The Hartford Announces First Quarter 2021 Results And Financial Targets

Rhea-AI Summary

The Hartford reported Q1 2021 net income of $244 million ($0.67 per share), down 9% year-over-year, largely due to $650 million BSA settlement and COVID-19-related losses. Core earnings fell 58% to $203 million ($0.56 per share). Despite this, the underlying performance remained robust, with an improved Commercial Lines combined ratio of 91.2%. Net investment income increased by 11% to $509 million, supported by a 21.1% return on partnerships. The company announced a $2.5 billion share repurchase plan to enhance shareholder value.

Positive

• Net investment income grew 11% to $509 million.
• Commercial Lines premiums increased by 4%, driven by strong growth in Small Commercial.
• Underlying combined ratio improved to 91.2%, up from 94.9% year-over-year.
• Hartford Next program delivered $233 million in expense savings, expected to reach $540 million in 2022.

Negative

• Core earnings dropped 58% year-over-year to $203 million.
• Net income available to common stockholders decreased by 9% from the previous year.
• Higher catastrophe losses of $214 million, primarily from winter storms.

The Hartford (NYSE: HIG) today announced financial results for the quarter ended Mar. 31, 2021. In the quarter, The Hartford earned $244 million in net income available to common stockholders, or $0.67 per diluted share, and core earnings* of $203 million, or $0.56 per diluted share. Reported results include the impact of the $650 million settlement with the Boy Scouts of America (BSA), $214 million in pre-tax net catastrophe (CAT) losses, mainly due to winter storms in Texas and other areas, and $185 million in COVID-19 related excess mortality losses in Group Benefits. Aside from these three items, underlying performance in the quarter remained very strong.

• Commercial Lines combined ratio of 109.7% with an underlying Commercial Lines combined ratio of 91.2%*, a 3.7 point improvement from 94.9% in the prior year quarter
• Small Commercial new business premiums were up 12% in the first quarter of 2021 driving record quarterly premium in this business
• Group Benefits net income margin was 0.6% while the core earnings margin was (0.2)%*; both the net income margin and core earnings margin included approximately 10.0 points in excess mortality and COVID-19 short-term disability losses
• Net investment income of $509 million grew 11% from the prior year quarter driven by strong annualized partnership returns of 21.1%

^* Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP); definitions of non-GAAP measures and reconciliations to their closest GAAP measures can be found in this news release under the heading Discussion of Non-GAAP Financial Measures
** All amounts and percentages set forth in this press release are approximate unless otherwise noted.

Improving operating efficiencies and a lower expense ratio from ‘Hartford Next’, the company’s cost transformation program, have been a contributor to margin expansion. To date, the program has delivered $233 million in pre-tax expense savings and is expected to deliver pre-tax savings of approximately $540 million in 2022 and $625 million in 2023.

“I have never been more excited about The Hartford’s future,” said The Hartford’s Chairman and CEO, Christopher Swift. "Going forward, the macroeconomic environment and favorable industry outlooks should provide significant tailwinds, which when coupled with our strong portfolio of businesses and the continued execution of our strategy, position us to deliver accelerated growth and continued margin expansion as evidenced by our strong underlying results this quarter.”

The Hartford's President Doug Elliot said, “Property and Casualty achieved outstanding underlying underwriting results in the first quarter. Each of our business lines realized underlying margin expansion. This quarter also marked an important inflection point for growth, with written premiums increasing four percent in Commercial Lines. New business in Small Commercial achieved record levels and our Global Specialty and Middle Market businesses are together producing strong cross-sell results. We continued to see a favorable pricing environment throughout the quarter, resulting in strong pricing performance. I am pleased with our momentum heading into the remainder of the year.”

Swift added, “With our impressive outlook for financial performance and strong capital position, we are increasing the share repurchase authorization to $2.5 billion through 2022 and accelerating initial buyback plans, expecting to utilize $1.5 billion by year-end. As a result, we expect to achieve a return on equity of 13-14 percent in 2022 and 2023, enhancing value creation for all our stakeholders.”

