- Third quarter 2020 net income available to common stockholders
of $453 million ($1.26 per diluted share) decreased 14% from third
quarter 2019, and core earnings* of $527 million (core earnings per
diluted share* of $1.46) declined 4% from third quarter 2019
- Net income ROE for the trailing 12-month period ended Sept. 30,
2020, was 10.4% and core earnings ROE* for the same period was
12.3%
- Book value per diluted share was $48.47; book value per diluted
share excluding accumulated other comprehensive income (AOCI) rose
5% to $46.09 since Dec. 31, 2019
- Incurred losses from COVID-19 were $72 million, before tax,
comprised of Property and Casualty (P&C) losses of $37 million
and Group Benefits losses of $35 million
- Catastrophe (CAT) losses in third quarter 2020 were $229
million, before tax, or a 7.6 point P&C combined ratio impact,
compared to $106 million, before tax, or a 3.5 point combined ratio
impact in third quarter 2019
- P&C combined ratio of 95.7 compared with 95.5 in third
quarter 2019; underlying combined ratio* of 90.6 improved 3.0
points from third quarter 2019 and included a 1.2 point combined
ratio impact from COVID-19 incurred losses
* 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 third quarter ended Sept. 30, 2020.
“Third quarter core earnings of $527 million or $1.46 per
diluted share and a 12-month core earnings ROE of 12.3 percent
reflect improving underlying margins across our businesses and
solid investment returns. These results demonstrate the strength of
our underlying business in the face of challenges posed by the
global pandemic and unusually high industry catastrophes in the
third quarter” said The Hartford’s Chairman and CEO Christopher
Swift.
The Hartford's President, Doug Elliot, said, “Third quarter
results demonstrate strong business execution. Accelerating levels
of economic activity contributed to an improving top-line and
pricing remained strong in the quarter. Excluding workers’
compensation, renewal written pricing across our combined standard
commercial and U.S. Global Specialty lines was approximately 11
percent. I am especially pleased with underlying margin expansion
in both our Commercial and Personal Lines businesses.”
Swift added, “Investments in recent years in the digital
transformation of our platform have enabled us to support our
customers and distribution partners, while navigating the
challenges the pandemic has brought to our daily lives. We entered
this crisis with strong business fundamentals and are well
positioned to continue to effectively manage through these
unprecedented times. As always, the enterprise remains focused on
building greater value for all our stakeholders.”
CONSOLIDATED RESULTS:
Three Months Ended
($ in millions except per share data)
Sep 30
2020
Sep 30
2019
Change1
Net income available to common
stockholders
$453
$524
(14)%
Net income available to common
stockholders per diluted share2
$1.26
$1.43
(12)%
Core earnings
$527
$548
(4)%
Core earnings per diluted share
$1.46
$1.50
(3)%
Book value per diluted share
$48.47
$43.13
12%
Book value per diluted share (ex.
AOCI)*
$46.09
$42.55
8%
Net income available to common
stockholders' return on equity (ROE)3, last 12-months
10.4%
12.0%
(1.6)
Core earnings ROE3, last
12-months
12.3%
12.3%
—
[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
Third quarter 2020 net income available to common stockholders
was $453 million, or $1.26 per diluted share, down 14% from third
quarter 2019 while core earnings of $527 million, or $1.46 per
diluted share, declined 4% from third quarter 2019. Contributing to
the decrease in net income were $87 million of restructuring costs,
before tax, in third quarter 2020 and an $83 million reduction in
net realized capital gains, before tax, partially offset by a $90
million loss on extinguishment of debt, before tax, in third
quarter 2019. Net realized capital gains in third quarter 2020
included a $51 million, before tax, loss on the sale of the
company’s continental Europe operations.
Core earnings decreased $21 million, primarily due to a $123
million, before tax, increase in catastrophe losses and a $35
million, before tax, change from income to loss on the company’s
retained equity interest in Talcott Resolution, partially offset by
an $89 million, before tax, increase in P&C underlying
underwriting results and a $28 million, before tax, increase in net
favorable P&C prior accident year development.
