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8-K - FORM 8-K - HARTFORD FINANCIAL SERVICES GROUP, INC. | c23867e8vk.htm |
EX-99.2 - EXHIBIT 99.2 - HARTFORD FINANCIAL SERVICES GROUP, INC. | c23867exv99w2.htm |
Exhibit 99.1
NEWS RELEASE
THE HARTFORD REPORTS THIRD QUARTER 2011 FINANCIAL RESULTS
| Third quarter core earnings* of $33 million or $0.05 per diluted share, including previously disclosed deferred acquisition cost (DAC) unlock and catastrophe losses |
| Net income of $0 million, or $(0.02) per diluted share, including DAC unlock charge of $516 million |
| Current accident year catastrophe losses of $134 million after tax |
| P&C Commercial written premiums increased 7% |
| Book value per diluted common share increased 11% to $46.72 compared with September 30, 2010 |
HARTFORD, Conn., November 2, 2011 The Hartford (NYSE:HIG) reported third quarter 2011 net income
of $0 million, or $(0.02) per diluted share. Third quarter 2010 net income was $666 million, or
$1.34 per diluted share.
Third quarter 2011 core earnings were $33 million, or $0.05 per diluted share. In the third quarter
of 2010, core earnings were $705 million, or $1.42 per diluted share. Weighted average diluted
shares outstanding were 473.4 million in the third quarter of 2011 compared with 495.3 million in
the third quarter of 2010.
In the third quarter, the industry faced a combination of capital markets volatility and
significant catastrophe claims, said The Hartfords Chairman, President and CEO Liam E. McGee.
These conditions were a good test for the improvements we have made throughout the organization,
particularly in enterprise risk management. Despite the challenges, the underlying performance of
the businesses was good, the investment portfolio held up well, and our capital position remained
strong.
We are using all the levers we control to improve profitability and help offset the impact of
lower investment yields. These include pricing actions and creating a more efficient operating
model across the businesses. We are encouraged by the continued momentum in renewal written price
increases in P&C Commercial. In Wealth Management, we are diversifying product offerings and
distribution channels to drive profitability, added McGee.
THIRD QUARTER 2011 FINANCIAL RESULTS
Three Months Ended | ||||||||||||
Sept. 30, | Sept. 30, | |||||||||||
($ in millions, except per share data) | 2011 | 2010 | Change | |||||||||
Net income |
$ | 0 | $ | 666 | (100 | %) | ||||||
Net income (loss) available to common shareholders
per diluted share |
$ | (0.02 | ) | $ | 1.34 | NM | ||||||
Core earnings |
$ | 33 | $ | 705 | (95 | %) | ||||||
Core earnings available to
common shareholders per diluted
share* |
$ | 0.05 | $ | 1.42 | (96 | %) | ||||||
Book value per diluted common share |
$ | 46.72 | $ | 42.11 | 11 | % | ||||||
Book value per diluted common share
(ex. accumulated other comprehensive income (AOCI))* |
$ | 44.54 | $ | 41.72 | 7 | % |
The Hartford defines increases or decreases greater than or equity to 200% or changes from a
net gain to a net loss position, or vice versa, as NM or not meaningful.
The third quarter of 2011 included the following items that reduced both core earnings and net
income by $408 million and $697 million, respectively:
| A negative DAC unlock charge of $227 million after tax, included in core earnings. This charge includes the companys annual assumptions review and the impact of lower estimated future gross profits due to lower account values resulting from the decline in global equity market values. The DAC unlock charge reduced net income by $516 million after tax; |
| Current accident year catastrophe losses of $134 million after tax, or 8.3 points on the property and casualty combined ratio for P&C Commercial and Consumer Markets; |
| Reestimation of current accident year losses in Commercial Markets of $31 million after tax, or 3.0 points on the P&C Commercial combined ratio; |
| A $14 million after-tax charge related to assessments in connection with the liquidation of Executive Life Insurance Company of New York; and |
| Prior year reserve strengthening of $2 million after tax, including a $12 million after-tax charge due to environmental reserve strengthening resulting from the companys annual review of its legacy environmental liabilities. |
2
COMMERCIAL MARKETS
Third Quarter 2011 Highlights:
| P&C Commercial written premiums increased 7% from the third quarter of 2010, reflecting renewal written price increases, strong retention and increased exposures; |
| P&C Commercial combined ratio of 99.4% included 3.0 points for reestimation of current accident losses for the first half of 2011; and |
| Group Benefits loss ratio of 80.1% compared with 77.1% in the third quarter of 2010, reflecting less favorable life mortality and continued elevated disability claims incidence. |
Three Months Ended | ||||||||||||
P&C COMMERCIAL | Sept. 30, | Sept. 30, | ||||||||||
($ in millions) | 2011 | 2010 | Change | |||||||||
Written premiums |
$ | 1,551 | $ | 1,447 | 7 | % | ||||||
Combined ratio1 |
99.4 | % | 92.2 | % | (7.2 | ) |
[1] | Excludes catastrophes and prior year development* |
Three Months Ended | ||||||||||||
GROUP BENEFITS | Sept. 30, | Sept. 30, | ||||||||||
($ in millions) | 2011 | 2010 | Change | |||||||||
Fully insured premiums2 |
$ | 1,000 | $ | 1,043 | (4 | %) | ||||||
Loss ratio2 |
80.1 | % | 77.1 | % | 3.0 |
[2] | Excludes buyout premiums |
Commercial Markets net income was $77 million in the third quarter of 2011 compared with $352
million in the third quarter of 2010. Core earnings for the division were $106 million in the third
quarter of 2011 compared with $338 million in the third quarter of 2010.
