The Hartford Announces Second Quarter 2019 Net Income Of $1.02 Per Diluted Share And Core Earnings Of $1.33 Per Diluted Share

  • Net income of $372 million ($1.02 per diluted share) included reinsurance and reserve charges related to the acquisition of The Navigators Group, Inc. (“Navigators”), which closed on May 23, 2019, of $149 million, after tax ($0.41 per diluted share)
  • Core earnings* of $485 million and core earnings per diluted share* of $1.33 both rose 18% over second quarter 2018 due to better Personal Lines, Group Benefits and Corporate results, partially offset by lower Commercial Lines core earnings
  • Net income ROE for the trailing 12-month period ended June 30, 2019, was 11.8% and core earnings ROE* for the same period was 11.7%
  • Book value per diluted share was $41.00, up 17% from Dec. 31, 2018; book value per diluted share excluding accumulated other comprehensive income (AOCI)* rose 5% to $41.55
  • During the quarter, The Hartford began share repurchases under its $1.0 billion authorization, purchasing 0.5 million common shares for $27 million and paid $107 million in common dividends
  • The company also provided a second half 2019 outlook for Commercial Lines combined ratio, which includes Navigators, in a range of 95.0% to 97.0%

HARTFORD, Conn.–(BUSINESS WIRE)–The Hartford (NYSE: HIG) reported second quarter 2019 net income of $372 million, or $1.02 per diluted share, down from $582 million, or $1.60 per diluted share, in second quarter 2018. The decrease was principally due to income from discontinued operations, net of tax, of $148 million, in second quarter 2018 related to the company’s former run-off annuity business that was sold in May 2018 and second quarter 2019 reinsurance and loss reserve charges related to the May 2019 acquisition of Navigators that totaled $149 million, after tax, which are discussed in the Commercial Lines segment results section of this news release. Excluding these two items, second quarter net income increased principally due to higher net investment income, better margins in Group Benefits, solid underwriting results in Property and Casualty (P&C) businesses and reduced Corporate net loss.

* 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

Core earnings of $485 million in second quarter 2019 increased 18% from $412 million in second quarter 2018, reflecting better results in Personal Lines, Group Benefits and Corporate offset in part by lower Commercial Lines core earnings. Core earnings per diluted share of $1.33 was up 18% from $1.13 per diluted share, in second quarter 2018.

“The Hartford produced strong margins and profitability in the second quarter, including lower catastrophe results, better group disability trends and good investment returns,” said The Hartford’s Chairman and CEO Christopher Swift. “We closed the acquisition of Navigators at the end of May, and are excited by the strategic opportunities in Commercial Lines as a result of our combined capabilities. In addition, we commenced share repurchases under the $1.0 billion authorization and returned $134 million to shareholders, through dividends and share repurchases during the quarter.”

“This was another strong quarter for our business units, with solid results on both the top and bottom line,” said The Hartford’s President Doug Elliot. “Group Benefits had an outstanding quarter, and Property and Casualty margins were very good, although impacted by the actions we took on acquired reserves from Navigators. Integration activities have begun and are successfully advancing, and the agent and broker marketing program is well underway, as we focus on profitable growth in our combined Commercial Lines operation.”

June 30, 2019 book value per diluted share of $41.00 rose 17% from $35.06 at Dec. 31, 2018 due to a 17% increase in common stockholders’ equity resulting primarily from the impact of lower market interest rates and tighter credit spreads on AOCI and from first half 2019 net income in excess of common stockholder dividends and share repurchases. Book value per diluted share (excluding AOCI) of $41.55 as of June 30, 2019 increased 5% from $39.40 at Dec. 31, 2018 primarily due to first half 2019 net income in excess of common stockholder dividends declared and share repurchases. During first half 2019, the company returned $243 million to shareholders, consisting of $216 million in common stockholder dividends paid and $27 million of common share repurchases.

Second quarter 2019 net income return on equity (ROE)1, which is based on net income and average shareholder equity over the trailing 12-month period, was 11.8% compared with net loss ROE of 15.4% in second quarter 2018. The second quarter 2018 net loss ROE was principally due to the impact of the $2.7 billion net loss on discontinued operations from the sale of Talcott Resolution, the company’s former run-off annuity business, and the fourth quarter 2017 charge of $877 million related to U.S. corporate income tax reform.