Underlying business margins in P&C, which included $37
million, before tax, of COVID-19 losses in third quarter 2020,
expanded, with underlying combined ratio improvement in Small
Commercial, Middle & Large Commercial, and Personal Lines,
while the underlying margin for Global Specialty decreased largely
due to COVID-19 and ocean marine losses. Net income margin for the
Group Benefits business declined 1.6 points, though it increased by
0.3 points when excluding the impacts of $35 million, before tax,
in COVID-19 claims.
- P&C underwriting gain of $131 million was down 4% from
third quarter 2019. An increase in current accident year (CAY) CATs
of $123 million, before tax, and COVID-19 losses of $37 million,
before tax, net of lower non-COVID-19 workers' compensation claim
frequency, was partially offset by lower personal auto claim
frequency, an increase in net favorable prior year development,
lower non-catastrophe property losses unrelated to COVID-19 and
lower underwriting expenses
- Group Benefits core earnings were down $25 million compared to
third quarter 2019 due to $35 million, before tax, of incurred
losses related to COVID-19 in group life and short-term disability,
partially offset by lower insurance operating costs and other
expenses
- Net investment income was $492 million in the quarter, slightly
higher than the prior year, as higher limited partnership income
was offset by reinvesting fixed maturities at lower rates and
earning lower yields on floating rate investments
Sept. 30, 2020, book value per diluted share of $48.47 rose 11%
from $43.85 at Dec. 31, 2019, principally due to an increase in net
unrealized gains on investments within AOCI and net income in
excess of common stockholder dividends.
Book value per diluted share (excluding AOCI) of $46.09 as of
Sept. 30, 2020, increased 5% from $43.71 at Dec. 31, 2019,
primarily due to net income in excess of common stockholder
dividends.
The net income available to common stockholder ROE (net income
ROE) was 10.4% at Sept. 30, 2020, decreasing from 12.0% for the
twelve months ended Sept. 30, 2019 due to an increase in average
stockholders' equity. The core earnings ROE at Sept. 30, 2020 was
12.3%, flat with the 12.3% recognized in the same period of 2019 as
an increase in twelve-month trailing core earnings was offset by
the effect of an increase in average stockholders' equity.
BUSINESS RESULTS:
Commercial Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30
2020
Sep 30
2019
Change
Net income
$323
$336
(4)%
Core earnings
$349
$303
15%
Written premiums
$2,199
$2,235
(2)%
Underwriting gain*
$92
$82
12%
Underlying underwriting gain*
$142
$137
4%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
60.7
59.4
1.3
Current accident year catastrophes
4.8
3.3
1.5
Prior accident year development (PYD)
(2.5)
(0.8)
(1.7)
Expenses
32.7
34.0
(1.3)
Policyholder dividends
0.4
0.5
(0.1)
Combined ratio
95.9
96.4
(0.5)
Impact of catastrophes and PYD on combined
ratio
(2.3)
(2.5)
0.2
Underlying combined ratio*
93.7
93.9
(0.2)
Third quarter 2020 net income of $323 million declined from $336
million in third quarter 2019 principally due to a change from net
realized capital gains in 2019 to net realized capital losses in
2020, offset by higher net investment income and a higher
underwriting gain. The higher underwriting gain was driven by an
increase in net favorable prior accident year development and lower
underwriting expenses, largely offset by higher CAY losses,
including higher CATs and COVID-19 incurred losses.
COVID-19 incurred losses of $37 million, before tax, in the
quarter included $17 million of losses in workers' compensation,
net of favorable frequency on other workers' compensation claims,
and $20 million of losses in financial and other lines. By
comparison, COVID-19 incurred losses in second quarter 2020 were
$213 million, before tax, including $141 million for crisis
management and performance disruption property claims, $35 million
for workers’ compensation, net of favorable frequency on other
workers' compensation claims, and $37 million in financial and
other lines.
