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þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 13-3317783 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: the following, all of which are listed on the New York Stock Exchange, Inc. | ||||
Common Stock, par value $0.01 per share | 6% Equity Units | |||
7.45% Trust Originated Preferred Securities, Series C, issued by Hartford Capital III | 7% Equity Units |
Securities registered pursuant to Section 12(g) of the Act: | ||||
2.375% Notes due June 1, 2006 | 7.9% Notes due June 15, 2010 | |||
4.7% Notes due September 1, 2007 | 4.625% Notes due July 15, 2013 | |||
2.56% Equity Unit Notes due August 16, 2008 | 4.75% Notes due March 1, 2014 | |||
6.375% Notes due November 1, 2008 | 7.3% Debentures due November 1, 2015 | |||
4.1% Equity Unit Notes due November 16, 2008 |
Large accelerated filerþ Accelerated filero Non-accelerated filero
ITEM | DESCRIPTION | PAGE | ||||||
1 | Business | 3 | ||||||
1A | Risk Factors | 18 | ||||||
1B | Unresolved Staff Comments | 24 | ||||||
2 | Properties | 24 | ||||||
3 | Legal Proceedings | 24 | ||||||
4 | Submission of Matters to a Vote of Security Holders | 26 | ||||||
5 | Market for The Hartford’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 26 | ||||||
6 | Selected Financial Data | 27 | ||||||
7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 | ||||||
7A | Quantitative and Qualitative Disclosures About Market Risk | 116 | ||||||
8 | Financial Statements and Supplementary Data | 116 | ||||||
9 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 116 | ||||||
9A | Controls and Procedures | 116 | ||||||
9B | Other Information | 118 | ||||||
PART III | 10 | Directors and Executive Officers of The Hartford | 118 | |||||
11 | Executive Compensation | 119 | ||||||
12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 119 | ||||||
13 | Certain Relationships and Related Transactions | 120 | ||||||
14 | Principal Accounting Fees and Services | 120 | ||||||
PART IV | 15 | Exhibits, Financial Statement Schedules | 120 | |||||
Signatures | II-1 | |||||||
Exhibits Index | II-2 | |||||||
EX-4.09: SUPPLEMENTAL INDENTURE | ||||||||
EX-10.09: INCENTIVE STOCK PLAN | ||||||||
EX-10.10: INCENTIVE STOCK PLAN | ||||||||
EX-10.11: INCENTIVE STOCK PLAN | ||||||||
EX-10.12: DEFERRED RESTRICTED STOCK UNIT PLAN | ||||||||
EX-10.17: EMPLOYEE STOCK PURCHASE PLAN | ||||||||
EX-10.18: INVESTMENT AND SAVINGS PLAN | ||||||||
EX-12.01: STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS | ||||||||
EX-21.01: SUBSIDIARIES | ||||||||
EX-23.01: CONSENT OF DELOITTE & TOUCHE LLP | ||||||||
EX-24.01: POWER OF ATTORNEY | ||||||||
EX-31.01: CERTIFICATION | ||||||||
EX-31.02: CERTIFICATION | ||||||||
EX-32.01: CERTIFICATION | ||||||||
EX-32.02: CERTIFICATION |
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Loss Development Table | ||||||||||||||||||||||||||||||||||||||||||||
Property And Casualty Claim And Claim Adjustment Expense Liability Development - Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||||||||
For the years ended December 31, [1] | ||||||||||||||||||||||||||||||||||||||||||||
1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance | $ | 11,574 | $ | 12,702 | $ | 12,770 | $ | 12,902 | $ | 12,476 | $ | 12,316 | $ | 12,860 | $ | 13,141 | $ | 16,218 | $ | 16,191 | $ | 16,863 | ||||||||||||||||||||||
Cumulative paid claims and claim expenses | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 2,467 | 2,625 | 2,472 | 2,939 | 2,994 | 3,272 | 3,339 | 3,480 | 4,415 | 3,594 | ||||||||||||||||||||||||||||||||||
Two years later | 4,126 | 4,188 | 4,300 | 4,733 | 5,019 | 5,315 | 5,621 | 6,781 | 6,779 | — | ||||||||||||||||||||||||||||||||||
Three years later | 5,212 | 5,540 | 5,494 | 6,153 | 6,437 | 6,972 | 8,324 | 8,591 | — | — | ||||||||||||||||||||||||||||||||||
Four years later | 6,274 | 6,418 | 6,508 | 7,141 | 7,652 | 9,195 | 9,710 | — | — | — | ||||||||||||||||||||||||||||||||||
Five years later | 6,970 | 7,201 | 7,249 | 8,080 | 9,567 | 10,227 | — | — | — | — | ||||||||||||||||||||||||||||||||||
Six years later | 7,630 | 7,800 | 8,036 | 9,818 | 10,376 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Seven years later | 8,147 | 8,499 | 9,655 | 10,501 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Eight years later | 8,786 | 10,044 | 10,239 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Nine years later | 10,290 | 10,576 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Ten years later | 10,780 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Liabilities re-estimated | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 12,529 | 12,752 | 12,615 | 12,662 | 12,472 | 12,459 | 13,153 | 15,965 | 16,632 | 16,439 | ||||||||||||||||||||||||||||||||||
Two years later | 12,598 | 12,653 | 12,318 | 12,569 | 12,527 | 12,776 | 16,176 | 16,501 | 17,232 | |||||||||||||||||||||||||||||||||||
Three years later | 12,545 | 12,460 | 12,183 | 12,584 | 12,698 | 15,760 | 16,768 | 17,338 | — | |||||||||||||||||||||||||||||||||||
Four years later | 12,399 | 12,380 | 12,138 | 12,663 | 15,609 | 16,584 | 17,425 | — | — | |||||||||||||||||||||||||||||||||||
Five years later | 12,414 | 12,317 | 12,179 | 15,542 | 16,256 | 17,048 | — | — | — | |||||||||||||||||||||||||||||||||||
Six years later | 12,390 | 12,322 | 15,047 | 16,076 | 16,568 | — | — | — | — | |||||||||||||||||||||||||||||||||||
Seven years later | 12,380 | 15,188 | 15,499 | 16,290 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Eight years later | 15,253 | 15,594 | 15,641 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Nine years later | 15,629 | 15,713 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Ten years later | 15,727 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Deficiency (redundancy), net of reinsurance | $ | 4,153 | $ | 3,011 | $ | 2,871 | $ | 3,388 | $ | 4,092 | $ | 4,732 | $ | 4,565 | $ | 4,197 | $ | 1,014 | $ | 248 | ||||||||||||||||||||||||
[1] | The above tables exclude Hartford Insurance, Singapore as a result of its sale in September 2001, Hartford Seguros as a result of its sale in February 2001, Zwolsche as a result of its sale in December 2000 and London & Edinburgh as a result of its sale in November 1998. |