Core earnings ROE in second quarter 2019 rose to 11.7%, 3.3 points higher than 8.4% in second quarter 2018, driven by a 31% increase in trailing 12-month core earnings to $1.7 billion in second quarter 2019 from $1.3 billion in second quarter 2018.

[1] Net income ROE represents net income (loss) available to common stockholders ROE

FINANCIAL RESULTS SUMMARY

($ in millions except per share data)

Three Months Ended

Jun 30

2019

Jun 30

2018

Change¹

Net income by segment:

 

 

 

Commercial Lines

$191

$372

(49)%

Personal Lines

62

6

NM

P&C Other Operations

11

5

120%

Property & Casualty

264

383

(31)%

Group Benefits

113

96

18%

Hartford Funds

38

37

3%

Sub-total

415

516

(20)%

Corporate

(43)

66

NM

Net income

$372

$582

(36)%

Adjustment to reconcile net income to income from continuing operations, net of tax:

 

 

 

Income from discontinued operations, net of tax

(148)

100%

Income from continuing operations, net of tax

$372

$434

(14)%

Adjustments to reconcile income from continuing operations, net of tax, to core earnings:

 

 

 

Net realized capital losses (gains), excluded from core earnings, before tax

(79)

(50)

(58)%

Loss on extinguishment of debt, before tax

6

(100)%

Loss on reinsurance transaction, before tax

91

NM

Integration and transaction costs associated with acquired business, before tax

31

11

182%

Change in loss reserves upon acquisition of a business, before tax

97

NM

Income tax expense (benefit), including amounts related to before tax items excluded from core earnings

(27)

11

NM

Core earnings

$485

$412

18%

Net income available to common stockholders

$372

$582

(36)%

Weighted average diluted common shares outstanding

365.1

364.2

—%

Income from continuing operations, net of tax, available to common stockholders per diluted share2

$1.02

$1.19

(14)%

Net income available to common stockholders per diluted share2

$1.02

$1.60

(36)%

Core earnings per diluted share2

$1.33

$1.13

18%

Select financial measures:

 

 

 

Common shares outstanding and dilutive potential common shares

364.8

364.3

—%

Book value per diluted share

$41.00

$34.44

19%

Book value per diluted share (excluding AOCI)*

$41.55

$38.15

9%

Net income (loss) available to common stockholders ROE3, last 12-months

11.8%

(15.4)%

27.2

Core earnings ROE3, last 12-months

11.7%

8.4%

3.3

[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 income (loss) from continuing operations, net of tax, available to common stockholders per diluted share, the numerator is income from continuing operations, after tax, less preferred dividends

[3] Return on equity (ROE) is calculated based on last 12-months net income available to common stockholders and core earnings, respectively; for net income ROE, the denominator is stockholders’ equity including AOCI; for core earnings ROE, the denominator is stockholders’ equity excluding AOCI

SECOND QUARTER 2019 SEGMENT FINANCIAL RESULTS SUMMARY

 

Three Months Ended

($ in millions)

Jun 30

2019

Jun 30

2018

Change

Core earnings (losses)

 

 

 

P&C segments:

 

 

 

Commercial Lines

$304

$341

(11)%

Personal Lines

55

2

NM

P&C Other Operations

8

3

167%

Property & Casualty

367

346

6%

Group Benefits

115

104

11%

Hartford Funds

38

38

—%

Sub-total

520

488

7%

Corporate

(35)

(76)

54%

Total

$485

$412

18%

Select business metrics:

 

 

 

Commercial Lines

 

 

 

Combined ratio [1]

100.3

90.1

10.2

Adjustments to reconcile combined ratio to underlying combined ratio:

 

 

 

Impact of catastrophes and PYD on combined ratio

(5.6)

(5.6)

Current accident year change in loss reserves upon acquisition of a business

(1.5)

(1.5)

Underlying combined ratio

93.2

90.0

3.2

Personal Lines

 

 

 

Combined ratio

97.5

104.9

(7.4)

Adjustments to reconcile combined ratio to underlying combined ratio:

 

 

 

Impact of catastrophes and PYD on combined ratio

(6.5)

(14.5)

8.0

Underlying combined ratio

91.0

90.4

0.6

Group Benefits

 

 

 

Loss ratio

74.6%

75.5%

(0.9)

Expense ratio [2]

23.9%

23.9%

Net income margin

7.3%

6.3%

1.0

Core earnings margin*

7.5%

6.9%

0.6

Hartford Funds

 

 

 

Mutual fund and exchange-traded products (ETP) net flows

$(105)

$473

NM

Total Hartford Funds assets under management (AUM)

$121,301

$117,041

4%

[1] Integration and transaction costs related to the acquisition of Navigators are not included in the combined ratio.