Third quarter 2020 written premiums of $2.2 billion decreased 2%
from third quarter 2019, driven by the economic impacts of
COVID-19, including lower new business across most lines as well as
the impact of a declining exposure base on workers' compensation
premiums, partially offset by continued written pricing increases
in all lines except workers' compensation. Third quarter policy and
premium retention were down sequentially due to resumption of
policy cancellations for non-payment of premium in the third
quarter.
- Small Commercial written premium declined by 1% driven
primarily by lower new business premium, policy cancellations and
endorsements reducing premiums, with a decrease in workers'
compensation premium partially offset by growth in package
business
- Middle & Large Commercial written premium decreased by 2%
driven by lower new business and premium retention across all lines
primarily driven by declines in general industries, led by workers’
compensation, as well as in industry verticals and national
accounts, partially offset by growth in specialty and commercial
excess lines
- Global Specialty written premium decreased by 2% due to a
decline in international and bond business, partially offset by
growth in wholesale and professional liability
Combined ratio was 95.9 in third quarter 2020, 0.5 points lower
than 96.4 in third quarter 2019 including a 1.7 point increase in
net favorable PYD offset by a 1.5 point increase in CAY CATs.
Underlying combined ratio of 93.7 decreased 0.2 points from third
quarter 2019 primarily due to lower non-CAT property losses and
lower underwriting expenses, partially offset by COVID-19 incurred
losses of $37 million, before tax, and a few large international
marine losses.
Personal Lines
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30
2020
Sep 30
2019
Change
Net income
$79
$94
(16)%
Core earnings
$77
$87
(11)%
Written premiums
$781
$822
(5)%
Underwriting gain
$52
$58
(10)%
Underlying underwriting gain
$145
$62
134%
Losses and loss adjustment expense
ratio
Current accident year before
catastrophes
56.0
66.1
(10.1)
Current accident year catastrophes
15.7
4.0
11.7
Prior accident year development (PYD)
(3.7)
(3.5)
(0.2)
Expenses
25.4
26.2
(0.8)
Combined ratio
93.3
92.8
0.5
Impact of catastrophes and PYD on combined
ratio
(12.0)
(0.5)
(11.5)
Underlying combined ratio
81.4
92.3
(10.9)
Net income of $79 million in third quarter 2020 was $15 million
lower than third quarter 2019, while core earnings of $77 million
declined by $10 million. Favorable auto frequency, lower non-CAT
losses in homeowners and lower underwriting expenses were more than
offset by higher CAY CAT losses, lower net investment income, and
contributing to the decrease in net income, lower net realized
capital gains.
Written premiums of $781 million were down 5% from third quarter
2019, with decreases in AARP Direct and both Agency channels.
Written premiums for both automobile and homeowners declined as the
amount of non-renewed premium exceeded new business. In auto,
contributing to the written premium decline in third quarter 2020
was the resumption of non-payment policy cancellations after a
suspension of policy cancellations in second quarter 2020 due to
extending the time policyholders had to pay their premium. New
business premium of $71 million decreased 10% with decreases in
auto and homeowners of 5% and 24%, respectively.
Combined ratio of 93.3 in third quarter 2020 was 0.5 points
higher than third quarter 2019 due to an increase in CAY CATs,
largely offset by favorable auto frequency. Underlying combined
ratio of 81.4 was 10.9 points better than third quarter 2019
principally due to lower auto claim frequency as a result of fewer
miles driven, lower non-CAT property weather losses in homeowners,
and lower underwriting expenses.
Group Benefits
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30
2020
Sep 30
2019
Change
Net income
$119
$146
(18)%
Core earnings
$116
$141
(18)%
Fully insured ongoing premiums (ex.
buyout premiums)
$1,316
$1,337
(2)%
Loss ratio
73.8%
71.1%
2.7
Expense ratio
24.3%
24.9%
(0.6)
Net income margin
8.0%
9.6%
(1.6)
Core earnings margin*
7.9%
9.4%
(1.5)
Net income and core earnings were $119 million and $116 million,
respectively, decreasing 18% from third quarter 2019, largely
driven by $35 million, before tax, of incurred losses related to
COVID-19 in group life and disability, partially offset by lower
insurance operating costs and other expenses.