CONSOLIDATED RESULTS:

	Three Months Ended
($ in millions except per share data)	Mar 31 2021			Mar 31 2020			Change1
Net income available to common stockholders	$	244		$	268		(9	)%
Net income available to common stockholders per diluted share1	$	0.67		$	0.74		(9	)%
Core earnings2	$	203		$	485		(58	)%
Core earnings per diluted share2	$	0.56		$	1.34		(58	)%
Book value per diluted share	$	48.04		$	41.42		16	%
Book value per diluted share (ex. AOCI)	$	47.31		$	44.07		7	%
Net income available to common stockholders' return on equity (ROE)3, last 12-months		10.5	%		11.8	%	(1.3	)
Core earnings ROE2,3, last 12-months		10.9	%		13.3	%	(2.4	)

[1] Includes dilutive potential common shares; for net income available to common stockholders per diluted share, the numerator is net income less preferred dividends
[2] Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP); definitions of non-GAAP measures and reconciliations to their closest GAAP measures can be found in this news release under the heading Discussion of Non-GAAP Financial Measures
[3] Return on equity (ROE) is calculated based on last 12-months net income available to common stockholders and core earnings, respectively; for net income ROE, the denominator is stockholders’ equity including AOCI; for core earnings ROE, the denominator is stockholders’ equity excluding AOCI

First quarter 2021 net income available to common stockholders was $244 million, or $0.67 per diluted share, down 9% from first quarter 2020, primarily due to a $247 million, before tax, decrease in underwriting gain (loss) in first quarter 2021 as well as due to excess mortality in group life in first quarter 2021, largely offset by a $311 million, before tax, change to net realized capital gains in first quarter 2021 and an increase in net investment income.

First quarter core earnings of $203 million, or $0.56 per diluted share, declined 58% from first quarter 2020. The decrease was primarily due to:

• Unfavorable Property and Casualty (P&C) prior accident year development (PYD) within core earnings of $223 million, before tax, in first quarter 2021, compared to $6 million of favorable PYD in first quarter 2020. The $223 million of net unfavorable development in first quarter 2021 included a $307 million, before tax, reserve increase for general liability primarily due to the previously announced settlement with Boy Scouts of America on sexual molestation and sexual abuse claims, partially offset by decreases in reserves for workers' compensation, package business, auto liability and prior year catastrophes
• $185 million, before tax, of excess mortality in group life in first quarter 2021, primarily caused by direct and indirect impacts of the COVID-19 pandemic
• Higher P&C current accident year (CAY) CAT losses of $214 million, before tax, in first quarter 2021 primarily due to $176 million, before tax, from the February winter storms in Texas and other parts of the country, compared with $74 million of P&C CAT losses in first quarter 2020
• P&C COVID-19 incurred losses of $24 million, before tax, in first quarter 2021, driven by workers’ compensation losses

Partially offset by:

• An increase in net investment income to $509 million, before tax, from $459 million in first quarter 2020 with the increase driven by higher valuations of underlying investments within private equity funds. A higher return on equity fund investments and the effect of a higher level of invested assets was largely offset by a lower yield on fixed maturities resulting from reinvesting at lower rates and a lower yield on floating rate investments
• Underlying ex-COVID-19 P&C loss ratio* improvement of 2.6 points to 56.8% in first quarter 2021 from 59.4% in first quarter 2020
• P&C expense ratio improvement of 1.6 points, to 31.6 in first quarter 2021 from 33.2 in first quarter 2020, primarily driven by expense savings from our operational transformation and cost reduction plan (“Hartford Next”) and a reduction in bad debt expense

Mar. 31, 2021, book value per diluted share of $48.04 decreased 5% from $50.39 at Dec. 31, 2020, principally due to a decrease in net unrealized gains on investments within AOCI.

Book value per diluted share (excluding AOCI) of $47.31 as of Mar. 31, 2021, increased slightly from $47.16 at Dec. 31, 2020, as net income was largely offset by share repurchases and stockholder dividends during the first quarter of 2021.

