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The Hartford reported a second quarter 2009 net loss of $15 million compared with second quarter 2008 net income of $543 million. Even so, Ramani Ayer, chairman and chief executive officer of The Hartford, said the insurer is seeing a number of important indicators that show the company is on the right track.
“In property and casualty’s small commercial segment, new business growth improved monthly throughout the second quarter, and is up 21 percent month-to-date in July as compared with last July,” Ayer said.
The second quarter was also marked by significant improvements in global credit and equity markets, he added. “With investors returning to the markets, our mutual fund deposits exceeded $3 billion for the first time since the third quarter of 2008. In addition, our unrealized loss position declined as a result of credit spread tightening, which contributed to a 33 percent increase in book value per share to $32.20 since the end of the first quarter of 2009,” saidAyer.
Second quarter 2009 results benefited from a deferred acquisition cost (DAC) unlock gain of $360 million, after tax, from the impact of rising global equity markets in the second quarter on the company’s quarterly revision of its estimates of future gross profits in its life operations. Estimates of future gross profits are used in the determination of certain asset and liability balances, including DAC and benefits, loss and loss adjustment expenses for insurance contracts.
The net realized capital loss for the second quarter of 2009 was $649 million, after tax, primarily due to impairments of $207 million and an approximately $300 million charge related to the company’s obligations to Allianz arising from the June 2009 closing of the company’s investment agreement with the U.S. Treasury. Second quarter 2008 results included a net realized capital loss of $156 million, after tax.
Property and Casualty Operations
Ayer said The Hartford’s profitability remains strong in ongoing property/casualty operations. “We continue to win our share of new business in this competitive environment,” Ayer said. “The relationships we have fostered over the years with our agents and customers, as well as our continued investments in product, service and technology have allowed us to take advantage of the increased insurance shopping in the industry.”
Written premiums for The Hartford’s property/casualty operations in the second quarter were $2.5 billion, down 5 percent from the second quarter of 2008. This decline was largely due to the effects of weaker economic conditions, including lower payrolls and business closings, as well as the effects of exiting the Florida agency homeowners market and the sale of First State Management Group in March 2009.
Net income from ongoing operations was $222 million for the second quarter of 2009, including the effect of a $43 million net realized capital loss. Net income from ongoing operations in the second quarter of 2008 was $246 million, including the effect of a $34 million net realized capital loss. The second quarter 2009 decrease in net income was primarily driven by lower net investment income, as a result of losses from limited partnerships and other alternative investments and lower yields and reduced asset levels on fixed maturities.
During the second quarter of 2009, the company conducted its annual ground-up review of its asbestos liabilities. The company reported a net loss of $49 million in other operations, primarily due to a net asbestos reserve increase of $90 million, after-tax. The company experienced increases in claim severity, expense and costs associated with litigating asbestos coverage matters. Increases in severity and expense were most prevalent among smaller insureds.
The current accident year combined ratio for ongoing operations in the second quarter of 2009, excluding catastrophes, was 90.4 percent, compared with 90.7 percent in the prior-year period. The second quarter of 2009 also benefited from favorable prior accident year net reserve development of $59 million, or 2.4 points, primarily related to general liability and professional liability claims. In addition, current accident year catastrophe losses were $142 million, or 5.8 points, due in part to June windstorms.
Personal Lines
Personal lines written premiums for the second quarter of 2009 grew 2 percent over the prior-year period to $1.0 billion. Written premiums in the company’s AARP business rose 3 percent in the second quarter. New business premium increased 44 percent over the second quarter of 2008, with the number of policies in force up 1 percent.
The second quarter 2009 current accident year combined ratio, excluding catastrophes, was 89.8 percent, compared to 88.3 percent in the prior-year period. The second quarter of 2009 also included 11.2 points of current accident year catastrophes, due in part to June windstorms.
Small Commercial
Written premiums for small commercial were $643 million for the second quarter of 2009, a 5 percent decline from the year-ago period. The decline in written premium was driven by weaker economic conditions that have resulted in business closings and a decline in average renewal premium due to a reduction in policy endorsements and lower payrolls. Policies in-force at the end of the quarter were up slightly over the end of the second quarter of 2008.
The second quarter 2009 current accident year combined ratio, excluding catastrophes, was 83.4 percent as compared to 84.9 percent in the second quarter of 2008. The second quarter of 2009 also included 3.6 points of current accident year catastrophes and 1.5 points of net unfavorable prior year development.
Middle Market
Written premiums for middle market were $482 million for the second quarter of 2009, a decline of 9 percent compared with the year-ago period. Workers’ compensation new business was up 41 percent in the second quarter of 2009 on a year-over-year basis.
The second quarter 2009 current accident year combined ratio, excluding catastrophes, was 92.1 percent, compared with 97.4 percent in the prior-year period. The second quarter of 2009 also included 1.6 points of current accident year catastrophes and 4.2 points of net favorable prior year development, primarily related to general liability claims.
Specialty Commercial
In specialty commercial, written premiums for the second quarter of 2009 were $292 million, down 16 percent from the prior-year period. The decline was largely due to disciplined pricing in a competitive environment, as well as the impact of ratings downgrades on sales of the company’s professional liability, fidelity and surety products. In addition, the year-over-year comparison was negatively affected by the company’s sale of First State Management Group in the first quarter of 2009.
The second quarter 2009 current accident year combined ratio, excluding catastrophes, was 103.4 percent as compared with 97.9 percent in the second quarter of 2008, primarily due to a $23 million increase in taxes, licenses and fees due to a $17 million reserve strengthening for other state funds and taxes and a $6 million increase in the assessment for a second injury fund. The second quarter of 2009 also included 0.3 points of current accident year catastrophes and 15.0 points of net favorable prior year development, primarily due to improving D&O claim severity for the 2003 to 2007 accident years.
Source: The Hartford