Fully insured ongoing premiums were down 2%, compared to third
quarter 2019, primarily due to lower insured exposure on in-force
policies, partially offset by higher voluntary product
premiums.
Loss ratio of 73.8% increased 2.7 points from third quarter 2019
with increases in both group life and group disability:
- Total disability loss ratio of 65.3% deteriorated 0.9 points
compared to third quarter 2019, which included favorable updates to
long-term disability claim recovery reserve assumptions,
representing 2.7 points. Third quarter 2020 included short-term
disability COVID-19 losses of $7 million, or 1.0 point, more than
offset by strong claim recoveries on prior incurral years and lower
claim incidence for the current incurral year
- Total group life loss ratio increased 6.7 points, primarily due
to COVID-19 incurred losses of $28 million, before tax, or 4.7
points, and an increase in reserves for late reported prior
incurral year group life claims, partly offset by lower
non-COVID-19 group life mortality in the current incurral year
Expense ratio of 24.3% was 0.6 points lower than third quarter
2019, primarily driven by a decrease in the bad debt allowance on
premiums receivable due to favorable collection experience relative
to prior expectations.
Hartford Funds
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30
2020
Sep 30
2019
Change
Net income
$44
$40
10%
Core earnings
$40
$39
3%
Daily average Hartford Funds
AUM
$122,528
$119,738
2%
Mutual Funds and exchange-traded
products (ETP) net flows
$(1,266)
$(800)
(58)%
Total Hartford Funds assets under
management (AUM)
$123,710
$119,981
3%
Net income of $44 million was up $4 million compared with third
quarter 2019, primarily due to an increase in net realized capital
gains due to mark-to-market gains on company assets invested in
certain Hartford funds and lower operating costs and other
expenses, largely offset by a decrease in fee income. Core earnings
were up $1 million, or 3%, as lower variable operating expenses
were offset by a decrease in fee income. The decrease in fee income
was principally driven by a continued shift to lower fee generating
funds, partially offset by higher daily average Hartford Funds
AUM.
Daily average AUM of $123 billion in third quarter 2020 was up
2% from third quarter 2019 driven by increases in market values,
partially offset by net outflows.
Mutual fund and ETP net outflows totaled $1.3 billion in third
quarter 2020, compared with net outflows of $800 million in third
quarter 2019.
Corporate
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30
2020
Sep 30
2019
Change
Net loss
$(108)
$(99)
(9)%
Core loss
$(57)
$(37)
(54)%
Other revenue (loss)
$(21)
$24
NM
Net investment income, before
tax
$3
$10
(70)%
Interest and preferred dividend
expense, before tax
$64
$78
(18)%
Net loss of $108 million in third quarter 2020 compared with a
net loss of $99 million in third quarter 2019, with the net loss in
third quarter 2020 including planned restructuring costs of $87
million, before tax, related to Hartford Next and the third quarter
2019 net loss including a $90 million, before tax, loss on
extinguishment of debt. Third quarter 2020 core loss of $57 million
increased $20 million compared with third quarter 2019 mostly due
to a change from income to loss from the company's retained equity
interest in Talcott Resolution recognized within other revenues,
and a decrease in net investment income, partially offset by a
decrease in interest expense.
INVESTMENT INCOME AND PORTFOLIO DATA:
Three Months Ended
($ in millions, unless otherwise
noted)
Sep 30
2020
Sep 30
2019
Change
Net investment income, before
tax
$492
$490
0%
Annualized investment yield, before
tax
3.8%
4.0%
(0.2)
Annualized investment yield, before
tax, excluding LPs*
3.3%
3.6%
(0.3)
Annualized LP yield, before tax
18.3%
15.3%
3.0
Annualized investment yield, after
tax
3.2%
3.3%
(0.1)
Third quarter 2020 consolidated net investment income of $492
million was slightly higher than third quarter 2019 as higher
income from limited partnerships and other alternative investments
was offset by lower income from fixed maturities. Income from fixed
maturities declined as a result of reinvesting at lower rates and
lower yields on floating rate investments, partially offset by
higher asset levels and income from non-routine income items, which
primarily included make-whole payments.