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Property And Casualty Claim And Claim Adjustment Expense Liability Development - Gross | ||||||||||||||||||||||||||||||||||||||||
For the years ended December 31, [1] | ||||||||||||||||||||||||||||||||||||||||
1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||||||||||||
Net reserve, as initially estimated | $ | 12,702 | $ | 12,770 | $ | 12,902 | $ | 12,476 | $ | 12,316 | $ | 12,860 | $ | 13,141 | $ | 16,218 | $ | 16,191 | $ | 16,863 | ||||||||||||||||||||
Reinsurance and other recoverables, as initially estimated | 4,357 | 3,996 | 3,275 | 3,706 | 3,871 | 4,176 | 3,950 | 5,497 | 5,138 | $ | 5,403 | |||||||||||||||||||||||||||||
Gross reserve, as initially estimated | $ | 17,059 | $ | 16,766 | $ | 16,177 | $ | 16,182 | $ | 16,187 | $ | 17,036 | $ | 17,091 | $ | 21,715 | $ | 21,329 | $ | 22,266 | ||||||||||||||||||||
Net reestimated reserve | $ | 15,713 | $ | 15,641 | $ | 16,290 | $ | 16,568 | $ | 17,048 | $ | 17,425 | $ | 17,338 | $ | 17,232 | $ | 16,439 | ||||||||||||||||||||||
Reestimated and other reinsurance recoverables | 5,538 | 5,273 | 4,769 | 5,667 | 5,720 | 5,912 | 5,538 | 5,235 | 5,104 | |||||||||||||||||||||||||||||||
Gross reestimated reserve | $ | 21,251 | $ | 20,914 | $ | 21,059 | $ | 22,235 | $ | 22,768 | $ | 23,337 | $ | 22,876 | $ | 22,467 | $ | 21,543 | ||||||||||||||||||||||
Gross deficiency (redundancy) | $ | 4,192 | $ | 4,148 | $ | 4,882 | $ | 6,053 | $ | 6,581 | $ | 6,301 | $ | 5,785 | $ | 752 | $ | 214 | ||||||||||||||||||||||
[1] | The above tables exclude Hartford Insurance, Singapore as a result of its sale in September 2001, Hartford Seguros as a result of its sale in February 2001, Zwolsche as a result of its sale in December 2000 and London & Edinburgh as a result of its sale in November 1998. |
Calendar Year | ||||||||||||||||||||||||||||||||||||||||||||
1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Total | ||||||||||||||||||||||||||||||||||
By Accident year | ||||||||||||||||||||||||||||||||||||||||||||
1995 & Prior | $ | 955 | $ | 69 | $ | (53 | ) | $ | (146 | ) | $ | 15 | $ | (25 | ) | $ | (10 | ) | $ | 2,873 | $ | 375 | $ | 98 | $ | 4,151 | ||||||||||||||||||
1996 | — | (19 | ) | (46 | ) | (47 | ) | (95 | ) | (38 | ) | 15 | (7 | ) | 30 | 21 | (186 | ) | ||||||||||||||||||||||||||
1997 | — | — | (56 | ) | (104 | ) | (55 | ) | 18 | 36 | 2 | 46 | 23 | (90 | ) | |||||||||||||||||||||||||||||
1998 | — | — | — | 57 | 42 | 60 | 38 | 11 | 82 | 72 | 362 | |||||||||||||||||||||||||||||||||
1999 | — | — | — | — | 89 | 40 | 92 | 32 | 113 | 98 | 464 | |||||||||||||||||||||||||||||||||
2000 | — | — | — | — | — | 88 | 146 | 73 | 178 | 152 | 637 | |||||||||||||||||||||||||||||||||
2001 | — | — | — | — | — | — | (24 | ) | 39 | (232 | ) | 193 | (24 | ) | ||||||||||||||||||||||||||||||
2002 | — | — | — | — | — | — | — | (199 | ) | (57 | ) | 180 | (76 | ) | ||||||||||||||||||||||||||||||
2003 | — | — | — | — | — | — | — | — | (121 | ) | (237 | ) | (358 | ) | ||||||||||||||||||||||||||||||
2004 | — | — | — | — | — | — | — | — | — | (352 | ) | (352 | ) | |||||||||||||||||||||||||||||||
Total | $ | 955 | $ | 50 | $ | (155 | ) | $ | (240 | ) | $ | (4 | ) | $ | 143 | $ | 293 | $ | 2,824 | $ | 414 | $ | 248 | $ | 4,528 | |||||||||||||||||||
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• | Licensing companies and agents to transact business; | |
• | calculating the value of assets to determine compliance with statutory requirements; | |
• | mandating certain insurance benefits; | |
• | regulating certain premium rates; | |
• | reviewing and approving policy forms; | |
• | regulating unfair trade and claims practices, including through the imposition of restrictions on marketing and sales practices, distribution arrangements and payment of inducements; | |
• | establishing statutory capital and reserve requirements and solvency standards; | |
• | fixing maximum interest rates on insurance policy loans and minimum rates for guaranteed crediting rates on life insurance policies and annuity contracts; | |
• | approving changes in control of insurance companies; | |
• | restricting the payment of dividends and other transactions between affiliates; | |
• | establishing assessments and surcharges for guaranty funds, second-injury funds and other mandatory pooling arrangements; and | |
• | regulating the types, amounts and valuation of investments. |
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1stQtr. | 2ndQtr. | 3rdQtr. | 4thQtr. | |||||||||||||
2005 | ||||||||||||||||
Common Stock Price | ||||||||||||||||
High | $ | 73.76 | $ | 77.26 | $ | 81.89 | $ | 89.00 | ||||||||
Low | 66.06 | 65.51 | 73.05 | 73.75 | ||||||||||||
Dividends Declared | 0.29 | 0.29 | 0.29 | 0.30 | ||||||||||||
2004 | ||||||||||||||||
Common Stock Price | ||||||||||||||||
High | $ | 66.51 | $ | 68.74 | $ | 68.35 | $ | 69.31 | ||||||||
Low | 58.98 | 61.08 | 58.54 | 53.29 | ||||||||||||
Dividends Declared | 0.28 | 0.28 | 0.28 | 0.29 | ||||||||||||
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Total Number of Shares | Maximum Number | |||||||||||||||
Total Number | Purchased as Part of | of Shares that May Yet | ||||||||||||||
of Shares | Average Price | Publicly Announced Plans | Be Purchased as Part | |||||||||||||
Period | Purchased | Paid Per Share | or Programs | of the Plans or Programs | ||||||||||||
October 2005 | [1] | 419 | $ | 74.77 | N/A | N/A | ||||||||||
November 2005 | [1] | 1,517 | $ | 78.25 | N/A | N/A | ||||||||||
December 2005 | [1] | 450 | $ | 87.98 | N/A | N/A | ||||||||||
[1] | Represents shares acquired from employees of the Company for tax withholding purposes in connection with the Company’s benefit plans. |
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Total revenues | $ | 27,083 | $ | 22,708 | $ | 18,719 | $ | 16,410 | $ | 15,980 | ||||||||||
Income (loss) before cumulative effect of accounting changes[1] | 2,274 | 2,138 | (91 | ) | 1,000 | 541 | ||||||||||||||
Net income (loss)[1] [2] | 2,274 | 2,115 | (91 | ) | 1,000 | 507 | ||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Total assets | $ | 285,557 | $ | 259,735 | $ | 225,850 | $ | 181,972 | $ | 181,590 | ||||||||||