P&C Commercial core earnings totaled $86 million in the third quarter of 2011, down from $294
million in the third quarter of 2010 as a result of higher catastrophe losses, reduced favorable
prior accident year development and higher current accident year loss costs. Catastrophe losses in
the current quarter totaled $93 million before tax, or 6.0 points on the P&C Commercial combined
ratio, compared with $13 million before tax, or 0.9 points, in the third quarter of 2010. This
quarters catastrophe losses included $57 million before tax, resulting from Hurricane Irene. Prior
accident year development declined from a favorable $118 million before tax in the third quarter of
2010 to $9 million before tax in the third quarter of 2011.
Excluding catastrophes and prior year development, the combined ratio was 99.4% in the third
quarter of 2011, up from 92.2% in the third quarter of 2010. The increase in the third quarter of
2011 combined ratio reflects higher loss costs, including higher non-cat property losses and
adverse current accident year development related to the first half of 2011 of $47 million before
tax, or 3.0 points on the combined ratio, principally due to increased frequency trends in workers
compensation.
3
Group Benefits core earnings in the third quarter of 2011 were $20 million compared with $44
million in the third quarter of 2010, reflecting sustained elevated group disability claims and
less favorable life mortality. Fully insured premium of $1.0 billion declined 4% from the third
quarter
of 2010, as a result of the competitive market environment, continued soft employment conditions
and the companys efforts to increase pricing. The loss ratio was 80.1% in the third quarter of
2011 compared with 77.1% in the third quarter of 2010 due to an increase in the group life loss
ratio resulting from less favorable and continued elevated disability incidence levels in the
current year third quarter.
CONSUMER MARKETS
Third Quarter 2011 Highlights:
| New business premiums increased by 8% in auto as a result of improved direct marketing responses and policy conversions in AARP; |
| Policy retention for auto improved 1 point to 83%, reflecting moderating renewal written price increases of 4% in the third quarter of 2011 compared with 8% in the third quarter of 2010; and |
| Announced new affinity partnership with the National Wildlife Federation, an organization with over 4 million members, partners and supporters, resulting in a marketing base of more than 10 million new affinity members generated over the past twelve months. |
Three Months Ended | ||||||||||||
CONSUMER MARKETS | Sept. 30, | Sept. 30, | ||||||||||
($ in millions) | 2011 | 2010 | Change | |||||||||
Written premiums |
$ | 964 | $ | 1,014 | (5 | %) | ||||||
Combined ratio1 |
95.6 | % | 93.3 | % | (2.3 | ) |
[1] | Excludes catastrophes and prior year development* |
Consumer Markets reported a net loss of $16 million in the third quarter of 2011 compared with
net income of $70 million in the third quarter of 2010. Core losses were $10 million in the third
quarter of 2011 compared with core earnings of $69 million in the third quarter of 2010. The third
quarter of 2011 included current accident year catastrophe losses of $113 million before tax, or
12.2 points on the combined ratio, compared with $42 million, or 4.3 points, in the third quarter
of 2010. Favorable prior accident year reserve development was $9 million, before tax in the third
quarter of 2011, down from a favorable $34 million before tax in the third quarter of 2010.
Excluding catastrophes and prior year development, the combined ratio for Consumer Markets was
95.6% in the third quarter of 2011, up from 93.3% in the third quarter of 2010, largely due to the
impact of non-catastrophe weather-related claims.
