Hartford Financial Services Group reported $127 million for its 2011 fourth-quarter net income, down 79 percent from one year ago when the company posted $619 million profit. Results were hurt by higher net capital losses and current and prior-year reserve development mostly reflecting higher workers’ comp loss costs.
For the 2011 full year, The Hartford reported net income of $662 million, down 61 percent from 2010 when it posted $1.68 billion net income.
The Hartford CEO Liam McGee said capital markets volatility, low interest rates and higher-than-normal cat and non-cat weather challenged the industry and The Hartford in 2011. But even in this environment, he said, “The Hartford is a much stronger and more efficient organization, with a significantly enhanced financial position and risk profile.”
‘P/C Commercial Pricing Continued to Firm’
CEO McGee said P/C commercial pricing continued to firm and margins improved across the board, including a 7 percent rate increase in middle market.
“Margins are also expanding in consumer markets as we shift to a more preferred book of business. Wealth management is focused on increasing returns and managing risk in this low-rate environment,” he said.
The company recorded net prior year reserve strengthening of $64 million in commercial markets, consumer markets and P/C other operations. Current accident year reserve strengthening in commercial markets was $57 million.
In the commercial markets segment — which include P/C commercial lines and group benefits — net income declined to $41 million in the 2011 fourth quarter, compared to $253 million one year ago.
P/C commercial written premiums grew 2 percent to $1.48 billion for the 2011 fourth quarter, helped by strong retention, increased exposures and higher pricing, the company said. But P/C commercial combined ratio for the fourth quarter came in at 109.4 percent, deteriorating from 94.7 percent during the year-ago period. Without prior-year reserve development, the combined ratio was 102.5 percent, compared to 93.5 percent one year ago. Current-year catastrophe losses were 1.0 percentage point of the combined ratio in the fourth quarter.
Higher Workers’ Comp Loss Costs
P/C commercial core earnings for the fourth quarter were $25 million, down 88 percent from one year ago when the company posted $201 million. The Hartford said P/C commercial core earnings were hurt by unfavorable prior accident year reserve development of $71 million in the fourth quarter, in contrast to favorable $14 million one year ago. Prior accident year development in the quarter mostly reflects reserve strengthening in the workers’ comp line of business for the 2010 accident year.
Group benefits core earnings in the fourth quarter were $15 million, down from $30 million one year ago. Fully insured premium for the fourth quarter declined 3 percent to $995 million.
Stronger Profit From Consumer Markets
The Hartford’s consumer markets posted $83 million in core earnings for the fourth quarter, up 196 percent from $28 million one year ago. Written premiums for the quarter were $858 million, down 4 percent from one year ago. The consumer markets combined ratio for the quarter was 91.0 percent, improving from 100.4 percent one year ago. New business written was $100 million, a 21 percent jump from one year ago, boosted by strong production in AARP Direct and AARP Agency. In the fourth quarter, auto policy retention increased 2 points to 83 percent while homeowners retention was unchanged from the comparable prior year period.
Wealth management net income was $112 million in the fourth quarter, down from $340 million one year ago. Results were hurt by net outflows in individual annuity, lower income from limited partnerships and alternative investments and modestly elevated mortality in individual life segment.
$386M in Net Realized Capital Losses
The company reported $386 million in net realized capital losses for the fourth quarter, in contrast to the $89 million loss one year ago. Net investment income came in at $998 million, down 8 percent from one year ago when the company reported $1.09 billion investment income.
The Hartford also said that in the 2011 fourth quarter, the company purchased 3.2 million shares of common stock at a price of $51.4 million. The company has been buying back shares in a bid to boost returns for stockholders. The company bought an additional 2.6 million shares of common stock for a total price of $42.3 million, through Feb. 7. The company has $406.3 million remaining under the August 2011 purchase authorization.