Hartford’s Q2 Results Reflect Big Commercial Lines Gain

July 27, 2018

The Hartford reported improved results for the second quarter compared to the same quarter last year, particularly in its commercial lines and group benefits businesses.

Overall net income was $582 million in second quarter 2018 compared with a net loss of $40 million in second quarter 2017 (which included a $488 million pension settlement charge).

Core earnings for this year’s second quarter were $412 million, up 36 percent from $303 million in second quarter 2017.

The growth in net income was due to a $98 million increase in income from continuing operations and a $36 million increase in income from discontinued operations.

Second quarter 2018 consolidated net investment income increased 8 percent to $428 million.

The insurer’s property/casualty combined ratio of 95.7 decreased 1.4 points from second quarter 2017 due to higher favorable prior accident year development and a better underlying combined ratio.

Commercial lines showed strength with improved pricing while personal lines continued to be affected by catastrophe losses. Compared to the same quarter last year, the insurer’s commercial lines underwriting gain nearly doubled while the personal lines underwriting loss more than tripled.

“Looking across all the businesses, I am very pleased with our financial performance and our progress on strategic product, distribution and technology initiatives, and the Group Benefits integration that continues to go very well and remains on schedule,” said Chairman and CEO Christopher Swift.

On a call with analysts, Swift cited ongoing efforts to make the company more “customer-centric,” including using technology and digital tools to make Hartford an easier company to do business with, streamlining the underwriting process and improving the customer experience. He also said that the company, as it has done in past, will consider using its excess capital for an acquisition if a suitable opportunity arises.

Commercial Lines

Commercial Lines net income of $372 million increased from $258 million in second quarter 2017, and core earnings of $341 million increased from $238 million in second quarter 2017 primarily due to an $80 million improvement in the underwriting gain and lower income taxes as a result of U.S. corporate tax reform.

The Commercial Lines underwriting gain of $173 million rose from $93 million in second quarter 2017, and the combined ratio of 90.1 improved 4.5 points from 94.6 in second quarter 2017. The improvement in the combined ratio was principally due to lower non-catastrophe property losses, partially offset by a higher expense ratio and margin deterioration in Middle Market workers’ compensation.

Small Commercial’s combined ratio improved 1.6 points to 85.6 and Middle Market improved 0.8 point to 94.1 while Specialty Commercial rose 2.6 points to 98.5.

Commercial Lines written premiums of $1.7 billion were up 2 percent from second quarter 2017 due to strong Middle Market and Specialty Commercial premium growth. Middle Market grew 4 percent over second quarter 2017 due to a 29 percent increase in new business premium and a 2 point improvement in policy count retention. New business growth was principally driven by workers’ compensation. Specialty Commercial written premiums grew 9 percent over second quarter 2017 due to growth in bond and financial products.

Doug Elliot, president, called it a “terrific quarter” for commercial lines.

The company is closely watching workers’ compensation trends. While claims frequency remains at historic lows, it has been trending slightly higher in 2018 as less inexperienced workers who are more prone to injuries enter the workforce in greater numbers, according to Elliot. He said the insurer is monitoring medical and wage inflation. Also, due to continued negative loss cost filings in states, he said Hartford is making adjustments and managing the business with expectations of continued downward pressure on rates and margin compression in small and middle market business. “Workers’ comp rates are moving in one direction and rates in another,” Elliot said.

Personal Lines

Personal Lines net income of $6 million decreased from $24 million in second quarter 2017, and core earnings of $2 million were down from $20 million in second quarter 2017.

The Personal Lines underwriting loss of $42 million compared with a loss of $13 million in second quarter 2017 and the combined ratio of 104.9 deteriorated 3.5 points from 101.4 in second quarter 2017 primarily due to an increase in current accident year catastrophe losses. Current accident year catastrophe losses totaled $114 million, before tax (13.3 points on the combined ratio), up from $92 million, before tax (9.9 points on the combined ratio), in second quarter 2017.

The auto combined ratio improved 1.1 points to 99.7 from 100.8 in second quarter 2017 due to a lower current accident year loss ratio before catastrophes, partially offset by a higher expense ratio and higher current accident year catastrophe losses.

The homeowners combined ratio deteriorated to 117.8 from 103.4 in second quarter 2017 due in part to higher current accident year catastrophe losses.

Personal Lines written premiums of $857 million declined 7 percent from second quarter 2017 largely due to the effect of pricing actions on policy count retention over the period. In second quarter 2018, auto new business premium of $42 million was up 11 percent from $38 million in second quarter 2017, while homeowners new business premium of $11 million was down 8 percent from $12 million in second quarter 2017.

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