Long-term debt | 4,048 | 4,308 | 4,610 | 4,061 | 3,374 | |||||||||||||||
Total stockholders’ equity | 15,325 | 14,238 | 11,639 | 10,734 | 9,013 | |||||||||||||||
Earnings (Loss) Per Share Data | ||||||||||||||||||||
Basic earnings (loss) per share[1] | ||||||||||||||||||||
Income (loss) before cumulative effect of accounting changes[1] | $ | 7.63 | $ | 7.32 | $ | (0.33 | ) | $ | 4.01 | $ | 2.27 | |||||||||
Net income (loss)[1] [2] | 7.63 | 7.24 | (0.33 | ) | 4.01 | 2.13 | ||||||||||||||
Diluted earnings (loss) per share[1] [3] | ||||||||||||||||||||
Income (loss) before cumulative effect of accounting changes[1] | 7.44 | 7.20 | (0.33 | ) | 3.97 | 2.24 | ||||||||||||||
Net income (loss)[1] [2] | 7.44 | 7.12 | (0.33 | ) | 3.97 | 2.10 | ||||||||||||||
Dividends declared per common share | 1.17 | 1.13 | 1.09 | 1.05 | 1.01 | |||||||||||||||
Other Data | ||||||||||||||||||||
Mutual fund assets[4] | $ | 32,705 | $ | 28,068 | $ | 22,462 | $ | 15,321 | $ | 16,809 | ||||||||||
Operating Data Combined ratios | ||||||||||||||||||||
Ongoing Property & Casualty Operations[5] | 93.2 | 95.3 | 96.5 | 99.1 | 108.3 | |||||||||||||||
[1] | 2004 includes a $216 tax benefit related to agreement with the IRS on the resolution of matters pertaining to tax years prior to 2004. 2003 includes an after-tax charge of $1.7 billion related to the Company’s 2003 asbestos reserve addition, $40 of after-tax expense related to the settlement of a certain litigation dispute, $30 of tax benefit in Life primarily related to the favorable treatment of certain tax items arising during the 1996-2002 tax years, and $27 of after-tax severance charges in Property & Casualty. 2002 includes $76 tax benefit in Life, $11 after-tax expense in Life related to a certain litigation dispute and an $8 after-tax benefit in Life’s September 11 exposure. 2001 includes $440 of after-tax losses related to September 11 and a $130 tax benefit in Life. | |
[2] | 2004 includes a $23 after-tax charge related to the cumulative effect of accounting change for the Company’s adoption of Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts”. 2001 includes a $34 after-tax charge related to the cumulative effect of accounting changes for the Company’s adoption of SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities” and EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.” | |
[3] | As a result of the net loss for the year ended December 31, 2003, Statement of Financial Accounting Standards No. 128,”Earnings per Share“ requires the Company to use basic weighted average common shares outstanding in the calculation of the year ended December 31, 2003 diluted earnings (loss) per share, since the inclusion of options of 1.8 would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 274.2. | |
[4] | Mutual funds are owned by the shareholders of those funds and not by the Company. As a result, they are not reflected in total assets on the Company’s balance sheet. | |
[5] | 2001 includes the impact of September 11. Before the impact of September 11, the 2001 combined ratio was 101.7. |
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Item 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview | 28 | |||
Critical Accounting Estimates | 31 | |||
Consolidated Results of Operations | 40 | |||
Life | 43 | |||
Retail | 49 | |||
Retirement Plans | 51 | |||
Institutional | 52 | |||
Individual Life | 54 | |||
Group Benefits | 55 | |||
International | 56 | |||
Other | 58 | |||
Property & Casualty | 58 | |||
Total Property & Casualty | 63 | |||
Ongoing Operations | 72 | |||
Business Insurance | 75 | |||
Personal Lines | 78 | |||
Specialty Commercial | 81 | |||
Other Operations (Including Asbestos and Environmental Claims) | 83 | |||
Investments | 88 | |||
Investment Credit Risk | 96 | |||
Capital Markets Risk Management | 101 | |||
Capital Resources and Liquidity | 108 | |||
Impact of New Accounting Standards | 116 |
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Business | Personal | Specialty | Other | Total | ||||||||||||||||
Insurance | Lines | Commercial | Operations | P&C | ||||||||||||||||
Reserve Line of Business | ||||||||||||||||||||
Property | $ | 58 | $ | 152 | $ | 274 | $ | — | $ | 484 | ||||||||||
Auto physical damage | 15 | 26 | (2 | ) | — | 39 | ||||||||||||||
Auto liability | 608 | 1,550 | 73 | — | 2,231 | |||||||||||||||
Package business | 1,680 | — | — | — | 1,680 | |||||||||||||||
Workers’ compensation | 3,312 | 5 | 1,685 | — | 5,002 | |||||||||||||||
General liability | 674 | 32 | 1,203 | — | 1,909 | |||||||||||||||
Professional liability | — | — | 471 | — | 471 | |||||||||||||||
Bond | — | — | 140 | — | 140 | |||||||||||||||
Assumed Reinsurance— [1] | — | — | — | 1,098 | 1,098 | |||||||||||||||
All other non-A&E | — | — | — | 1,142 | 1,142 | |||||||||||||||
A&E | 10 | 2 | 4 | 2,651 | 2,667 | |||||||||||||||
Total reserves-net | 6,357 | 1,767 | 3,848 | 4,891 | 16,863 | |||||||||||||||
Reinsurance and other recoverables | 709 | 385 | 2,354 | 1,955 | 5,403 | |||||||||||||||
Total reserves-gross | $ | 7,066 | $ | 2,152 | $ | 6,202 | $ | 6,846 | $ | 22,266 | ||||||||||
[1] | These net loss and loss adjustment expense reserves relate to assumed reinsurance underwritten by Reinsurance operations that were moved into Other Operations (formerly known as “HartRe”). |
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For the Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Earned premiums | $ | 14,359 | $ | 13,566 | $ | 11,891 | ||||||
Fee income | 4,012 | 3,471 | 2,760 | |||||||||
Net investment income | ||||||||||||
Securities available-for-sale and other | 4,384 | 4,144 | 3,233 | |||||||||
Equity securities held for trading [1] [2] | 3,847 | 799 | — | |||||||||
Total net investment income | 8,231 | 4,943 | 3,233 | |||||||||
Other revenues | 464 | 437 | 556 | |||||||||
Net realized capital gains | 17 | 291 | 279 | |||||||||
Total revenues | 27,083 | 22,708 | 18,719 | |||||||||
Benefits, claims and claim adjustment expenses [1] | 16,776 | 13,640 | 13,548 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 3,169 | 2,843 | 2,397 | |||||||||
Insurance operating costs and expenses | 3,227 | 2,776 | 2,314 | |||||||||
Interest expense | 252 | 251 | 271 | |||||||||
