Hartford's 4Q Profit Tumbles 79%

February 08, 2012 at 06:54 AM
Share & Print

The Hartford's 2011 fourth-quarter net income plummeted 79 percent to $127 million on above normal catastrophe and non-cat losses, low interest rates and volatility in the capital markets. 

Net income for the year fell 61 percent to $662 million, and the company's grim earnings report has once again raised the issue of splitting apart the company's P&C and life operations.

Liam E. McGee, president and chief executive officer, says the property and casualty commercial market saw firming "across the board," with a 7 percent increase in middle markets.

The acceleration of rate increases during the last quarter of 2011 "exceeded loss costs for most lines," McGee says during a conference call.

The company's results in its commercial markets segment was hurt by higher workers' compensation loss costs, which drove up the combined ratio in the segment to 101.5 (excluding catastrophes and prior-year development), Hartford says.

Income in the fourth quarter was reduced by net prior-year reserve strengthening of $64 million in commercial markets, consumer markets and other operations. Hartford upped reserves in the workers' compensation line of business for the 2010 accident year.

Christopher J. Swift, chief financial officer, says the company's adjusted reserve estimates for 2010 and 2011 are holding up.

Hartford also strengthened current accident-year reserves by $57 million, it says.

Results were more favorable in the company's consumer markets segment, which recorded fourth-quarter net income of $85 million compared to $30 million during the same period in 2010. The combined ratio here was 93 from 96.8 in the 2010 fourth quarter.

New business during the fourth quarter in consumer markets grew 21 percent compared to the same time in 2010 due to Hartford's relationship with AARP.

Much of the talk during the earnings conference call centered on apparent inquiries Hartford has received on the feasibility of splitting its life and P&C companies. Swift says Hartford has been approached with the idea in the past, and "took a fresh look" at it with advisers.

McGee says the "challenges [of splitting the operations] are significant at the present time." During the presentation Swift outlined several of the challenges, including the foreseen difficulty in maintaining competitive ratings while setting apart $6.8 billion in debt. The P&C companies would have to assume two-thirds of the debt.

Hartford management is performing what McGee described as an "objective and pragmatic" review of the company—"thoroughly and rigorously" looking at ways to deliver shareholder value.

"We don't believe the current stock price reflects the value of the company," he says.

Within the current environment, McGee says Hartford is "managing the levers it can control," increasing enterprise risk management efforts to make the company more efficient.

The Hartford's Wealth Management division, which includes its annuity and life insurance operations also offered a challenging scenario, with its 4Q core earnings down 11 percent from the year before.

Individual life sales for 4Q 2011 actually increased by 43% over 4Q 2010, with, as the Hartford puts it, "strong growth in each distribution channel." Individual life earnings, however, were down by 9 percent over the same period (from $44 million to $40 million), thanks to modestly increased mortality.

Individual annuity earnings for 4Q 2011 were also down by 10% from a year ago (from $96 million to $86 million), due to what The Hartford described as increased annuity outflow. 

Despite drops in both individual life and annnuity, these operations fared better than mutual finds (down 17 percent, from $24 milion to $20 milion) and retirement plans (down 18 percent, from $11 million to $9 million).

In the fourth quarter of 2011, International Annuity, Institutional Annuity and the Private Placement Life Insurance business, previously reported as part of Wealth Management, were moved to the Life Other Operations segment, which is included in the newly formed Runoff Operations Division, where it shares space with P&C Other Operations (previously reported as part of Corporate and Other operations).

The busines placed here differed sharply along life and P&C lines. Whereas P&C Runoff operations experienced a 23 percent 4Q jump from 2010 to 2011 (from $58 million to $79 mllion), Life Runoff operations experienced the opposite. Life business in this sector experienced a 36 percent drop from 4Q 2010 to 4Q 2011, down from $66 million to only $42 million.

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Related Stories

Resource Center