historical Stock Chart
From Aug 2024 to Sep 2024
Hartford Financial Servi... (NYSE:HIG)
Historical Stock Chart
From Sep 2023 to Sep 2024