4
WEALTH MANAGEMENT
Third Quarter 2011 Highlights:
| Individual Life sales increased 9% in the third quarter of 2011 and 12% in the first nine months of 2011 compared with the third quarter and nine months of 2010, respectively, due to expanded distribution channels; |
| Retirement Plans deposits rose 22% in the quarter and 13% year-to-date compared with the third quarter of 2010 reflecting stronger 401(k) flows; and |
| Assets under management were $277.7 billion as of September 30, 2011, 7% lower than in the third quarter of 2010, reflecting net outflows in Global Annuity and Mutual Funds, as well as the impact of the decline in global equity market levels on assets under management during the quarter. |
WEALTH MANAGEMENT | Sept. 30, | Sept. 30, | ||||||||||
($ in billions) | 2011 | 2010 | Change | |||||||||
Assets Under Management as of: |
||||||||||||
Global Annuity |
$ | 132.9 | $ | 149.1 | (11 | %) | ||||||
Non-Proprietary Mutual Funds |
47.3 | 51.7 | (9 | %) | ||||||||
Retirement Plans |
49.7 | 49.3 | 1 | % | ||||||||
Life Insurance |
47.8 | 47.3 | 1 | % | ||||||||
Total |
$ | 277.7 | $ | 297.4 | (7 | %) | ||||||
Wealth Management net income was $38 million in the third quarter of 2011 compared with $320
million in the third quarter of 2010. The DAC unlock in the third quarter of 2011, which included
the annual assumptions update, resulted in a $516 million charge after tax to net income compared
with a $193 million benefit after tax in the third quarter of 2010. The charge in the third quarter
of 2011 reflected the impact of lower estimated future gross profits, due to the decline in account
values resulting from lower global equity market levels as of September 30, 2011 and the impact of
Japan hedging costs on estimated future gross profits, as well as the update of policyholder
behavior and other assumptions changes. The impact of the DAC unlock charge on core earnings was $227
million.
Core earnings for the third quarter of 2011 were $11 million compared with $402 million in the
third quarter of 2010. Core earnings, excluding the DAC unlock*, increased slightly in the third
quarter of 2011 to $238 million compared with $233 million in the third quarter of 2010.
Results for the third quarter of 2011 also include a $14 million
charge, after tax, for assessments in connection with the liquidation of Executive Life Insurance
Company of New York.
5
Total assets under management in Wealth Management at September 30, 2011 declined 7% compared with
September 30, 2010 due to surrenders in Global Annuity, net outflows in Mutual Funds, and the
decline in global equity market levels. Strong sales and deposits in Life Insurance and Retirement
Plans, which increased 9% and 22%, respectively, in third quarter of 2011, helped offset the
decline in assets under management.
INVESTMENTS
Third Quarter 2011 Highlights:
| Net investment income, excluding trading securities, decreased 1% in the third quarter of 2011 compared with the third quarter of 2010; |
| Net impairment losses totaled $60 million before tax; and |
| Net unrealized gains after tax were $1.6 billion as of September 30, 2011. |
Net investment income, excluding trading securities, was $1.1 billion in the third quarter of 2011,
a 1% decline compared with the third quarter of 2010. Net investment income declined as a result of
lower portfolio yields, consistent with market trends. Annualized returns on limited partnerships
and other alternative investments were 13% in the third quarter of 2011 compared with 12% in the
third quarter of 2010.
The net unrealized gain after tax on the investment portfolio increased by $789 million from
September 30, 2010 to September 30, 2011, primarily due to lower interest rates. Total invested
assets, excluding trading securities, were $105.4 billion as of September 30, 2011, up 4% compared
with $101.1 billion at September 30, 2010.
CORPORATE AND OTHER
The Corporate and Other segment net loss for the third quarter of 2011 was $99 million compared
with a net loss of $76 million in the third quarter of 2010. Core losses were $74 million, down
from core losses of $104 million in the third quarter of 2010. In the third quarter 2011, the
company completed its annual review of its legacy environmental liabilities, resulting in a reserve
charge of $12 million after tax compared with a reserve charge of $40 million after tax in the third quarter of 2010.
SHAREHOLDERS EQUITY
The Hartfords shareholders equity rose 9% at September 30, 2011 to $22.8 billion compared with
$20.9 billion at September 30, 2010. Book value per diluted common share, which includes the
dilutive effect of derivative securities such as the companys outstanding warrants and mandatory
convertible preferred stock, was $46.72 at September 30, 2011, an increase of 11% compared with
$42.11 at September 30, 2010. The improvement in shareholders equity and book value per diluted
common share reflects the companys net income of $1.2 billion over the past 12 months and the
increase in AOCI of $871 million, which were partially offset by dividends paid and other items
during the past year. Excluding AOCI, book value per diluted common share was $44.54 at September
30, 2011, an increase of 7% from the $41.72 at September 30, 2010.
6
CONFERENCE CALL
The Hartford will discuss its third quarter of 2011 results in a conference call on Thursday,
November 3 at 9 a.m. EDT. The call, along with a slide presentation, can be accessed live or as a
replay through the investor relations section of The Hartfords website at www.ir.thehartford.com.
The slide presentation will be posted on The Hartfords website at 8:30 a.m. EDT on November 3.
More detailed financial information can be found in The Hartfords Investor Financial Supplement
for the third quarter of 2011 and in the companys Form 10-Q for the quarter ended September 30,
2011, which are also available at www.ir.thehartford.com.