Other expenses | 674 | 675 | 739 | |||||||||
Total benefits, claims and expenses | 24,098 | 20,185 | 19,269 | |||||||||
Income (loss) before income taxes and cumulative effect of | 2,985 | 2,523 | (550 | ) | ||||||||
accounting change | ||||||||||||
Income tax expense (benefit) | 711 | 385 | (459 | ) | ||||||||
Income (loss) before cumulative effect of accounting change | 2,274 | 2,138 | (91 | ) | ||||||||
Cumulative effect of accounting change, net of tax [3] | — | (23 | ) | — | ||||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
[1] | Includes dividend income and mark-to-market effects of trading securities supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, claims and claim adjustment expenses. | |
[2] | Amounts reported in 2003 are prior to the adoption of Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (“SOP 03-1”), | |
[3] | For the year ended December 31, 2004, represents the cumulative impact of the Company’s adoption of SOP 03-1. |
2005 | 2004 | 2003 | ||||||||||
Net Income (Loss) by Operation and Life Segment | ||||||||||||
Life | ||||||||||||
Retail | $ | 622 | $ | 503 | $ | 412 | ||||||
Retirement Plans | 75 | 66 | 42 | |||||||||
Institutional | 88 | 68 | 32 | |||||||||
Individual Life | 166 | 155 | 145 | |||||||||
Group Benefits | 272 | 229 | 148 | |||||||||
International | 96 | 39 | 13 | |||||||||
Other [1] | (115 | ) | 322 | 53 | ||||||||
Total Life | 1,204 | 1,382 | 845 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations [1] | 1,165 | 955 | 783 | |||||||||
Other Operations | 71 | (45 | ) | (1,528 | ) | |||||||
Total Property & Casualty | 1,236 | 910 | (745 | ) | ||||||||
Corporate | (166 | ) | (177 | ) | (191 | ) | ||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
[1] | For the year ended December 31, 2004, Life includes a $190 tax benefit recorded in its Other category and Property & Casualty’s Ongoing Operations includes a $26 tax benefit, which relate to agreement with the IRS on the resolution of matters pertaining to tax years prior to 2004. For further discussion of this benefit, see Note 12 of Notes to Consolidated Financial Statements. |
2005 | 2004 | 2003 | ||||||||||
Underwriting Results by Property & Casualty Segment | ||||||||||||
Business Insurance | $ | 396 | $ | 360 | $ | 158 | ||||||
Personal Lines | 460 | 138 | 130 | |||||||||
Specialty Commercial | (165 | ) | (53 | ) | 10 | |||||||
Other Operations [1] | (226 | ) | (448 | ) | (2,840 | ) | ||||||
[1] | Includes $2,604 of before-tax net asbestos reserve strengthening in 2003. |
• | An increase in Property & Casualty net income of $326, driven primarily by improved underwriting results in the Personal Lines and Other Operations segments, increased net investment income, and a reduction in other expenses; partially offset by a decrease in net realized capital gains. The improved underwriting results in Personal Lines was driven primarily by a reduction in current year catastrophe losses, a reduction in net unfavorable prior accident year loss reserve development and earned premium growth. The improvement in underwriting results for Other Operations was primarily due to a reduction in net unfavorable prior accident year loss reserve development. The increase in net investment income was primarily due to higher assets under management resulting from increased cash flows from underwriting, higher investment yields on fixed maturity investments and an increase in income from limited partnership investments. |
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• | An increase in net income for Retail of $119, principally driven by higher fee income from growth in the variable annuity and mutual fund businesses as a result of higher assets under management as compared to the prior year periods. | ||
• | An increase in net income for International of $57, principally driven by higher fee income and investment spread in Japan derived from a 78% increase in the assets under management. | ||
• | An increase in net income for the Group Benefits segment of $43, driven primarily by higher earned premiums and net investment income as well as a favorable loss ratio. |
• | A $216 tax benefit recorded in 2004 to reflect the effect of the IRS audit settlement on tax years prior to 2004. | ||
• | A charge of $102, after-tax, recorded in 2005 in Life to reserve for investigations related to market timing by the SEC and New York Attorney General’s Office, directed brokerage by the SEC and single premium group annuities by the New York Attorney General’s Office and the Connecticut Attorney General’s Office. | ||
• | An after-tax expense of $46 recorded in Life during 2005, related to the termination of a provision of an agreement with a mutual fund distribution partner of the Company’s retail mutual funds. |
• | An increase of $3.3 billion in net investment income, driven primarily by a $3.0 billion increase in net investment income on the Company’s trading securities portfolio. Also contributing to the increase was a higher average invested asset base. | ||
• | An increase of $793 in earned premiums. Earned premium growth of $486 in Business Insurance was primarily driven by new business premium growth outpacing non-renewals in the prior 12 months. Earned premium growth of $165 in Personal Lines was primarily driven by new business growth outpacing non-renewals in auto and the effect of earned pricing increases in homeowners. Earned premiums increased $158 in Group Benefits primarily due to increased sales, particularly in group disability, and continued strong persistency. | ||
• | An increase of $541 in fee income primarily driven by increased individual annuity assets under management in the United States and Japan. |
• | A decrease of $274 in net realized capital gains primarily due to lower net gains on the sale of fixed maturity securities, losses associated with GMWB derivatives, Japanese fixed annuity contract hedges and periodic net coupon settlements. These losses were offset in part by changes in the value of non-qualifying foreign currency swaps. |
• | An increase in Property & Casualty net income of $1.7 billion driven primarily by a $1.7 billion after-tax charge to strengthen net asbestos reserves based on a ground up study in 2003. | ||
