The Hartford Financial Services Group, Inc. reported net income per diluted share of $1.88 for the second quarter of 2003, up sharply from $0.74 per diluted share in the second quarter of 2002. Net income nearly tripled to $507 million in the current period from $185 million in the second quarter of 2002. Net realized capital gains totaled $167 million (after-tax) in the current quarter versus net realized capital losses of $106 million (after-tax) in the same period last year.
For the six months ended June 30, 2003, the company reported a net loss of $888 million as a result of the first quarter increase in asbestos reserves, compared to net income of $477 million for the comparable period of 2002. Net realized capital gains totaled $133 million (after-tax) for the six months ended June 30, 2003, versus net realized capital losses of $107 million (after-tax) in the same period last year.
Ramani Ayer, chairman and CEO of The Hartford, noted, “During the quarter, our execution has been strong. Revenues and operating income are up 17 percent over the prior-year period. Operating income per diluted share has increased 9 percent.”
Ayer said, “I’m particularly pleased to report an increase of 11 percent in assets under management since March 31, 2003, to $227 billion, and a 7 percent increase in book value per share to $34.34, excluding accumulated other comprehensive income (AOCI). Including AOCI, our book value per share improved 10 percent to $40.75, since March 31, 2003. Our consolidated ROE is on target at 14.5 percent for the last 12 months, before net realized capital gains (losses) and the charge we took in the first quarter to address the legacy asbestos issue.”
Noting the company’s record annuity sales, Ayer continued, “The Hartford’s investment products segment led the competition by tapping into the aging baby boomer need to prepare for a financially stable retirement. We introduced a new generation of annuity products and achieved great sales numbers. Our life operations achieved variable annuity sales that were a quarterly record not only for our company, but for the industry as well. Driven by the record sales and lower surrender activity, variable annuity net flows also reached their highest level ever at $2.5 billion.”
On the continued duration of the hard property-casualty market, Ayer said, “Across our ongoing property and casualty segments, we will remain in an environment in which we can achieve our targeted returns and grow the business into 2004.”
Net income growth continued in the quarter, up 17 percent compared to the prior year, driven by strong underwriting and disciplined claims management. Despite a challenging pricing environment, fully insured sales, excluding buyouts, were up 2 percent to $92 million from the prior-year period. Marketing and distribution efforts are under way to boost sales.
The combined ratio improved to 94.4, despite heavy catastrophe losses in the quarter accounting for 2.5 points of the combined ratio. Favorable market conditions, double-digit written price increases and new business growth drove written and earned premiums growth of 17 percent. Pricing increases were in excess of loss-cost inflation.
The heavy catastrophe quarter had a significant impact on personal lines, adding 8.2 points for a total combined ratio of 99.0. Written premiums for auto and homeowners insurance sold to members of AARP grew 11 percent, while products sold through independent agents rose 7 percent. Pricing increases continued to exceed loss-cost inflation, building toward rate adequacy in all states.
The combined ratio improved to 93.2, with 2.5 points of catastrophe losses in the quarter. Earned premiums grew 29 percent and written premiums increased 16 percent, while improving terms and conditions and more selective casualty underwriting further strengthened profitability.
During the second quarter, the company sold the majority of its ongoing reinsurance business to Endurance Specialty Holdings Ltd. in a transaction involving the transfer of unearned premium reserves and the sale of renewal rights. As a result of the reinsurance cession, written premiums were negative in the quarter, and earned premiums totaled $63 million versus $172 million in the second quarter of 2002. In addition, the company recorded a reserve adjustment of $59 million to reflect deterioration of prior-year underwriting performance. The net impact of these factors was an underwriting loss of $76 million and a combined ratio of 222.8.
With continuing strong performance in The Hartford’s core businesses, favorable equity markets and strong property-casualty pricing, the company is increasing its 2003 EPS guidance to a range of $4.95 to $5.20. This estimate excludes the effect of net realized capital gains or losses and the first quarter asbestos charge.
This estimate is subject to adjustment based on changes in market conditions affecting both life and property-casualty operations. A large number of factors could cause this estimate to change, including significant changes in estimated future earnings on investment products caused by changes in the equity markets, catastrophe losses at levels in excess of expectations and adverse developments emerging as a result of changes in estimates arising from the company’s regular reviews of its loss reserves for all lines of insurance.
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