Better Underwriting, Lower Taxes Behind The Hartford’s Strong Q3 Results

October 26, 2018

The Hartford reported third quarter 2018 net profit of $427 million compared with $145 million in third quarter 2017. The $282 million increase was due to higher commercial lines, personal lines, group benefits and mutual funds income, including the benefit of a lower U.S. corporate tax rate, according to the insurer.

Core earnings of $418 million in third quarter 2018 increased from $130 million in third quarter 2017. In addition to the benefit of a lower U.S. corporate tax rate in 2018, core earnings rose from third quarter 2017 primarily due to better property/casualty underwriting results driven by lower current accident year catastrophe losses and higher favorable prior year development.

The growth in group benefits business was primarily tied to the fourth quarter 2017 acquisition of Aetna’s U.S. group life and health business, and increased mutual funds assets under management.

Total revenues for the quarter were $4.84 billion compared to $4.2 billion in the same quarter last year.

On a call with analysts, Chairman and CEO Christopher Swift said he feels the company has made “tremendous progress” in 2018 and will build on that momentum in 2019.

He said the company will be focused in the near term on integrating its acquisitions of the Aetna U.S. business and of specialty insurer Navigators. Swift said his company has already begun integration and planning activities with Navigators, which The Hartford announced in August it would buy for $2.1 billion. Navigators shareholders are scheduled to meet on Nov. 16 and the deal is expected to close in the first half of next year.

Swift said the acquisition of Navigators has the potential to accelerate growth in Middle Market and Specialty Commercial.

The Hartford’s President Doug Elliot noted that despite there being 19 catastrophe events, these losses were down significantly from last year when loss events included three hurricanes.

Elliot commented on the higher claims frequency trends in workers’ compensation in the low unemployment economy. “We see a general uptick across all injury types,” he said. The increased activity is particularly evident among newer workers who have been at their jobs for less than a year, a development expected in a tight labor market where some employers may be having trouble finding experienced workers. He also said fatigue can compound the risk because in a tighter labor market workers may be asked to work longer hours.

However, he assured analysts The Hartford sees the workers’ compensation claims situation along with the continued competitive downward pressure on rates as manageable and believes it has the experience, data and tools to “stay on top” of these trends.

Commercial Lines

Commercial Lines net income of $289 million increased from $90 million in third quarter 2017 primarily due to lower current accident year catastrophe losses, higher favorable prior year development and the effect of a lower U.S. corporate tax rate

The underwriting gain of $70 million reversed from an underwriting loss of $149 million in third quarter 2017. The combined ratio of 96.1 improved 12.5 points from 108.6 in third quarter 2017

Current accident year catastrophe losses were $95 million due primarily to Hurricane Florence and multiple wind, hail and wildfire events, down from $270 million, before tax in third quarter 2017, which included losses from hurricanes Harvey, Irma and Maria.

Small Commercial improved 0.5 point to 88.7 primarily due to lower general liability and auto liability losses, partially offset by higher non-catastrophe property losses. Middle Market increased 3.2 points to 100.2 principally due to higher current accident year workers’ compensation frequency trends.

Specialty Commercial improved 2.6 points to 96.0 primarily due to lower expenses compared with third quarter 2017 and higher premiums on retrospectively rated accounts, partially offset by margin compression in workers’ compensation due to lower pricing, and in professional liability.

Commercial Lines written premiums of $1.8 billion were up 3% from third quarter 2017. Small Commercial written premiums grew 1% from third quarter 2017 due to 9% growth in new business and stable retention, mostly offset by lower renewal written premium in workers’ compensation and auto. New business growth was due to the renewal rights agreement with Farmers Group to acquire its Foremost-branded small commercial business. Middle Market grew 7% over third quarter 2017 due to a 21% increase in new business premium and a 2 point improvement in policy count retention. Specialty Commercial written premiums were flat.

Personal Lines

Personal Lines net income of $51 million increased from $8 million in third quarter 2017. The underwriting gain of $14 million reversed from an underwriting loss of $37 million in third quarter 2017 and the combined ratio of 98.4 improved 5.6 points from 104.0 in third quarter 2017 primarily due to a 5.5 point improvement in the current accident year loss ratio before catastrophes.

The auto combined ratio improved 7.4 points to 98.9 from 106.3 in third quarter 2017 while the homeowners combined ratio improved to 96.9 from 97.9 in third quarter 2017.

Personal Lines written premiums of $854 million declined 8% from third quarter 2017 largely due to the effect of pricing actions over the past year on retention in the period. In third quarter 2018, new business premium increased by $11 million, or 23%, over third quarter 2017, reflecting the impact of the company’s increased marketing spending on new business. Auto new business premium of $47 million was up 27% from $37 million in third quarter 2017; Homeowners new business premium of $12 million was up 9% from $11 million in third quarter 2017.

Source: The Hartford

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