• | A $216 tax benefit in 2004, of which $190 was recorded in Life and $26 was recorded in Property & Casualty, primarily consisting of the benefit related to the separate account dividends-received deduction (“DRD”) and interest. For further discussion, see Note 12 of Notes to Consolidated Financial Statements. | ||
• | Growth in all of Life’s segments and improved underwriting results, particularly in the Business Insurance segment. | ||
Partially offsetting the increase was: | |||
• | Increased Property & Casualty catastrophe losses, primarily related to hurricanes Charley, Frances, Ivan and Jeanne. |
• | Increased earned premiums for Group Benefits driven primarily by the acquisition of the group benefits business of CNA, sales growth and favorable persistency. | ||
• | Increased earned premiums in the Business Insurance, Personal Lines and Specialty Commercial segments primarily due to earned pricing increases and growth in new business premiums out pacing non-renewals for Personal Lines and Business Insurance. | ||
• | Increased fee income for Retail resulted from an increase in variable annuity average account values. | ||
• | Net investment income increased due primarily to the adoption of SOP 03-1, which resulted in $1.6 billion of net investment income. |
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2005 | 2004 | 2003 | ||||||||||
Basic earnings (loss) per share | $ | 7.63 | $ | 7.24 | $ | (0.33 | ) | |||||
Diluted earnings (loss) per share [1] | $ | 7.44 | $ | 7.12 | $ | (0.33 | ) | |||||
Weighted average common shares outstanding (basic) | 298.0 | 292.3 | 272.4 | |||||||||
Weighted average common shares outstanding and dilutive potential common shares (diluted) [1] | 305.6 | 297.0 | 272.4 | |||||||||
[1] | As a result of the net loss for the year ended December 31, 2003, SFAS No. 128, “Earnings Per Share”, requires the Company to use basic weighted average common shares outstanding in the calculation of the year ended December 31, 2003 diluted earnings (loss) per share, since the inclusion of options of 1.8 would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 274.2. |
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As of and for the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Product/Key Indicator Information | ||||||||||||
United States Individual Variable Annuities | ||||||||||||
Account value, beginning of period | $ | 99,617 | $ | 86,501 | $ | 64,343 | ||||||
Net flows | (881 | ) | 5,471 | 7,709 | ||||||||
Change in market value and other | 6,578 | 7,645 | 14,449 | |||||||||
Account value, end of period | $ | 105,314 | $ | 99,617 | $ | 86,501 | ||||||
Retail Mutual Funds | ||||||||||||
Assets under management, beginning of period | $ | 25,240 | $ | 20,301 | $ | 14,079 | ||||||
Net sales | 1,335 | 2,505 | 2,155 | |||||||||
Change in market value and other | 2,488 | 2,434 | 4,067 | |||||||||
Assets under management, end of period | $ | 29,063 | $ | 25,240 | $ | 20,301 | ||||||
Retirement Plans | ||||||||||||
Account value, beginning of period | $ | 16,493 | $ | 13,571 | $ | 10,183 | ||||||
Net flows | 1,618 | 1,636 | 1,560 | |||||||||
Change in market value and other | 1,206 | 1,286 | 1,828 | |||||||||
Account value, end of period | $ | 19,317 | $ | 16,493 | $ | 13,571 | ||||||
Individual Life Insurance | ||||||||||||
Variable universal life account value, end of period | $ | 5,902 | $ | 5,356 | $ | 4,725 | ||||||
Total life insurance inforce | 150,801 | 139,889 | 130,798 | |||||||||
S&P 500 Index | ||||||||||||
Year end closing value | 1,248 | 1,212 | 1,112 | |||||||||
Daily average value | 1,208 | 1,131 | 965 | |||||||||
Japan Annuities | ||||||||||||
Account value, beginning of period | $ | 14,631 | $ | 6,220 | $ | 1,722 | ||||||
Net flows | 10,857 | 7,249 | 3,490 | |||||||||
Change in market value and other | 616 | 1,162 | 1,008 | |||||||||
Account value, end of period | $ | 26,104 | $ | 14,631 | $ | 6,220 | ||||||
• | The 2005 increase in U.S. variable annuity account values can be attributed to market growth over the past four quarters. | |
• | Net flows and net sales for the U.S. variable annuity and retail mutual fund businesses, respectively, have decreased from prior year levels. In particular, variable annuity net flows and mutual fund net sales were negatively affected due to lower sales levels and higher surrenders due to increased competition. | |
• | Changes in market value are based on market conditions and investment management performance. | |
• | Japan annuity account values and net flows continue to grow as a result of strong sales and significant market growth in 2005. |
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For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 [1] | ||||||||||
Net Investment Income | ||||||||||||
Retail | $ | 933 | $ | 1,011 | $ | 432 | ||||||
Retirement Plans | 311 | 306 | 281 | |||||||||
Institutional | 802 | 664 | 581 | |||||||||
Individual Life | 305 | 303 | 263 | |||||||||
Group Benefits | 398 | 373 | 262 | |||||||||
International | 75 | 11 | 2 | |||||||||
Other | 4,021 | 1,007 | 220 | |||||||||
Total net investment income | $ | 6,845 | $ | 3,675 | $ | 2,041 | ||||||
Interest Credited on General Account Assets | ||||||||||||
Retail | $ | 717 | $ | 841 | $ | 284 | ||||||
Retirement Plans | 197 | 186 | 184 | |||||||||
Institutional | 383 | 300 | 253 | |||||||||
Individual Life | 225 | 216 | 192 | |||||||||
International | 14 | (1 | ) | — | ||||||||
Other | 4,135 | 939 | 170 | |||||||||
Total interest credited on general account assets | $ | 5,671 | $ | 2,481 | $ | 1,083 | ||||||
[1] | Amounts reported in 2003 are prior to the adoption of SOP 03-1. |
• | Net investment income and interest credited in Other increased for the year ended December 31, 2005 due to $3,847 increase in the mark-to-market effects of trading account securities supporting the Japanese variable annuity business. | |
• | Net investment income and interest credited on general account assets in Retail declined for the year ended December 31, 2005 due to lower assets under management from surrenders on market value adjusted (“MVA”) fixed annuity products at the end of their guarantee period. The increase for the year ended December 31, 2004 was largely due to the adoption of SOP 03-1. | |
