Hartford Financial Services’ (HIG) first-quarter core earnings came in at 14 cents per share, three cents ahead of the Zacks Consensus Estimate of 11 cents. This also compares favorably with the core loss of $3.66 in the year-ago quarter.
The upside was primarily attributable to strong profitability in Hartford’s life and property and casualty businesses. Also, growth in assets under management and book value was impressive during the quarter.
In order to repay the bailout money from government and strengthen its balance sheet, Hartford successfully raised capital during the reported quarter. However, deterioration in the combined ratio for ongoing operations of its property and casualty segment was among the negatives.
Hartford reported a net income of $319 million, compared to a loss of $1.2 billion in the year-ago quarter. The company recorded a $440 million charge related to the repurchase of the government’s CPP preferred shares. On a per share basis, net loss for the reported quarter was 42 cents, compared to $3.77 in the prior-year quarter.
Segment Results
Life operations reported a net income of $186 million in the reported quarter, compared to a net loss of $1.3 billion in the year-ago period. First quarter net income included $178 million, an after-tax net realized capital loss, compared with $113 million, an after-tax net realized capital gain in the year-ago quarter. Core earnings for the reported quarter were $365 million, compared to core losses of $1.4 billion in the prior year period.
Net income from Property and Casualty operations was $257 million, including net realized capital loss of $49 million (after-tax). This compares favorably with a net income of $112 million, including net realized capital loss of $211 million (after-tax) a year ago.
Core earnings for the reported quarter came in at $304 million, down 5% from $321 million in the year-ago quarter.
The current accident year combined ratio for ongoing operations, excluding catastrophes, deteriorated to 92.1% from 90.0% in the prior-year quarter. Including prior year development and catastrophes, the combined ratio came in at 91.7%, up from 89.9% in the prior-year quarter.
Hartford’s total investments excluding trading securities were $95.3 billion as of Mar 31, 2010, compared to $88.5 billion as of Mar 31, 2009. Pre-tax net investment income, excluding trading securities was $1.1 billion. This was up 15.0% over the prior-year quarter.
Pre-tax net unrealized losses on investments were $3.2 billion as of Mar 31, 2010, compared to $5.0 billion as of Dec 31, 2009. The improvement was driven by a significant tightening of spreads across most fixed maturity asset classes.
At the end of first quarter, Hartford’s assets under management were $396.4 billion, up 20% from $330.2 billion at the end of prior-year quarter. Book value improved to $38.94 per share at Mar 31, 2010 from $24.15 at Mar 31, 2009. Excluding AOCI, book value declined to $44.29 per share at Mar 31, 2010 from $48.13 at Mar 31, 2009.
In March 2010, following Hartford’s decision to repay the entire $3.4 billion of bailout money it received from the government under the Troubled Asset Relief Program (TARP), rating agency A.M. Best Co. has affirmed the issuer credit rating (ICR) of “BBB+” for the company. However, the outlook for the rating remains negative.
Earlier this month, Hartford finally completed the repayment of the entire $3.4 billion of bailout money. The repayment of TARP makes the life and property insurer free from government involvement in its affairs and pay restrictions, even though the Treasury is still holding Hartford’s warrants for about 52 million shares at an exercise price of $9.79 each. Hartford does not intend to repurchase the warrants very soon.
Guidance
Concurrent with the first quarter results, Hartford has provided revised guidance for its 2010 earnings. Hartford currently expects 2010 core earnings between $2.70 and $3.00 per share. The range is significantly higher than its previous guidance range of $2.60 to $2.90.
Though the results for the quarter were better than expected, we remain concerned with Hartford’s exposure to variable annuities and its capital levels. We also suspect that the company will continue to incur losses on its investment portfolio.
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