[2] Integration and transaction costs related to the acquisition of Aetna’s U.S. group life and disability business are not included in the expense ratio.

Commercial Lines

  • Effective upon the closing of the acquisition of Navigators on May 23, 2019, the company realigned the Commercial Lines segment lines of business among Small Commercial, Middle & Large Commercial, and Global Specialty (formerly Small Commercial, Middle Market and Specialty Commercial) to reflect the new management reporting structure. The realignment included moving a portion of excess and surplus lines from Small Commercial to Global Specialty, moving livestock business from Middle Market to Global Specialty and moving national accounts and captive programs from Specialty Commercial to Middle & Large Commercial. In addition, financial products and bond business, previously included in Specialty Commercial, are now included in Global Specialty.
  • Commercial Lines written premiums of $2.1 billion rose 20% from second quarter 2018 with growth from all three businesses; earned premiums rose 14% to $2.0 billion from $1.7 billion in second quarter 2018

    • Small Commercial written premiums increased 6% from second quarter 2018 driven by 29% growth in new business, including the Foremost renewal rights agreement, and better retention, partially offset by the impact of lower workers’ compensation renewal written pricing
    • Middle & Large Commercial written premiums increased 15% from second quarter 2018 due to 31% growth in new business and higher renewal premium in Middle Market driven by renewal written price increases in most lines and higher retention, partially offset by a modest decline in National Accounts
    • Global Specialty written premiums increased by $192 million over second quarter 2018 to a total of $353 million principally due to increased premium from the acquisition of Navigators, as well as growth in financial products and property
  • Commercial Lines net income of $191 million decreased $181 million from $372 million in second quarter 2018 principally due to reinsurance and reserve charges of $149 million, after tax, related to the Navigators acquisition. The second quarter 2019 charges were comprised of:

    • As previously-announced, a $72 million, after tax ($91 million, before tax) charge for the purchase of an aggregate excess of loss reinsurance treaty covering up to $300 million in excess of $100 million of unfavorable development on Navigators loss reserves as of Dec. 31, 2018 for 2018 and prior accident year loss reserves subject to the treaty
    • A charge for a change in loss reserves upon acquisition of Navigators that totaled $77 million, after tax ($97 million, before tax). This charge consisted of $23 million, after tax ($29 million, before tax), for the 2019 accident year and $54 million, after tax ($68 million, before tax), for prior accident year development (PYD)

      • As of June 30, 2019, after considering unfavorable development on Navigators 2018 and prior accident years reserves that was incurred since Dec. 31, 2018 and subject to the treaty, the company has approximately $209 million of limit available for future potential unfavorable loss reserve development under the treaty
  • Core earnings of $304 million, which do not include the Navigators acquisition reinsurance and reserve charges, declined 11% from $341 million in second quarter 2018 due to a variety of items including higher current accident year losses and loss adjustment expenses before catastrophes, higher current accident year catastrophe losses, lower net favorable PYD (excluding Navigators) and higher underwriting expenses, partially offset by increased net investment income and the effect of higher earned premiums. Current accident year catastrophe losses of $90 million, before tax, were $16 million higher than $74 million, before tax, in second quarter 2018 and net favorable PYD (excluding Navigators) of $46 million, before tax, decreased $27 million compared with $73 million, before tax, in second quarter 2018, principally due to lower net favorable development for prior accident year catastrophe and workers’ compensation reserves

    • Net investment income, before tax, was $281 million, up 16% from second quarter 2018, due to increased asset levels, principally from the Navigators acquisition, and higher returns on limited partnerships and other alternative investments (LPs)
  • The underlying underwriting gain* of $136 million decreased 22% from $174 million in second quarter 2018 due to a higher number of large inland marine losses in Middle & Large Commercial, higher Small Commercial property losses in second quarter 2019 compared with lower than average fire-related property losses in second quarter 2018, and higher underwriting expenses, including higher commissions and planned investments in technology and other initiatives, partially offset by the impact of higher earned premiums
  • The combined ratio of 100.3, which included a 4.9 point impact from Navigators prior and current accident year loss reserve charges, rose 10.2 points from 90.1 in second quarter 2018