Income from LPs was $83 million, before tax, in third quarter
2020, increasing from $65 million, before tax, in third quarter
2019, driven by improved performance of certain equity and credit
funds. Income from LPs, including from private equity and other
funds, is generally reported on a three-month lag.
Total invested assets of $55 billion increased 3% from Dec. 31,
2019, with increases in fixed maturities and short term
investments, partially offset by a decrease in equity securities
largely due to the sale of equity securities during March and
April. Fixed maturities increased, primarily due to net additions
of corporate securities and an increase in valuations as a result
of a decline in interest rates, partially offset by wider credit
spreads. Short-term investments increased due to actions taken in
the first half of the year to increase liquidity, primarily by
reinvesting principal and interest, as well as proceeds from sales,
into short-term instruments.
CONFERENCE CALL
The Hartford will discuss its third quarter 2020 financial
results on a webcast at 9 a.m. EDT on Friday, Oct. 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 Sept. 30, 2020, and
the Third 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 September
30, 2020
($ in millions)
Commercial
Lines
Personal
Lines
P&C Other
Ops
Group
Benefits
Hartford
Funds
Corporate
Consolidated
Earned premiums
$
2,251
$
779
$
—
$
1,317
$
—
$
—
$
4,347
Fee income
8
8
—
44
250
13
323
Net investment income
316
41
14
117
1
3
492
Other revenues
1
23
—
—
—
(21)
3
Net realized capital gains (losses)
(26)
3
2
9
5
13
6
Total revenues
2,550
854
16
1,487
256
8
5,171
Benefits, losses, and loss adjustment
expenses
1,416
529
11
1,005
—
1
2,962
Amortization of DAC
344
60
—
13
4
—
421
Insurance operating costs and other
expenses
407
166
2
312
197
9
1,093
Restructuring and other costs
—
—
—
—
—
87
87
Interest expense
—
—
—
—
—
58
58
Amortization of other intangible
assets
8
—
—
10
—
—
18
Total benefits, losses and
expenses
2,175
755
13
1,340
201
155
4,639
Income (loss) before income
taxes
375
99
3
147
55
(147)
532
Income tax expense (benefit)
52
20
1
28
11
(39)
73
Net income (loss)
323
79
2
119
44
(108)
459
Preferred stock dividends
—
—
—
—
—
6
6
Net income (loss) available to common
stockholders
323
79
2
119
44
(114)
453
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
25
(3)
(2)
(9)
(5)
(12)
(6)
Restructuring and other costs
—
—
—
—
—
87
87
Change in deferred gain on retroactive
reinsurance, before tax
14
—
—
—
—
—
—
14
Integration and transaction costs
associated with an acquired business, before tax
9
—
—
5
—
—
14
Income tax expense (benefit)
(22)
1
2
1
1
(18)
(35)
Core earnings (losses)
$
349
$
77
$
2
$
116
$
40
$
(57)
$
527
THE HARTFORD FINANCIAL
SERVICES GROUP, INC.