• | Net investment income and interest credited on general account assets in Institutional increased as a result of the Company’s funding agreement backed Investor Notes program, partially offset by surrenders in the PPLI business. | |
• | In addition to interest credited on general account assets, Institutional also had other contract benefits for limited payment contracts of $292, $279 and $231 for the years ended December 31, 2005, 2004 and 2003, respectively. These amounts need to be deducted from net investment income to understand the net interest spread on these businesses because these contracts are accounted for as traditional insurance products. |
For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Group Benefits | ||||||||||||
Total premiums and other considerations | $ | 3,810 | $ | 3,652 | $ | 2,362 | ||||||
Fully insured ongoing sales (excluding buyouts) | 779 | 632 | 507 | |||||||||
Persistency [1] | 87 | % | 85 | % | 81 | % | ||||||
[1] | The persistency rate represents the employer market group life and disability business, which accounts for, on average, 75% of inforce premiums. |
• | Earned premiums and other considerations include $27, $4 and $40 in buyout premiums for the years ended December 31, 2005, 2004 and 2003, respectively. The increase in premiums and other considerations for Group Benefits in 2005 compared to 2004 was driven by sales and favorable persistency. |
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For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Retail | ||||||||||||
General insurance expense ratio (individual annuity) | 17.9 | bps | 18.3 | bps | 22.0 | bps | ||||||
DAC amortization ratio (individual annuity) | 49.6 | % | 50.9 | % | 50.1 | % | ||||||
Insurance expenses, net of deferrals | $ | 869 | $ | 687 | $ | 560 | ||||||
Individual Life | ||||||||||||
Death benefits | $ | 241 | $ | 245 | $ | 224 | ||||||
Insurance expenses, net of deferrals | $ | 167 | $ | 164 | $ | 161 | ||||||
Group Benefits | ||||||||||||
Total benefits and claims | $ | 2,794 | $ | 2,703 | $ | 1,862 | ||||||
Loss ratio (excluding buyout premiums) | 73.1 | % | 74.0 | % | 78.5 | % | ||||||
Insurance expenses, net of deferrals | $ | 1,022 | $ | 989 | $ | 553 | ||||||
Expense ratio (excluding buyout premiums) | 27.8 | % | 27.7 | % | 24.6 | % | ||||||
• | Individual annuity’s expense ratio for the year ended December 31, 2005 continued to benefit from the Company’s disciplined expense management and economies of scale in the variable annuity business. Additionally, individual annuity’s expense ratio continues to be one of the lowest ratios of general insurance expenses as a percent of assets under management in the industry, holding near 18 bps of average account value for the year ended December 31, 2005. The Company expects this ratio to stay between 18-20 bps. | ||
• | The ratio of individual annuity DAC amortization over income before taxes and DAC amortization declined for the year ended December 31, 2005 as a result of higher gross profits and a lower amount of additional deposits received on existing business. | ||
• | Individual Life death benefits decreased for the year ended December 31, 2005 due to favorable mortality experience. | ||
• | The Group Benefits loss ratio, excluding buyouts, for the year ended December 31, 2005 decreased due to favorable morbidity and mortality experience. | ||
• | The Group Benefits expense ratio, excluding buyouts, increased slightly for the year ended December 31, 2005 primarily due to higher operating expenses related to business growth. |
2005 | 2004 | 2003 | ||||||||||
Ratios | ||||||||||||
Retail | ||||||||||||
Individual annuity return on assets (“ROA”) | 54.6 | bps | 44.8 | bps | 45.4 | bps | ||||||
Group Benefits | ||||||||||||
After-tax margin(excluding buyouts) | 7.2 | % | 6.3 | % | 6.4 | % | ||||||
• | Individual annuity’s ROA increased for the year ended December 31, 2005, compared to the prior year. In particular, variable annuity fees and fixed annuity general account spreads each increased for the year ended December 31, 2005 compared to the prior year. The increase in the ROA can be attributed to the increase in account values and resulting increased fees including GMWB rider fees without a corresponding increase in expenses, while the increase in fixed annuity general account spread resulted from fixed annuity contracts that were repriced upon the contract reaching maturity. Also, contributing to a higher ROA in 2005 is an increase in the separate account dividends received deduction (“DRD”) tax benefit compared to 2004. | ||
• | The improvement in the Group Benefits after-tax margin for the year ended December 31, 2005 was primarily due to favorable loss ratios and higher net investment income as compared to 2004. |
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2005 | 2004 | 2003 | ||||||||||
Life Operating Summary | ||||||||||||
Earned premiums | $ | 4,203 | $ | 4,072 | $ | 3,086 | ||||||
Fee income | 4,000 | 3,464 | 2,760 | |||||||||
Net investment income | ||||||||||||
Securities available-for-sale and other | 2,998 | 2,876 | 2,041 | |||||||||
Equity securities held for trading [1] [2] | 3,847 | 799 | — | |||||||||
Total net investment income | 6,845 | 3,675 | 2,041 | |||||||||
Other revenues | — | — | 131 | |||||||||
Net realized capital gains (losses) | (25 | ) | 164 | 26 | ||||||||
Total revenues | 15,023 | 11,375 | 8,044 | |||||||||
Benefits, claims and claim adjustment expenses [1] | 9,809 | 6,630 | 4,616 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 1,172 | 993 | 755 | |||||||||
Insurance operating costs and other expenses | 2,522 | 2,145 | 1,607 | |||||||||
Total benefits, claims and expenses | 13,503 | 9,768 | 6,978 | |||||||||
Income before income taxes and cumulative effect of accounting change | 1,520 | 1,607 | 1,066 | |||||||||
Income tax expense | 316 | 202 | 221 | |||||||||
Income before cumulative effect of accounting change | 1,204 | 1,405 | 845 | |||||||||
Cumulative effect of accounting change, net of tax [3] | — | (23 | ) | — | ||||||||
Net income | $ | 1,204 | $ | 1,382 | $ | 845 | ||||||
