Hartford Financial Services Group Inc. said Monday that net income plunged more than 83 percent in the first quarter, in large part from losses on investments, including credit derivatives.
On an operating basis, the insurer beat Wall Street expectations, but slashed its outlook for full-year operating earnings largely because alternative investments, such as hedge funds, are expected to perform below earlier expectations, Chief Financial Officer David Johnson said in an interview.
Net earnings at Hartford, one of the largest U.S. life and property insurers, tumbled to $145 million, or 46 cents a share, from $876 million, or $2.71 a share, in the prior-year quarter, as the company recorded $647 million in net realized capital losses.
Operating earnings, which analysts use to measure performance, fell 6 percent to $792 million, or $2.51 a share, from $843 million, or $2.61 a share, in the year-ago period.
Analysts, on average, expected the life and property casualty insurer to earn $2.46 a share on that basis, according to Reuters Estimates. Operating earnings exclude net realized capital gains and losses.
The company forecast earnings on an operating basis of between $9.20 and $9.50 a share in 2008, cut from a prior range of $9.80 to $10.20.
Analysts, on average, expected Hartford to earn $9.90 a share in 2008 operating earnings, according to Reuters Estimates.
Johnson said that about one-third of the capital losses, or $220 million, were related to the adoption of a new accounting method, while $191 million stemmed from the write-down of some investments to market value. About $111 million came from losses on a credit derivatives portfolio.
Credit derivatives are assets like forward contracts, swaps, and options.
“Nobody likes realized losses, but the vast majority of these were in line with expectations,” Johnson added.
He said the company took steps to reduce its exposure to losses in the credit derivatives portfolio. “We have closed out a number of those positions.”
The insurer said written premiums in its property and casualty business fell 1 percent to $2.6 billion. In its life operations, assets under management grew 10 percent, in part due to the acquisition of retirement plans.
“The results were in line with what we were thinking,” said Matt Nellans, an analyst with Morningstar in Chicago.
Nellans said Hartford’s insurance business, both on the life and property-casualty sides, was “plugging along,” and the investment losses were not severe enough to cause investors grave concern.
Hartford’s shares, which closed down 0.5 percent in the regular session to $71.81, fell almost 2 percent in after-hours trading.
(Editing by Jeffrey Benkoe)