Year-to-date 2021, The Hartford returned $239 million to stockholders, consisting of $116 million in common stockholder dividends paid and $123 million of common share repurchases.

Net income available to common stockholders' ROE (net income ROE) was 10.5% for the twelve month period ending Mar. 31, 2021.

Core earnings ROE for the twelve month period ending Mar. 31, 2021 was 10.9%, a decline of 2.4 points from first quarter 2020 due to lower trailing 12-month core earnings and higher average common stockholder's equity ex AOCI.

BUSINESS RESULTS:
Commercial Lines

	Three Months Ended
($ in millions, unless otherwise noted)	Mar 31 2021			Mar 31 2020			Change
Net income	$	129		$	121		7	%
Core earnings	$	105		$	262		(60	%)
Written premiums	$	2,503		$	2,408		4	%
Underwriting gain (loss)1,2	$	(216	)	$	20		NM
Underlying underwriting gain1	$	197		$	116		70	%
Losses and loss adjustment expense ratio
Current accident year before catastrophes		58.0			59.3		(1.3	)
Current accident year catastrophes		7.8			2.4		5.4
Prior accident year development (PYD)		10.6			1.8		8.8
Expenses		32.9			35.2		(2.3	)
Policyholder dividends		0.3			0.4		(0.1	)
Combined ratio		109.7			99.1		10.6
Impact of catastrophes and PYD on combined ratio		(18.4	)		(4.2	)	(14.2	)
Underlying combined ratio1		91.2			94.9		(3.7	)

[1] Denotes financial measure not calculated in accordance with generally accepted accounting principles (non-GAAP); definitions of non-GAAP measures and reconciliations to their closest GAAP measures can be found in this news release under the heading Discussion of Non-GAAP Financial Measures
[2] The Hartford defines increases or decreases greater than or equal to 200%, or changes from a net gain to a net loss position, or vice versa, as "NM" or not meaningful

First quarter 2021 net income of $129 million increased from $121 million in first quarter 2020 principally due to a $187 million, before tax, change to net realized capital gains in first quarter 2021, as well as higher net investment income, largely offset by a $236 million, before tax, decrease in underwriting gain (loss).

Commercial Lines core earnings of $105 million in first quarter 2021 declined by $157 million from first quarter 2020, primarily from:

• Unfavorable P&C prior accident year development (PYD) within core earnings of $232 million, before tax, in first quarter 2021, compared to $12 million of unfavorable PYD in first quarter 2020. The $232 million of net unfavorable development in first quarter 2021 included a $307 million, before tax, reserve increase for general liability primarily due to the previously announced settlement with Boy Scouts of America on sexual molestation and sexual abuse claims, partially offset by reserve decreases in workers’ compensation, package business and commercial property
• A $120 million, before tax, increase in CAY CAT losses principally due to the February 2021 winter storms in Texas and other states across the country
• COVID-19 incurred losses of $24 million, before tax, in the quarter included $20 million in workers' compensation claims and $4 million in financial and other lines

Partially offset by:

• Higher net investment income, including higher returns on limited partnership (LP) investments
• Improved underlying margins before COVID-19 losses of 4.8 points, including a lower current accident year ex-COVID-19 loss ratio of 2.4 points and a lower expense ratio of 2.3 points

Combined ratio was 109.7 in first quarter 2021, 10.6 points higher than 99.1 in first quarter 2020, primarily due to an 8.8 point increase in unfavorable PYD, and 5.4 points of higher CAY CAT losses, partially offset by a lower underlying combined ratio. Underlying combined ratio was 91.2, improving 3.7 points from first quarter 2020 due to lower underwriting expenses and lower loss ratios, primarily in Global Specialty, partially offset by COVID-19 incurred losses of $24 million, before tax.