CONSOLIDATING INCOME
STATEMENTS
Three Months Ended September
30, 2019
($ in millions)
Commercial
Lines
Persona
Lines
P&C Other
Ops
Group
Benefits
Hartford
Funds
Corporate
Consolidated
Earned premiums
$
2,250
$
803
$
—
$
1,337
$
—
$
4
$
4,394
Fee income
8
9
—
45
254
14
330
Net investment income
291
46
21
121
1
10
490
Other revenues
1
23
—
—
—
20
44
Net realized capital gains
60
9
4
14
1
1
89
Total revenues
2,610
890
25
1,517
256
49
5,347
Benefits, losses, and loss adjustment
expenses
1,391
535
—
983
—
5
2,914
Amortization of DAC
356
64
—
14
3
—
437
Insurance operating costs and other
expenses
441
173
3
329
202
19
1,167
Loss on extinguishment of debt
—
—
—
—
—
90
90
Loss on reinsurance transaction
—
—
—
—
—
—
—
Interest expense
—
—
—
—
—
67
67
Amortization of other intangible
assets
7
1
—
10
—
1
19
Total benefits, losses and
expenses
2,195
773
3
1,336
205
182
4,694
Income (loss) before income
taxes
415
117
22
181
51
(133)
653
Income tax expense (benefit)
79
23
4
35
11
(34)
118
Income (loss) from continuing
operations, net of tax
336
94
18
146
40
(99)
535
Net income (loss)
336
94
18
146
40
(99)
535
Preferred stock dividends
—
—
—
—
—
11
11
Net income (loss) available to common
stockholders
336
94
18
146
40
(110)
524
Adjustments to reconcile net income
(loss) available to common stockholders to core earnings
(losses)
Net realized capital gains (losses),
excluded from core earnings, before tax
(59)
(9)
(4)
(15)
(1)
—
(88)
Loss on extinguishment of debt, before
tax
—
—
—
—
—
90
90
Integration and transaction costs, before
tax
19
—
—
9
—
1
29
Income tax expense (benefit)
7
2
1
1
—
(18)
(7)
Core earnings (losses)
$
303
$
87
$
15
$
141
$
39
$
(37)
$
548
DISCUSSION OF NON-GAAP FINANCIAL MEASURES
The Hartford uses non-GAAP financial measures in this press
release to assist investors in analyzing the company's operating
performance for the periods presented herein. Because The
Hartford's calculation of these measures may differ from similar
measures used by other companies, investors should be careful when
comparing The Hartford's non-GAAP financial measures to those of
other companies. Definitions and calculations of other financial
measures used in this press release can be found below and in The
Hartford's Investor Financial Supplement for third quarter 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
Sept 30
2020
Sept 30
2019
Sept 30
2020
Sept 30
2019
Sept 30
2020
Sept 30
2019
Consolidated
P&C
Group Benefits
Annualized investment yield, before
tax
3.8
%
4.0
%
3.9
%
4.0
%
4.1
%
4.2
%
Impact on annualized investment yield of
limited partnerships and other alternative investments, before
tax
(0.5)
%
(0.4)
%
(0.6)
%
(0.4)
%
(0.3)
%
(0.4)
%
Annualized investment yield excluding
limited partnerships and other alternative investments, before
tax
3.3
%
3.6
%
3.3
%
3.6
%
3.8
%
3.8
%
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
Sept 30
2020
Dec 31
2019
Change
Book value per diluted share
$48.47
$43.85
11%
Per diluted share impact of AOCI
$(2.38)
$(0.14)
NM
Book value per diluted share (excluding
AOCI)
$46.09
$43.71
5%
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.
- Restructuring and other costs - Costs incurred as part of a
restructuring plan are not a recurring operating expense 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.
- 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.
- 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.
- 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.
- 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.
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 September 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 September 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
September 30, 2020 and 2019, is set forth below.
Three Months Ended
Margin
Sept 30
2020
Sept 30
2019
Change
Net income margin
8.0%
9.6%
(1.6)
Adjustments to reconcile net income
margin to core earnings margin
Net realized capital losses (gains)
excluded from core earnings, before tax
(0.6)%
(0.9)%
0.3
Integration and transaction costs
associated with acquired business, before tax
0.3%
0.6%
(0.3)
Income tax benefit
0.2%
0.1%
0.1
Core earnings margin
7.9%
9.4%
(1.5)
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
September 30, 2020 and 2019 is provided in the table below.
