Connecticut-based The Hartford Financial Services Group, Inc. has reported a net loss of $1.4 billion for the first quarter of 2003 as a result of a previously announced increase in asbestos reserves. For the quarter ended March 31, 2003, the company’s net loss was $5.46 per diluted share compared to net income of $1.17 per diluted share in the first quarter of 2002.
On May 12, the company announced that it would increase its net asbestos reserves by $2.6 billion, following a comprehensive, ground-up study of its asbestos exposures. The company also announced a series of actions and plans that will advance its competitive position. These include raising capital, streamlining its property-casualty operations and other expense-saving measures.
Before the after-tax effect of the asbestos reserve addition, The Hartford’s net income rose 5 percent to $306 million, or $1.19 per diluted share, for the first quarter, compared with $292 million, or $1.17 per diluted share, for the comparable period last year. Also included in net income are after-tax net realized capital losses of $34 million for the first quarter of 2003, compared to after-tax losses of $1 million in the first quarter of 2002.
Operating income and operating income before the after-tax effect of the asbestos reserve addition, are measures that are not calculated based on generally accepted accounting principles (“non-GAAP”). Information regarding non-GAAP financial measures used in this release is provided in the Definition and Reconciliation of Non-GAAP Measures section of this release.
“Yesterday we announced that we have taken decisive action regarding asbestos and other cost reduction measures, which will accomplish two things: We will put the asbestos issue behind us and we will become an even stronger competitor in the property-casualty marketplace,” said The Hartford’s chairman and CEO, Ramani Ayer.
“Our first quarter results show the fundamental strength of our core businesses,” said Ayer. “Our diversified business model demonstrates that we can achieve strong earnings from several sources.”
Ayer noted that property-casualty operations continue to benefit from firm prices, as well as excellent execution of its business strategy. Within the life operations, group benefits again had double-digit growth, while investment product sales have maintained momentum, despite the weak equity market.
As a result of the asbestos charge, The Hartford’s operating income results were a loss of $1.4 billion, or $5.33 per diluted share, in the first quarter of 2003.
Excluding the after-tax effect of the asbestos reserve addition, the company’s operating income increased 16 percent to $340 million, or $1.33 per diluted share, in the first quarter of 2003, compared with $293 million, or $1.17 per diluted share, for the same period last year.
Operating income per diluted share in the first quarter of 2003 reflected an increase in the number of shares outstanding from the comparable prior-year period, due primarily to the company’s third-quarter 2002 capital raising activities, which added 7.3 million shares.
The company had total revenues of $4.3 billion for the quarter ended March 31, 2003, a 7 percent increase from the comparable prior-year period. “Solid earnings in our ongoing operations demonstrate that our business model continues to drive top line growth,” said Ayer.
The Hartford’s risk management and pricing discipline helped the group benefits segment achieve double-digit earnings growth in the first quarter, despite an increasingly competitive market. Net income increased 21 percent to $34 million, while total fully insured ongoing premiums declined 2 percent to $568 million, from the prior year period. Fully insured sales, excluding buyouts, were down 37 percent to $222 million, primarily as a result of increased competition in the large-case group disability and group life markets.
North American Property-Casualty Operations
The Hartford’s North American property-casualty operations reported $168 million in net income in the first quarter of 2003, an increase of 32 percent over the $127 million reported for the quarter ending March 31, 2002.
“We are increasing our share of key markets,” said Ayer. “Our differentiated product and business model, coupled with firm prices and disciplined underwriting, are key factors in achieving double-digit earned premium growth and a combined ratio below 100.”
North American property-casualty operations continue to benefit from firm prices, with net written premiums rising 18 percent in the first quarter to $2.4 billion, compared with $2.1 billion for the first quarter of 2002.
Earned premiums increased 16 percent in the first quarter to $2.2 billion, primarily as a result of price increases; and the combined ratio was 97.7, a 2.5 point improvement over the first quarter of 2002 and a 2.3 point improvement over the fourth quarter of 2002.
Before catastrophe losses, which added 2.6 points to this quarter’s combined ratio, the combined ratio for the first quarter improved 4.0 points over the prior-year quarter to 95.1. The combined ratio, before catastrophes, for three of the four North American property-casualty segments improved: 5.3 points in specialty commercial lines to 97.5; 7.7 points in personal lines to 91.3; and 2.8 points in business insurance to 94.6.
Net investment income of $243 million was up 12 percent, primarily due to an increased asset base.
The business insurance segment again delivered outstanding results, with a 20 percent increase in written premiums to $990 million in the first quarter of 2003, compared with $825 million in the year-ago period. Earned premiums were $880 million for the 2003 quarter, compared with $732 million in the first quarter of 2002.
For the eighth consecutive quarter, business insurance achieved a combined ratio below 100, excluding the impact of Sept. 11.
Within the business insurance segment, The Hartford’s small commercial and middle market businesses continue to perform strongly, with written premium growth of 18 percent and 22 percent, respectively, for the first quarter of 2003, compared with the first quarter of 2002. Earned premiums for small commercial and middle market businesses for the same period increased 17 percent and 24 percent, respectively. The specialty commercial lines segment achieved a 35 percent increase in written premiums and a 49 percent increase in earned premiums in the first quarter compared to the prior-year quarter.
Written premiums for personal lines were up 6 percent to $770 million for the first quarter, primarily due to an 11 percent increase in the AARP business. Personal lines earned premiums were up 8 percent to $772 million, while earned premiums for AARP business were up 13 percent, compared to the prior-year quarter.
The personal lines combined ratio was 92.7 for the first quarter of 2003, 8.5 points better than last year’s first quarter, with the homeowner’s book producing an 80.8 combined ratio, 11.7 points better than the previous year, primarily as a result of reduced claim frequency and low catastrophes.
North American property-casualty catastrophe losses for the quarter were $37 million (after-tax), compared with $13 million (after-tax) for the prior- year period.
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