*Denotes financial measures not calculated based on generally accepted accounting principles
(non-GAAP). More information is provided in the Discussion of Non-GAAP Financial Measures section
below.
ABOUT THE HARTFORD
The Hartford Financial Services Group Inc. (NYSE: HIG) is a leading provider of insurance and
wealth management services for millions of consumers and businesses worldwide. The Hartford is
consistently recognized for its superior service and as one of the worlds most ethical companies.
More information on the company and its financial performance is available at www.thehartford.com.
HIG-F
Media Contact:
|
Investor Contact: | |
Dave Snowden
|
Sabra Purtill | |
860-547-3397
|
860-547-8691 | |
david.snowden@thehartford.com
|
sabra.purtill@thehartford.com | |
Ryan Greenier | ||
860-547-8844 | ||
ryan.greenier@thehartford.com |
7
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
INCOME STATEMENTS BY DIVISION
($ in millions)
INCOME STATEMENTS BY DIVISION
($ in millions)
Three months ended September 30, 2011
Commercial | Consumer | Wealth | Corporate & | |||||||||||||||||
Markets | Markets | Management | Other | Consolidated | ||||||||||||||||
Earned premiums |
$ | 2,553 | $ | 930 | $ | 35 | $ | | $ | 3,518 | ||||||||||
Fee income |
16 | | 1,121 | 55 | 1,192 | |||||||||||||||
Net investment income (loss) |
||||||||||||||||||||
Securities available-for-sale and other |
319 | 46 | 659 | 38 | 1,062 | |||||||||||||||
Equity securities held for trading [1] |
| | (1,890 | ) | | (1,890 | ) | |||||||||||||
Total net investment income (loss) |
319 | 46 | (1,231 | ) | 38 | (828 | ) | |||||||||||||
Other revenues |
28 | 35 | | | 63 | |||||||||||||||
Net realized capital gains (losses) |
(45 | ) | (10 | ) | 686 | (56 | ) | 635 | ||||||||||||
Total revenues |
2,871 | 1,001 | 611 | 37 | 4,520 | |||||||||||||||
Benefits, losses, and loss adjustment expenses |
1,983 | 767 | 1,241 | 15 | 4,006 | |||||||||||||||
Benefits, losses, and loss adjustment expenses returns credited on
International variable annuities [1] |
| | (1,889 | ) | | (1,889 | ) | |||||||||||||
Amortization of deferred policy acquisition costs |
354 | 159 | 807 | | 1,320 | |||||||||||||||
Insurance operating costs and other expenses |
451 | 106 | 440 | 62 | 1,059 | |||||||||||||||
Interest expense |
| | | 128 | 128 | |||||||||||||||
Total benefits and expenses |
2,788 | 1,032 | 599 | 205 | 4,624 | |||||||||||||||
Income (loss) from continuing operations before income taxes |
83 | (31 | ) | 12 | (168 | ) | (104 | ) | ||||||||||||
Income tax expense (benefit) |
4 | (15 | ) | (26 | ) | (64 | ) | (101 | ) | |||||||||||
Income (loss) from continuing operations |
79 | (16 | ) | 38 | (104 | ) | (3 | ) | ||||||||||||
Income(loss) from discontinued operations, net of tax |
(2 | ) | | | 5 | 3 | ||||||||||||||
Net income (loss) |
77 | (16 | ) | 38 | (99 | ) | | |||||||||||||
Less: Income (loss )from discontinued operations, net of tax |
(2 | ) | | | 5 | 3 | ||||||||||||||
Less: Net realized gains (losses), net of tax and DAC, excluded from core earnings |
(27 | ) | (6 | ) | 27 | (30 | ) | (36 | ) | |||||||||||
Core earnings (loss) |
$ | 106 | $ | (10 | ) | $ | 11 | $ | (74 | ) | $ | 33 | ||||||||
Three months ended September 30, 2010
Commercial | Consumer | Wealth | Corporate & | |||||||||||||||||
Markets | Markets | Management | Other | Consolidated | ||||||||||||||||
Earned premiums |
$ | 2,482 | $ | 985 | $ | 45 | $ | 1 | $ | 3,513 | ||||||||||
Fee income |
15 | | 1,103 | 46 | 1,164 | |||||||||||||||
Net investment income |
||||||||||||||||||||
Securities available-for-sale and other |
333 | 46 | 649 | 45 | 1,073 | |||||||||||||||
Equity securities held for trading [1] |
| | 1,043 | | 1,043 | |||||||||||||||
Total net investment income |
333 | 46 | 1,692 | 45 | 2,116 | |||||||||||||||
Other revenues |
26 | 40 | | | 66 | |||||||||||||||
Net realized capital gains (losses) |
4 | 1 | (309 | ) | 47 | (257 | ) | |||||||||||||
Total revenues |
2,860 | 1,072 | 2,531 | 139 | 6,602 | |||||||||||||||
Benefits, losses, and loss adjustment expenses |
1,599 | 689 | 685 | 64 | 3,037 | |||||||||||||||
Benefits, losses, and loss adjustment expenses
returns credited on International variable annuities
[1] |
| | 1,043 | | 1,043 | |||||||||||||||
Amortization of deferred policy acquisition costs |
353 | 167 | (89 | ) | | 431 | ||||||||||||||
Insurance operating costs and other expenses |