• Small Commercial underlying combined ratio of 88.3 improved by 1.0 point from first quarter 2020 driven primarily by lower expenses resulting from the Hartford Next initiative, partially offset by higher non-CAT property losses and COVID-19 workers’ compensation losses incurred in first quarter 2021
• Middle & Large Commercial underlying combined ratio of 95.3 improved by 5.1 points from first quarter 2020 primarily due to lower expenses, loss ratio improvement in workers’ compensation before considering COVID-19 losses, lower non-CAT property losses and lower loss costs in general liability, partially offset by COVID-19 workers’ compensation losses incurred in first quarter 2021
• Global Specialty underlying combined ratio of 89.9 improved by 6.5 points from first quarter 2020 due to lower expenses and lower current accident year loss ratios before catastrophes in Global Re, U.S. wholesale, and U.S. financial lines

First quarter 2021 written premiums of $2.5 billion were up 4% from first quarter 2020,reflecting an increase in new business premium in Small Commercial and Global Specialty, strong renewal written price increases in Middle Market and Global Specialty, and improved policy retention in both Small Commercial and Middle Market, partially offset by lower written premium in workers' compensation partly due to an exposure base that, while improving, is still down year over year due to the economic effects of the pandemic.

Personal Lines

	Three Months Ended
($ in millions, unless otherwise noted)	Mar 31 2021			Mar 31 2020			Change
Net income	$	135		$	98		38	%
Core earnings	$	131		$	117		12	%
Written premiums	$	715		$	744		(4	)%
Underwriting gain	$	124		$	103		20	%
Underlying underwriting gain	$	121		$	104		16	%
Losses and loss adjustment expense ratio
Current accident year before catastrophes		56.4			59.8		(3.4	)
Current accident year catastrophes		5.3			2.5		2.8
Prior accident year development (PYD)		(5.7	)		(2.3	)	(3.4	)
Expenses		27.1			26.7		0.4
Combined ratio		83.1			86.7		(3.6	)
Impact of catastrophes and PYD on combined ratio		0.4			(0.2	)	0.6
Underlying combined ratio		83.5			86.6		(3.1	)

Net income of $135 million in first quarter 2021 was up $37 million from first quarter 2020 largely driven by a change to net realized capital gains in first quarter 2021 and an increase in underwriting gain.

Personal Lines core earnings of $131 million rose by $14 million due to:

• An increase in underwriting gain, largely due to favorable auto claim frequency and higher net favorable PYD
• Partially offset by higher CAY CAT losses, a decrease in net investment income, and the effect of lower earned premiums

Combined ratio of 83.1 in first quarter 2021 improved by 3.6 points relative to first quarter 2020, primarily due to lower CAY loss costs before catastrophes and higher net favorable PYD, partially offset by higher CAY CAT losses. Underlying combined ratio of 83.5 was 3.1 points better than first quarter 2020, primarily due to lower auto claim frequency from fewer miles driven relative to the prior year period though miles driven have begun to increase again as we emerge from the pandemic. The auto underlying combined ratio of 86.3 improved 4.6 points from first quarter 2020, primarily due to lower auto frequency resulting from fewer miles driven while the homeowners underlying combined ratio of 77.2 was up 1.0 point from 76.2 in first quarter 2020, primarily due to modestly higher non-CAT property losses.

Written premiums in first quarter 2021 were $715 million compared to $744 million in first quarter 2020 primarily due to:

• A reduction in auto as non-renewed premium exceeded new business
• Lower renewal written price increases in auto, though up slightly from fourth quarter 2020, due to moderating claim frequency
• Partially offset by renewal written price increases in homeowners of 9.4% in first quarter 2021

Group Benefits

	Three Months Ended
($ in millions, unless otherwise noted)

FAQ

What are The Hartford's Q1 2021 financial results?

The Hartford reported Q1 2021 net income of $244 million and core earnings of $203 million.

How did The Hartford perform compared to Q1 2020?

Net income decreased by 9% and core earnings fell 58% from Q1 2020.

What drove the changes in The Hartford's net investment income?

Net investment income rose 11% due to strong partnership returns of 21.1%.

What is The Hartford's plan for share repurchases?

The company increased its share repurchase authorization to $2.5 billion, expecting to utilize $1.5 billion by year-end.

What was the impact of COVID-19 on The Hartford's earnings?

COVID-19 led to excess mortality losses of $185 million, affecting both net income and core earnings.