    • Excluding Navigators reserve charges, the combined ratio was 5.3 points higher due to a 3.2 point increase in the underlying combined ratio, a 1.9 point increase from less net favorable PYD, and a slightly higher current accident year catastrophe loss ratio
  • The underlying combined ratio of 93.2, which does not include the 1.5 point Navigators current accident year loss reserve charge, was 3.2 points higher than second quarter 2018, reflecting a 1.8 point increase in the current accident year loss and loss adjustment expense ratio before catastrophes and a 1.3 point increase in the expense ratio

    • The increase in the current accident year loss and loss adjustment expense ratio before catastrophes was principally due to higher property losses in Small Commercial and in Middle & Large Commercial
    • The increase in the expense ratio reflected higher commissions, state taxes, and state assessments as well as planned increases in operating and other expenses in Middle & Large Commercial and Small Commercial businesses
    • Small Commercial underlying combined ratio increased by 2.6 points to 87.8 driven by a higher expense ratio principally due to higher commissions as well as increased expenses related to the 2018 Foremost renewal rights agreement, an increase in the 2019 property loss ratio compared to favorable 2018 experience, and a higher workers’ compensation loss ratio due to lower workers’ compensation earned pricing levels in 2019
    • Middle & Large Commercial underlying combined ratio rose by 3.8 points to 100.9 principally due to the impact of a higher number of large inland marine losses on the loss and loss adjustment expense ratio and of higher commissions and planned information technology investments and operations costs on the expense ratio
    • Global Specialty underlying combined ratio of 90.7 was 2.6 points higher than second quarter 2018 primarily due to the higher underlying combined ratio on the Navigators business, which comprised the majority of the Global Specialty business in second quarter 2019, compared with the lower combined ratio on financial products and bond business, which comprised the majority of the Global Specialty business in second quarter 2018
  • The company also provided its second half 2019 outlook for the Commercial Lines combined ratios[1], including Navigators as well as the impact of intangibles amortization of:

    • Combined ratio of 95.0% to 97.0% for second half 2019, including current accident year catastrophe loss ratio of 2.6%[2] and unfavorable PYD from accretion of discount on workers’ compensation reserves of 0.4%
    • Underlying combined ratio outlook of 92.0% to 94.0% for second half 2019, with a range of 94.5% to 96.5% for Global Specialty

[1] 2H19 Commercial Lines outlook, incorporating purchase accounting impacts, including intangibles amortization, are management estimates based on business, competitive, capital market, catastrophe and other assumptions. Actual 2019 results are subject to unusual or unpredictable items such as weather or catastrophe losses, change in loss frequency and severity, regulatory changes or assessments, PYD, capital markets or investment results and other factors that are not within management’s control. The company has frequently experienced unusual or unpredictable changes in revenues, expenses or other items that were not anticipated in prior outlooks.

[2] 2H19 Commercial Lines actual catastrophes results are likely to be different and will fluctuate quarterly due to seasonal variations.

Personal Lines

  • Personal Lines written premiums of $824 million declined 4% from second quarter 2018 as strong new business premium growth, renewal written price increases, and improved policy retention rates did not offset the loss of premium from non-renewals. In second quarter 2019, new business premium of $79 million rose $26 million, or 49%, over second quarter 2018, reflecting the benefit of increased marketing initiatives. Policy count retention ratios improved to 85% for both auto and homeowners in second quarter 2019 from 82% in auto and 84% in homeowners in second quarter 2018. Premium retention improved for auto to 87% from 86% in second quarter 2019 while homeowners’ premium retention was down one point to 90%
  • Personal Lines net income of $62 million was up $56 million from $6 million in second quarter 2018 due to lower current accident year catastrophe losses and, to a lesser extent, higher net investment income