427 | 118 | 442 | 59 | 1,046 | |||||||||||||||
Interest expense |
| | | 128 | 128 | |||||||||||||||
Total benefits and expenses |
2,379 | 974 | 2,081 | 251 | 5,685 | |||||||||||||||
Income (loss) from continuing operations before
income taxes |
481 | 98 | 450 | (112 | ) | 917 | ||||||||||||||
Income tax expense (benefit) |
136 | 28 | 127 | (39 | ) | 252 | ||||||||||||||
Income (loss) from continuing operations |
345 | 70 | 323 | (73 | ) | 665 | ||||||||||||||
Income (loss) from discontinued operations, net of tax |
7 | | (3 | ) | (3 | ) | 1 | |||||||||||||
Net income (loss) |
352 | 70 | 320 | (76 | ) | 666 | ||||||||||||||
Less: Income (loss) from discontinued operations,
net of tax |
7 | | (3 | ) | (3 | ) | 1 | |||||||||||||
Less: Net realized gains (losses), net of tax and
DAC, excluded from core earnings |
7 | 1 | (79 | ) | 31 | (40 | ) | |||||||||||||
Core earnings (loss) |
$ | 338 | $ | 69 | $ | 402 | $ | (104 | ) | $ | 705 | |||||||||
[1] | Includes investment income and mark-to-market effects of equity securities, trading, supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses. |
8
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
RESULTS BY SEGMENT
($ in millions, except per share data)
RESULTS BY SEGMENT
($ in millions, except per share data)
THREE MONTHS ENDED | ||||||||||||
Sept. 30, | Sept. 30, | |||||||||||
2011 | 2010 | Change | ||||||||||
Property & Casualty Commercial |
$ | 86 | $ | 294 | (71 | %) | ||||||
Group Benefits |
20 | 44 | (55 | %) | ||||||||
Commercial Markets core earnings |
106 | 338 | (69 | %) | ||||||||
Consumer Markets core earnings (losses) |
(10 | ) | 69 | NM | ||||||||
Global Annuity |
146 | 146 | | |||||||||
Life Insurance |
56 | 57 | (2 | %) | ||||||||
Retirement Plans |
12 | 10 | 20 | % | ||||||||
Mutual Funds |
24 | 20 | 20 | % | ||||||||
Wealth Management core earnings,
Excluding DAC unlock |
238 | 233 | 2 | % | ||||||||
DAC unlock |
(227 | ) | 169 | NM | ||||||||
Wealth Management core earnings |
11 | 402 | (97 | %) | ||||||||
Corporate and Other core losses |
(74 | ) | (104 | ) | 29 | % | ||||||
Core earnings |
33 | 705 | (95 | %) | ||||||||
Add: Net realized capital losses, net
of Tax and DAC, excluded from core
earnings |
(36 | ) | (40 | ) | 10 | % | ||||||
Add: Income from discontinued operations |
3 | 1 | NM | |||||||||
Net Income |
$ | | $ | 666 | (100 | %) | ||||||
PER DILUTED COMMON SHARE DATA: |
||||||||||||
Core earnings |
$ | 0.05 | $ | 1.42 | (96 | %) | ||||||
Add: Net realized capital losses, net
of tax and DAC, excluded from core
earnings |
(0.08 | ) | (0.08 | ) | | |||||||
Add: Income from discontinued operations |
0.01 | | 100 | % | ||||||||
Net income (loss) available to common
shareholders |
$ | (0.02 | ) | $ | 1.34 | NM | ||||||
[1] | NM: The Hartford defines increases or decreases greater than or equity to 200% or changes from a net gain to a net loss position, or vice versa, as NM or not meaningful. |
9
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
2011 FISCAL YEAR KEY DRIVER GUIDANCE
2011 FISCAL YEAR KEY DRIVER GUIDANCE
Commercial Markets | ||
P&C Commercial |
||
Combined Ratio1 |
95.5% 96.5%* | |
Written Premium Growth |
5.0% 8.0% | |
Group Benefits |
||
Loss Ratio |
76.0% 79.0% | |
Fully Insured Ongoing Premiums2 |
$3.9 $4.1 Billion |
[1] | Excludes catastrophes and prior year development | |
[2] | Guidance for fully insured ongoing premiums excludes buyout premiums and premium equivalents |
Consumer Markets | ||
Consumer Markets |
||
Combined Ratio3 |
89.0% 92.0% | |
Written Premium Growth |
(5.5%) (2.5%) |
[3] | Excludes catastrophes and prior year development |
Wealth Management | ||||||
Deposits | Net Flows | Core Earnings ROA4 | ||||
Global Annuity |
| | 45 50 bps* | |||
U.S. Fixed and Variable Annuity |
$1.0 $1.5 Billion* | ($13.0) ($12.0) Billion* | | |||
Retirement Plans |
$9.5 $10.0 Billion* | $1.0 $1.5 Billion* | 10 12 bps* | |||
Mutual Funds5 |
$15.0 $17.0 Billion* | $(5.0) $(3.0) Billion* | 9 11 bps* | |||
Life Insurance |
||||||
Sales |
$210 $260 Million | |||||
After-tax Margin, excl. DAC
Unlocks6 |
12.0% 15.0% |
[4] | ROA outlooks exclude impact of DAC unlocks | |
[5] | Mutual Fund Deposits and Net Flows guidance excludes proprietary mutual funds | |
[6] | Guidance on after-tax margin is core earnings divided by total core revenue |
*Reflects updated guidance metric
10
DISCUSSION OF NON-GAAP FINANCIAL MEASURES
