Hartford’s Q2 Loss Widens to $190M; P/C Earnings Show Improvement

The Hartford Financial Services Group reported a net loss of $190 million for the 2013 second quarter. The quarterly loss widened compared to the same time a year ago, when the insurer reported a net loss of $101 million.

The Hartford cited several factors that contributed to the loss, including $421 million, after-tax, of realized capital losses, mostly from the company’s international variable annuity (VA) hedging programs, and a $126 million, after-tax, loss from discontinued operations due to the agreement to sell Hartford Life International Limited for about $285 million to Berkshire Hathaway.

The Hartford’s quarterly net results also included an unfavorable impact of $91 million, after-tax, associated with The Hartford’s annual ground-up review of asbestos and environmental reserves. The Hartford completes its asbestos and environmental reserves review during the second quarter of each year.

The company also booked a charge of $52 million, after-tax, due to the closing of the New York Fund for Reopened Cases (NY25A). Second quarter P/C catastrophe losses were $186 million, before-tax, down from $290 million losses a year ago.

The 200-year old Hartford has been restructuring itself to focus more on property/casualty insurance, group-benefits and mutual-funds businesses. In the past year, the company has divested its life insurance, broker-dealer and retirement plans businesses.

In property/casualty, The Hartford said it is seeing a continuation of positive pricing momentum.

“We continue to achieve a meaningful price increase in property/casualty commercial. Renewal written pricing increased 8 percent on average in standard commercial lines in the second quarter, consistent with the company’s last three quarters and well ahead of loss cost trends,” CEO Liam McGee said during an earnings conference call.

“Our philosophy and approach is unchanged. And we will continue to be aggressive and smart in our pricing actions. We are optimistic that this disciplined approach to pricing, combined with loss costs that remain benign, would drive additional margin expansions going forward,” McGee said.

The property/casualty operations improved from a year ago, though the underwriting still showed a quarterly loss. This includes financial results from the company’s three P/C segments: P/C Commercial, Consumer Markets and P/C Other Operations.

The consolidated P/C underwriting loss for the second quarter was $132 million, improving from an underwriting loss of $183 million a year ago. The combined ratio improved to 105.4 for the quarter, from 107.5 a year ago. (The combined ratio, before catastrophes and prior-year development, improved to 91.8 for the quarter, from 93.6 a year ago.) The P/C written premiums for the quarter were $2.501 billion, up 1 percent from $2.472 billion a year ago. The written premiums increase reflects 1 percent growth in P/C Commercial Markets and 2 percent growth in Consumer Markets.

P/C investment income was $338 million for the second quarter, up 6 percent from a year ago. Overall, P/C net income rose 62 percent from a year ago to $136 million, while the P/C core earnings rose 39 percent to $140 million. The Hartford said the improved P/C income mostly reflects a lower underwriting loss as well as higher limited partnership and other alternative investment income compared to last year.

The company said the smaller P/C underwriting loss for the quarter is mostly due to better Consumer Markets and P/C Commercial underwriting results, driven by lower catastrophe losses and improved current accident year underwriting margins that were partially offset by increased unfavorable prior-year development in P/C Other Operations and P&C Commercial.

“We are pleased to report another quarter of strong execution at Hartford,” said McGee. This quarter, P/C, Group Benefits and Mutual Funds margin improvements drove core earnings for those businesses up 28 percent compared with second quarter 2012, he said.

He said the company remains focused on achieving renewal written price increases in P/C Commercial.

In the P/C Commercial business, the underwriting gain was $25 million, an improvement from an underwriting loss of $7 million a year ago. The P/C Commercial combined ratio improved to 98.4 for the quarter, from 100.5 a year ago. Written premiums were up 1 percent from last year to $1.533 billion.

The renewal rate increases for standard P/C commercial — which is comprised of Small Commercial and Middle Market — were 8 percent for the second quarter, compared to 7 percent increases during the same period last year.

“P/C Commercial renewal written pricing continued to be strong, achieving increases in all standard commercial business lines in second quarter 2013,” according to The Hartford’s announcement. “Middle Market pricing increased 8 percent, including Middle Market workers’ compensation and property pricing increases in the 9-10 percent range during second quarter 2013.”

In P/C Consumer Markets business, the underwriting loss for the quarter narrowed to $9 million, compared to an underwriting loss of $114 million a year ago. The combined ratio improved to 101.0 for the quarter, from 112.6 a year ago. Written premiums rose 2 percent from a year ago to $967 million. The company cited favorable loss trends, including reduced current accident year catastrophe losses and more favorable prior-year development.

The Hartford attributed the increased written premiums in P/C Consumer Markets to improved premium and policy count retention and a 10 percent increase in new written premium from AARP Direct and AARP Agency production. Auto new business premiums were up 9 percent while homeowners increased 13 percent. Second quarter 2013 policy count retention for auto and homeowners increased by 2 points and 1 point to 86 percent and 87 percent, respectively, from a year ago.

In P/C Other Operations business, the underwriting loss widened to $148 million, compared with $62 million a year ago. Latest results included unfavorable prior-year development of $141 million, before tax, largely due to a $130 million, before tax, increase in asbestos reserves compared with $48 million, before tax, in second quarter 2012. Environmental prior-year development totaled $10 million, before tax, compared with $3 million a year ago. The company completes its annual review of asbestos and environmental reserves during the second quarter of each year.