    • Catastrophe losses decreased 58% from $114 million in second quarter 2018 to $48 million in second quarter 2019
    • Net investment income rose to $46 million, before tax, from $37 million, before tax, in part due to higher LP returns
  • Core earnings of $55 million were up $53 million from $2 million in second quarter 2018 principally due to better underwriting results primarily due to lower catastrophe losses and higher net investment income
  • The combined ratio of 97.5 decreased from 104.9 in second quarter 2018 primarily due to a 7.3 point decrease in the current accident year catastrophe loss ratio and a 0.7 point reduction in unfavorable PYD, partially offset by a 1.1 point increase in the expense ratio; the increase in expense ratio was largely due to planned investments in information technology and marketing expenses

    • The auto combined ratio of 97.2 was 2.5 points better than second quarter 2018 as lower current accident year catastrophe losses, lower current accident year losses and loss adjustment expenses before catastrophes, and higher net favorable PYD were offset in part by a higher expense ratio
    • The homeowners combined ratio was down 18.5 points to 99.3 from 117.8 in second quarter 2018 primarily due to an 18.8 point decline in the current accident year catastrophe loss ratio and a 2.4 point decrease in net unfavorable PYD
  • The underlying combined ratio of 91.0 was 0.6 point higher than second quarter 2018, as the 1.1 point increase in the expense ratio was partially offset by a 0.6 point improvement in the current accident year loss and loss adjustment expense ratio before catastrophes, mainly due to improvement in auto

    • The auto underlying combined ratio of 96.7 was 0.2 point higher than in second quarter 2018 due to the higher expense ratio partially offset by a lower current accident year loss and loss adjustment expense ratio before catastrophes due to favorable frequency trends
    • The homeowners underlying combined ratio rose 2.8 points to 79.2 from second quarter 2018 primarily due to increased average severity and the increase in the expense ratio

Group Benefits

  • Fully insured ongoing premiums, excluding buyouts, of $1.4 billion were 2% higher than second quarter 2018 due to in-force growth in group disability and voluntary business. Group disability premiums rose 6% while group life premiums decreased 3% from second quarter 2018
  • Fully insured ongoing sales, excluding buyouts, of $99 million were up 16% from $85 million in second quarter 2018

    • Group disability sales of $48 million increased 2% from second quarter 2018 while group life sales of $43 million rose 26%
  • Group Benefits net income of $113 million rose 18% from $96 million in second quarter 2018 and core earnings were $115 million increased 11%, from $104 million over the same period. Both increases were driven by better disability loss results and higher net investment income, while higher net realized capital gains also contributed to the increase in net income

    • The net income margin rose to 7.3% from 6.3% in second quarter 2018
    • The core earnings margin was 7.5% compared with 6.9% in second quarter 2018
  • The total loss ratio of 74.6% improved 0.9 point from second quarter 2018 due to a better group disability loss ratio, which was partially offset by a slight increase in the group life loss ratio

    • The 1.4 point decrease in the group disability loss ratio was due primarily to continued favorable incidence trends
    • The 0.4 point slight increase in the group life loss ratio was within expected mortality trends in 2Q19
  • The expense ratio of 23.9% was flat with second quarter 2018 due to planned investments in technology and higher commissions, offset by expense synergies and lower amortization of intangible assets from the 2017 acquisition

Hartford Funds

  • Hartford Funds net income and core earnings of $38 million were flat with second quarter 2018
  • Hartford Funds AUM at June 30, 2019, rose to $121 billion, up 4% from June 30, 2018, and 16% from Dec. 31, 2018, reflecting strong equity market performance in the first half of 2019 offset in part by decreases in Talcott Resolution life and annuity separate account AUM due to the runoff of that business

    • Mutual fund and ETP net outflows totaled $105 million in second quarter 2019, compared with net inflows of $473 million in second quarter 2018 primarily due to lower flow into international and emerging market equity funds
  • Hartford Funds average daily AUM was $118 billion in second quarter 2019, up 1% from second quarter 2018

Corporate

  • Net loss of $43 million in second quarter 2019 declined from net income of $66 million in second quarter 2018 largely due to $148 million of income f

Contacts

Media Contacts

Michelle Loxton

860-547-7413

michelle.loxton@thehartford.com

Matthew Sturdevant

860-547-8664

matthew.sturdevant@thehartford.com

Investor Contact

Sabra Purtill, CFA

860-547-8691

sabra.purtill@thehartford.com

Susan Spivak Bernstein

860-547-6233

susan.spivak@thehartford.com

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