The Hartford uses non-GAAP financial measures in this press release to assist investors in
analyzing the companys operating performance for the periods presented herein. Because The
Hartfords calculation of these measures may differ from similar measures used by other companies,
investors should be careful when comparing The Hartfords non-GAAP financial measures to those of
other companies. Definitions and calculations of other financial measures used in this press
release can be found in The Hartfords Investor Financial Supplement for the third quarter of 2011,
which is available on The Hartfords website, www.ir.thehartford.com.
Book value per diluted common share excluding accumulated other comprehensive income
(AOCI): Book value per diluted common share excluding AOCI is a non-GAAP financial measure
based on a GAAP financial measure. It is calculated by dividing (a) common stockholders equity
excluding AOCI, net of tax, by (b) diluted common shares outstanding. The Hartford provides book
value per diluted common share excluding AOCI to enable investors to analyze the companys
shareholders equity excluding the effect of changes in the value of the companys investment
portfolio and other assets due to interest rates, currency and other factors. The Hartford believes
book value per diluted common share excluding AOCI is useful to investors because it eliminates the
effect of items that can fluctuate significantly from period to period, primarily based on changes
in market value. Shareholders equity per diluted common share is the most directly comparable GAAP
measure. A reconciliation of shareholders equity per diluted common share to book value per
diluted common share excluding AOCI as of September 30, 2011 and September 30, 2010, is set forth
below.
THREE MONTHS ENDED | ||||||||||||
Sept. 30, | Sept. 30, | |||||||||||
2011 | 2010 | Change | ||||||||||
Shareholders equity per
diluted common share, including
AOCI |
$ | 46.72 | $ | 42.11 | 11 | % | ||||||
Less: Per share impact of AOCI |
2.18 | 0.39 | NM | |||||||||
Book value per diluted common
share, excluding AOCI |
$ | 44.54 | $ | 41.72 | 7 | % | ||||||
11
Combined ratio before catastrophes and prior accident year development: Combined ratio
before catastrophes and prior accident year development is a non-GAAP financial measure. Combined
ratio is the most directly comparable GAAP measure. The combined ratio is the sum of the loss and
loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio
measures the cost of losses and expenses for every $100 of earned premiums. A combined ratio below
100% demonstrates a positive underwriting result. A combined ratio above 100% indicates a negative
underwriting result. The combined ratio before catastrophes and prior accident year development
represents the combined ratio for the current accident year, excluding the impact of catastrophes.
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
development. A reconciliation of the combined ratio to the combined ratio before catastrophes and
prior year development is provided in the table below.
THREE MONTHS | ||||||||
ENDED | ||||||||
Sept. 30, 2011 | Sept. 30, 2010 | |||||||
P&C Commercial |
||||||||
Combined ratio |
104.8 | % | 84.9 | % | ||||
Less: Prior year reserve development |
(0.6 | ) | (8.2 | ) | ||||
Less: Current year catastrophe losses |
6.0 | 0.9 | ||||||
Combined ratio before prior year development & catastrophes |
99.4 | % | 92.2 | % | ||||
Consumer Markets |
||||||||
Combined ratio |
106.8 | % | 94.1 | % | ||||
Less: Prior year reserve development |
(1.0 | ) | (3.5 | ) | ||||
Less: Current year catastrophe losses |
12.2 | 4.3 | ||||||
Combined ratio before prior year development & catastrophes |
95.6 | % | 93.3 | % |
Core Earnings: The Hartford uses the non-GAAP financial measure core earnings as a
measure of the companys operating performance. The Hartford believes that the measure core
earnings provides investors with a measure of the performance of the companys ongoing businesses
because it reveals trends in the companys insurance and financial services businesses before the
net effect of certain realized capital gains and losses and discontinued operations. Some realized
capital gains and losses are primarily driven by investment decisions and external economic
developments, the nature and timing of which are unrelated to the insurance and underwriting
activities of the companys business.
Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the
effects of deferred policy acquisition costs) 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 the companys insurance operations, so core earnings
includes certain net realized gains and losses such as net periodic settlements on credit
derivatives and net periodic settlements on the Japan fixed annuity cross currency swap. These net
realized gains and losses are directly related to an offsetting item included in the statement of
operations such as net investment income (loss). Net income is the most directly comparable GAAP
measure. Core earnings should not be considered as a substitute for net income and does not reflect
the overall profitability of the companys business. Therefore, The Hartford believes that it is
useful for investors to evaluate both net income and core earnings when reviewing the companys
performance. A reconciliation of core earnings to net income as of September 30, 2011 and September
30, 2010, is included in this press release.
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Core earnings available to common shareholders per diluted share: Core earnings available
to common shareholders per diluted share is calculated based on the non-GAAP financial measure core
earnings. The Hartford believes that the measure core earnings per diluted common share provides
investors with a valuable measure of the companys operating performance for many of the same
reasons applicable to its underlying measure, core earnings. Net income per diluted common share is
the most directly comparable GAAP measure. Core earnings available to common shareholders per
diluted share should not be considered as a substitute for net income per diluted common share and
does not reflect the overall profitability of the companys business.
Therefore, The Hartford believes that it is useful for investors to evaluate both net income per
diluted common share and core earnings available to common shareholders per diluted share when
reviewing the companys performance. A reconciliation of core earnings available to common
shareholders per diluted share to net income per diluted common share as of September 30, 2011 and
September 30, 2010 is included in this press release under the heading The Hartford Financial
Services Group, Inc. Results By Segment.
Core earnings return on assets (ROA), excluding DAC unlock: Core earnings ROA, excluding
DAC unlock, is a non-GAAP financial measure that the company uses for certain segments in its
Wealth Management Division to evaluate, and believes is an important measure of, operating
performance. Core earnings ROA, excluding DAC unlock, excludes (i) the net realized gains (losses),
net of tax and DAC, excluded from core earnings, (ii) the effect of discontinued operations; and
(iii) the effect of the DAC unlock on ROA. ROA is the most directly comparable U.S. GAAP measure.
The Hartford believes that core earnings ROA, excluding DAC unlock provides investors with a
measure of the performance of the companys on-going businesses because it reveals trends in
businesses that may be obscured by the effect of including net realized gains (losses), net of tax
and DAC, excluded from core earnings, the effect of including discontinued operations and the
effect of including the unlock. 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 insurance aspects of the companys business. Management believes, however, that some
realized capital gains and losses are integrally related to the companys insurance operations, and
core earnings ROA, excluding DAC unlock should not be considered a substitute for ROA and does not
reflect the overall profitability of the companys businesses. Therefore, the company believes it
is important for investors to evaluate, core earnings ROA, excluding unlock and ROA when reviewing
the companys performance. The 2011 fiscal year key driver guidance presented in this release
includes core earnings ROA, excluding DAC unlock. A quantitative reconciliation of The Hartfords
core earnings ROA, excluding DAC unlock, to ROA is not calculable on a forward-looking basis
because it is not possible to provide a reliable forecast of realized capital gains and losses and
DAC Unlocks, which typically vary substantially from period to period.
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Underwriting results: The Hartfords management evaluates profitability of the P&C
Commercial and Consumer Markets segments primarily on the basis of underwriting results.
Underwriting results is a before-tax measure that represents earned premiums less incurred losses,
loss adjustment expenses and underwriting expenses. Net income (loss) is the most directly
comparable GAAP measure. Underwriting results are influenced significantly by earned premium growth
and the adequacy of The Hartfords pricing. Underwriting profitability over time is also greatly
influenced by The Hartfords 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 results provides investors with a valuable measure of before-tax profitability derived
from underwriting activities, which are managed separately from the companys investing activities.
A reconciliation of underwriting results to net income (loss) as of September 30, 2011, and
September 30, 2010, is set forth below.