Three Months Ended
Sept 30
2020
Sept 30
2019
Change
PER SHARE DATA
Diluted earnings per common share:
Net income available to common
stockholders per share1
$1.26
$1.43
(12)%
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
(0.02)
(0.24)
92%
Restructuring and other costs, before
tax
0.24
—
100%
Loss on extinguishment of debt, 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
0.04
—
NM
Income tax expense (benefit) on items
excluded from core earnings
(0.10)
(0.02)
NM
Core earnings per diluted share
$1.46
$1.50
(3)%
[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
Sept 30
2020
Sept 30
2019
Net income (loss) available to common
stockholders ROE
10.4%
12.0%
Adjustments to reconcile net income
(loss) available to common stockholders ROE to core earnings
ROE
Net realized capital gains excluded from
core earnings, before tax
0.3
(1.1)
Restructuring and other costs, 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
0.4
0.6
Changes in loss reserves upon acquisition
of a business, before tax
—
0.7
Change in deferred gain on retroactive
reinsurance, before tax
0.7
—
Income tax expense (benefit) on items not
included in core earnings
(0.4)
(0.7)
Impact of AOCI, excluded from core
earnings ROE
0.4
(0.4)
Core earnings ROE
12.3%
12.3%
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
Sept 30
2020
Sept 30
2019
Sept 30
2020
Sept 30
2019
Sept 30
2020
Sept 30
2019
Consolidated
P&C
Group Benefits
Total net investment income
$492
$490
$371
$358
$117
$121
Loss (income) from limited partnerships
and other alternative assets
(83)
(65)
(72)
(52)
(11)
(13)
Net investment income excluding limited
partnerships and other alternative investments
$409
$425
$299
$306
$106
$108
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 September 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
September 30, 2020 and 2019, is set forth below.
COMMERCIAL LINES
Three Months
Ended
Sept 30
2020
Sept 30
2019
Net income
$
323
$
336
Adjustments to reconcile net income to
underwriting gain
Net servicing loss (income)
(1)
(2)
Net investment income
(316)
(291)
Net realized capital gains
26
(60)
Other expense (income)
8
20
Income tax expense
52
79
Underwriting gain
92
82
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
107
74
Prior accident year development
(57)
(19)
Underlying underwriting gain
$
142
$
137
PERSONAL LINES
Three Months
Ended
Sept 30
2020
Sept 30
2019
Net income
$
79
$
94
Adjustments to reconcile net income to
underwriting gain
Net servicing income
(5)
(4)
Net investment income
(41)
(46)
Net realized capital losses (gains)
(3)
(9)
Other expense
2
—
Income tax expense (benefit)
20
23
Underwriting gain
52
58
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
122
32
Prior accident year development
(29)
(28)
Underlying underwriting gain
$
145
$
62
PROPERTY &
CASUALTY
Three Months
Ended
Sept 30
2020
Sept 30
2019
Net income
$
404
$
448
Adjustments to reconcile net income to
underwriting gain
Net investment income
(371)
(358)
Net realized capital losses (gains)
21
(73)
Net servicing and other expense
4
14
Income tax expense (benefit)
73
106
Underwriting gain
131
137
Adjustments to reconcile underwriting
gain to underlying underwriting gain
Current accident year catastrophes
229
106
Prior accident year development
(75)
(47)
Underlying underwriting gain
$
285
$
196
SAFE HARBOR STATEMENT
Certain of the statements contained herein are forward-looking
statements made pursuant to the safe harbor provisions of 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 future periods.
Forward-looking statements are based on management's current
expectations and assumptions regarding future economic,
competitive, legislative and other developments and their potential
effect upon The Hartford Financial Services Group, Inc. and its
subsidiaries (collectively, the "Company" or "The Hartford").
Because forward-looking statements relate to the future, they are
subject to inherent uncertainties, risks and changes in
circumstances that are difficult to predict. Actual results could
differ materially from expectations, depending on the evolution of
various factors, including the risks and uncertainties identified
below, as well as factors described in such forward-looking
statements; or in Part I, Item 1A, Risk Factors in The Hartford’s
2019 Form 10-K Annual Report, as amended in Part II Item 1A in its
Form 10-Q Quarterly Reports; and those identified from time to time
in our other filings with the Securities and Exchange
Commission.
Risks relating to the pandemic caused by
the spread of novel strain of coronavirus, specifically
identified as the Coronavirus Disease 2019 (“COVID-19”) including
impacts to 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 relating 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 ("NAIC")
risk based capital formulas, Funds at Lloyd's and Solvency Capital
Requirement, 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 intent-to-sell impairments and
allowance 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; 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 or 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
document speaks only as of the date of the filing 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/20201029006246/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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