[1] | Includes dividend income and mark-to-market effects of trading securities supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, claims and claim adjustment expenses. | |
[2] | Amounts in 2003 are prior to the adoption of SOP 03-1. | |
[3] | For the year ended December 31, 2004, represents the cumulative impact of the Company’s adoption of SOP 03-1. |
• | For the year ended December 31, 2005, Life experienced realized capital losses of $25 as compared to realized capital gains of $164 for the year ended December 31, 2004. See the Investments section for further discussion of investment results and related realized capital gains and losses. | ||
• | Life recorded an after-tax charge of $102 for the year ended December 31, 2005 to establish reserves for regulatory matters for investigations related to market timing by the SEC and New York Attorney General’s Office, directed brokerage by the SEC, |
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and single premium group annuities by the New York Attorney General’s Office and the Connecticut Attorney General’s Office. | |||
• | Life recorded an after-tax expense of $46 for the year ended December 31, 2005, which related to the termination of a provision of an agreement with a mutual fund distribution partner. |
• | Net income in Retail increased during 2005, principally driven by higher fee income from growth in the variable annuity and mutual fund businesses as a result of higher assets under management as compared to the prior year. | ||
• | Institutional contributed higher earnings during 2005, driven by higher assets under management. | ||
• | Individual Life’s net income increased during 2005, primarily driven by business growth which resulted in increases in both higher life insurance inforce and account values. | ||
• | Net income in Group Benefits increased during 2005, primarily due to a non-recurring tax benefit of $9 related to the acquisition of the group life and accident, and short-term and long-term disability business of CNA Financial Corporation (“the CNA Acquisition”) and higher earned premiums and net investment income as well as a favorable loss ratio as compared to the prior year period. | ||
• | Net income in International increased during 2005, primarily driven by the increased fees from an increase in assets under management of the Japan annuity business. Japan’s assets under management have grown to $26.1 billion at December 31, 2005 from $14.6 billion at December 31, 2004. | ||
• | Net investment income increased for all Life segments during 2005, driven by a higher asset base and increased partnership income, as compared to the prior year. | ||
• | The effective tax rate was 21% for Life operations for the current year as compared to an effective tax rate of 13% for Life operations for the respective prior year period. The 2005 higher effective tax rate was attributed to the absence of the 2004 tax benefit of $190 (as mentioned above) offset by an increase in the DRD tax benefit of $50. |
• | Net income in Retail increased, principally driven by growth in the variable annuity and mutual fund businesses as a result of increased assets under management. | ||
• | Net income in Retirement Plans increased primarily due to higher fee income related to the 401(k) business compared to the prior year. | ||
• | Net income in Group Benefits increased due primarily to increased earned premiums and net investment income growth, primarily resulting from the CNA Acquisition. In addition, Group Benefits was impacted by favorable persistency in most businesses and a lower loss ratio. | ||
• | Net income in Institutional was higher as a result of a decrease in other expenses related to private placement life insurance business compared to the respective prior year. The decrease in other expenses for the current year is attributed to a $40 after-tax charge, recorded in the third quarter ended September 30, 2003, associated with the settlement of the Bancorp Services, LLC (“Bancorp”) litigation. | ||
• | Individual Life’s earnings increase was primarily driven by improved net investment spread income including the effects of prepayments and growth in account values and life insurance in force. | ||
• | Net income in International increased over the prior year primarily driven by the increase in assets under management of the Japan annuity business. Japan’s assets under management have grown to $14.6 billion at December 31, 2004 from $6.2 billion at December 31, 2003. Also during 2004, Life introduced market value adjusted fixed annuity products to provide a diversified product portfolio to customers in Japan. | ||
• | The effective tax rate was 13% for Life operations in 2004 as compared to an effective tax rate of 21% for Life operations for the respective prior year period. The lower effective tax rate was attributed to tax related items, as discussed above, of $190 and a 2004 tax year DRD benefit of $132, as compared to tax related items of $30 and a 2003 tax year DRD benefit of $87 reported for the years ended December 31, 2004 and 2003, respectively. |
• | Retail recorded lower spread income on market value adjusted (“MVA”) fixed annuities due to the adoption of SOP 03-1 in 2004. | ||
• | Slightly offsetting the positive earnings drivers for the year ended December 31, 2004 was the cumulative effect of accounting change from the Company’s adoption of SOP 03-1. (For further discussion of the impact of the Company’s adoption of SOP 03-1, see Note 1 of Notes to Consolidated Financial Statements). |
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2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Fee income and other | $ | 2,325 | $ | 2,019 | $ | 1,654 | ||||||
Earned premiums | (52 | ) | 5 | (34 | ) | |||||||
Net investment income | 933 | 1,011 | 432 | |||||||||
Net realized capital gains | 9 | — | 8 | |||||||||
Total revenues | 3,215 | 3,035 | 2,060 | |||||||||
Benefits, claims and claim adjustment expenses | 895 | 1,074 | 519 | |||||||||
Insurance operating costs and other expenses | 869 | 687 | 560 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 744 | 647 | 498 | |||||||||