THREE MONTHS ENDED | ||||||||
Sept. 30, | Sept. 30, | |||||||
2011 | 2010 | |||||||
($ in millions) | ||||||||
P&C Commercial |
||||||||
Net income |
$ | 52 | $ | 306 | ||||
Less: Income (loss) from discontinued operations, after tax |
(2 | ) | 7 | |||||
Less: Net realized capital gains (Losses) after tax |
(32 | ) | 5 | |||||
Less: Income tax expense |
(19 | ) | (121 | ) | ||||
Less: Other expenses |
(37 | ) | (29 | ) | ||||
Less: Net investment income |
217 | 226 | ||||||
Underwriting results |
$ | (75 | ) | $ | 218 | |||
Consumer Markets |
||||||||
Net income (loss) |
$ | (16 | ) | $ | 70 | |||
Less: Net realized capital gains (losses) after tax |
(6 | ) | 1 | |||||
Less: Income tax benefit (expense) |
11 | (28 | ) | |||||
Less: Other expenses |
(4 | ) | (7 | ) | ||||
Less: Net investment income |
46 | 46 | ||||||
Underwriting results |
$ | (63 | ) | $ | 58 |
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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: challenges related to the companys current operating
environment, including continuing uncertainty about the strength and speed of the recovery in the
United States and other key economies and the impact of governmental stimulus and austerity
initiatives, sovereign credit concerns, including the potential consequences associated with
downgrades to the credit ratings of debt issued by the United States government, and other
developments on financial, commodity and credit markets and consumer spending and investment; the
success of initiatives relating to the realignment of The Hartfords business in 2010 and plans to
improve the profitability and long-term growth prospects of its key divisions, including through
acquisitions or divestitures, and the impact of regulatory or other constraints on the companys
ability to complete these initiatives and deploy capital among businesses as and when planned;
market risks associated with business, including changes in interest rates, credit spreads, equity
prices, foreign exchange rates, and implied volatility levels, as well as continuing uncertainty in
key sectors such as the global real estate market; volatility in earnings resulting from adjustment
of risk management program to emphasize protection of statutory surplus and cash flows; the impact
on statutory capital of various factors, including many that are outside the companys control,
which can in turn affect the companys and its subsidiaries credit and financial strength ratings,
cost of capital, regulatory compliance and other aspects of its business and results; risks to the
companys business, financial position, prospects and results associated with negative rating
actions or downgrades in the companys financial strength and credit ratings or negative rating
actions or downgrades relating to its investments; the potential for differing interpretations of
the methodologies, estimations and assumptions that underlie the valuation of the companys
financial instruments that could result in changes to investment valuations; the subjective
determinations that underlie the companys evaluation of other-than-temporary impairments on
available-for-sale securities; losses due to nonperformance or defaults by others; the potential
for further acceleration of deferred policy acquisition cost amortization; the potential for
further impairments of goodwill or the potential for changes in valuation allowances against
deferred tax assets; the possible occurrence of terrorist attacks and the companys ability to
contain its exposure, including the effect of the absence or insufficiency of applicable terrorism
legislation on coverage; the difficulty in predicting the companys potential exposure for asbestos
and environmental claims; the possibility of a pandemic, earthquake, or other natural or man-made
disaster that may adversely affect the companys businesses and cost and availability of
reinsurance; weather and other natural physical events, including the severity and frequency of
storms, hail, winter storms, hurricanes and tropical storms, as well as climate change and its
potential impact on weather patterns; the response of reinsurance companies under reinsurance
contracts and the availability, pricing and adequacy of reinsurance to protect the company against
losses; the possibility of unfavorable loss development; actions by competitors, many of which are
larger or have
15
greater financial resources than the company; the restrictions, oversight, costs and
other consequences of being a savings and loan holding company, including from the supervision,
regulation and examination by The Federal Reserve as the companys regulator and the Office of the
Controller of the Currency as regulator of Federal Trust Bank; the cost and other effects of
increased regulation as a result of the enactment of the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), which will, among other
effects, vest a newly created Financial Services Oversight Council with the power to designate
systemically important institutions, require central clearing of, and/or impose new margin and
capital requirements on, derivatives transactions, and may affect the companys ability as a
savings and loan holding company to manage its general account by limiting or eliminating
investments in certain private equity and hedge funds; the potential effect of other domestic and
foreign regulatory developments, including those that could adversely impact the demand for the
companys products, operating costs and required capital levels, including changes to statutory
reserves and/or risk-based capital requirements related to secondary guarantees under universal
life and variable annuity products or changes in U.S. federal or other tax laws that affect the
relative attractiveness of our investment products; the companys ability to distribute its
products through distribution channels, both current and future; the uncertain effects of emerging
claim and coverage issues; regulatory limitations on the ability of the company and certain of its
subsidiaries to declare and pay dividends; the companys 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; the companys ability to maintain the
availability of its systems and safeguard the security of its data in the event of a disaster or
other unanticipated events; the risk that the companys framework for managing business risks may
not be effective in mitigating material risk and loss; the potential for difficulties arising from
outsourcing relationships; the impact of potential changes in federal or state tax laws, including
changes affecting the availability of the separate account dividends received deduction; the impact
of potential changes in accounting principles and related financial reporting requirements; the
companys ability to protect its intellectual property and defend against claims of infringement;
unfavorable judicial or legislative developments; and other factors described in The Hartfords
Quarterly Reports on Form 10-Q, the 2010 Annual Report on Form 10-K and other filings The Hartford
makes with the Securities and Exchange Commission.
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 companys 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.
###
16