Hartford Q1 Profit Drops 81% on Realized Loss, But Core Earnings Up

By | May 3, 2012

The Hartford Financial Services Group Inc. said its 2012 first quarter net income declined 80.8 percent to $96 million, hurt by a $587 million net realized loss from runoff operations.

The Hartford’s net income during the same period one year ago was $501 million. The net realized loss from runoff operations one year ago was $170 million. The Hartford stated that the larger net realized loss this year was “largely due to losses on hedging activities related to the international variable annuity business as a result of equity capital market levels and yen depreciation.”

The company’s core earnings rose, however, to $612 million, increasing 7 percent from $574 million reported during the same period last year.

The Hartford, Conn.-headquartered insurer is in the process of divesting most of its life insurance-related operations and focus on the property/casualty, group benefits and mutual funds business. Last month, it agreed to sell its individual annuities operations to Forethought Financial Group in Houston.

P/C Commercial Renewal Prices Improve

The Hartford said P/C commercial lines continued to benefit from strong renewal written pricing trends, which averaged 7 percent in small commercial and middle market in the 2012 first quarter, the highest level in over eight years. The middle market workers’ compensation renewal pricing hike averaged 14 percent in the quarter, reflecting “management’s disciplined rate initiatives in that book of business,” the company said. Retention remained strong at 84 percent in small commercial and 79 percent in middle market.

P/C commercial written premiums for the quarter were $1.687 billion, up 3 percent from $1.645 billion reported one year ago. The combined ratio was 96.4 percent excluding current-year catastrophe losses and prior-year reserve development (99.7 percent including those two figures), compared to 95.3 percent excluding current-year catastrophe losses and prior-year reserve development (97.9 percent including those two figures) reported during the prior-year period.

The Hartford said the higher combined ratio reflected lower workers’ comp profitability. Unfavorable prior year reserve development was $13 million, compared with favorable development of $4 million one year ago. In P/C commercial lines, first quarter 2012 catastrophe results were $21 million, compared with $29 million one year ago.

Core earnings for P/C commercial operations were $162 million, down 8 percent from $177 million posted during the same period one year ago.

CEO Liam McGee said that “P/C commercial’s pricing momentum continued and retention remained strong. Consumer markets had favorable margins and new business trends, while mutual fund assets under management and sales increased from year-end levels. Group benefits has multiple initiatives underway to improve profitability.”

Th group benefits business reported core earnings of $5 million, down 74 percent from $19 million one year ago. Fully insured premiums for the group benefits were $954 million, down 7 percent from $1.028 billion one year ago.

Commercial markets net income declined to $207 million from $334 million reported one year ago, while core earnings decreased to $167 million from $196 million reported in the first quarter of 2011.

Consumer Markets Combined Ratio Improves

Consumer markets’ written premiums were $861 million, down 3 percent from $884 million reported during the same period one year ago.

Consumer markets’ combined ratio for the quarter was 88.8 percent excluding catastrophe losses and prior-year reserve development (87.0 percent including these figures), compared to 89.0 percent excluding catastrophe losses and prior-year reserve development (87.3 percent including these figures).

Core earnings for the consumer markets were $102 million, down 8 percent from $111 million one year ago. (Consumer markets net income was $108 million in both the first quarter of 2012 and the first quarter of 2011.)

In consumer markets, prior-year reserve development was a favorable $36 million, compared with $32 million one year ago. First quarter 2012 current accident year catastrophe results were $26 million, compared with $21 million one year ago.

In the wealth management business, core earnings rose 8 percent to $242 million, including an $88 million DAC unlock, while individual life sales rose 13 percent over the prior year period. Retirement plans assets under management were $57.2 billion, a record high. Non-proprietary mutual funds assets under management rose to $53.2 billion at the end of March, a 9-percent increase since December 2011.

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