Total benefits, claims and expenses | 2,508 | 2,408 | 1,577 | |||||||||
Income before income taxes and cumulative effect of accounting change | 707 | 627 | 483 | |||||||||
Income tax expense | 85 | 105 | 71 | |||||||||
Income before cumulative effect of accounting change | 622 | 522 | 412 | |||||||||
Cumulative effect of accounting change, net of tax [1] | — | (19 | ) | — | ||||||||
Net income | $ | 622 | $ | 503 | $ | 412 | ||||||
2005 | 2004 | 2003 | ||||||||||
Assets Under Management | ||||||||||||
Individual variable annuity account values | $ | 105,314 | $ | 99,617 | $ | 86,501 | ||||||
Individual fixed annuity and other account values | 10,222 | 11,384 | 11,215 | |||||||||
Other retail products account values | 336 | 182 | 48 | |||||||||
Total account values [2] | 115,872 | 111,183 | 97,764 | |||||||||
Retail mutual fund assets under management | 29,063 | 25,240 | 20,301 | |||||||||
Other mutual fund assets under management | 1,004 | 641 | 369 | |||||||||
Total mutual fund assets under management | 30,067 | 25,881 | 20,670 | |||||||||
Total assets under management | $ | 145,939 | $ | 137,064 | $ | 118,434 | ||||||
[1] | Represents the cumulative impact of the Company’s adoption of SOP 03-1. | |
[2] | Includes policyholders’ balances for investment contracts and reserve for future policy benefits for insurance contracts. |
• | The increase in fee income in the variable annuity business for the year ended December 31, 2005 was mainly a result of growth in average account values. The year-over-year increase in average account values of 10% can be attributed to market appreciation of $6.3 billion during 2005. Variable annuities had net outflows of $881 for the year ended December 31, 2005 compared to net inflows of $5.5 billion for the year ended December 31, 2004. The net outflows in 2005 were due to increased surrender activity and increased sales competition, particularly as it relates to guaranteed living benefits riders were offered with variable annuity products. | |
• | Mutual fund fee income increased for the year ended December 31, 2005 due to increased assets under management driven by market appreciation of $2.6 billion and net sales of $1.3 billion. Despite the increase in assets under management, the amount of net sales has declined for the year ended December 31, 2005 compared to the prior year. This decrease is attributed to market competition and higher redemption amounts due to a higher lapse rate. | |
• | The fixed annuity business contributed $66 of higher investment spread income in 2005 compared to 2004, excluding the cumulative effects of accounting change, due to improved investment spreads from the MVA products. |
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• | Benefits and claims and claim adjustment expenses have decreased for the year ended December 31, 2005 due to an increase in reserves in the third quarter of 2004 related to the acquisition of a block of acquired business from London Pacific Life and Annuity Company in liquidation. The increase in reserves of $62 was offset by an equivalent increase in earned premium. Also contributing to the decrease in benefits expense is a decrease in interest credited as older fixed annuity MVA business with higher credited rates matures and either lapse or renews at lower credited rates. | |
• | The effective tax rate decreased for the year ended December 31, 2005 compared to the prior year end due to an increase in the DRD benefit as a percentage of pre-tax income. |
• | Throughout Retail, insurance operating costs and other expenses increased for the year ended December 31, 2005 compared to the prior year. General insurance expenses increased due to increased costs related to technology services as well as sales and marketing. In addition, the Company recorded an after-tax expense of $46, for the termination of a provision of an agreement with a mutual fund distribution partner. | |
• | There was higher amortization of DAC, which resulted from higher gross profits due to the positive earnings drivers as discussed above. |
• | Fee income generated by the variable annuity operation increased, as average account values were higher in 2004 as compared to the prior year. The increase in average account values can be attributed to market appreciation of $7.6 billion and net flows of $5.5 billion during 2004. | |
• | Retail mutual fund fee income increased as a result of an increase in assets under management of 24% year over year principally due to net sales and market appreciation of $2.5 billion each during 2004. |
• | There was higher amortization of DAC, due to higher gross profits and increased subsequent deposit activity, primarily in individual annuity. | |
• | Lower income from the fixed annuity business, due to lower investment spread from the market value adjusted (“MVA”) product caused by the cumulative effect of accounting change from the Company’s adoption of SOP 03-1. With the adoption of SOP 03-1, the Company includes the investment return from the fixed annuity product in net investment income and includes interest credited to contract holders in the benefits, claims and claim adjustment expenses. In prior years, the market value spread was reported as guaranteed separate account income in fee income and other. | |
• | The effective tax rate increased for the year ended December 31, 2004 due to the absence of a prior year tax benefit recorded in 2003. |
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2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Fee income and other | $ | 152 | $ | 121 | $ | 83 | ||||||
Earned premiums | 10 | 10 | 15 | |||||||||
Net investment income | 311 | 306 | 281 | |||||||||
Net realized capital gains (losses) | (3 | ) | (3 | ) | 1 | |||||||
Total revenues | 470 | 434 | 380 | |||||||||
Benefits, claims and claim adjustment expenses | 231 | 220 | 226 | |||||||||
Insurance operating costs and other expenses | 115 | 96 | 79 | |||||||||
Amortization of deferred policy acquisition costs | 26 | 29 | 17 | |||||||||
Total benefits, claims and expenses | 372 | 345 | 322 | |||||||||
Income before income taxes and cumulative effect of account change | 98 | 89 | 58 | |||||||||
Income tax expense | 23 | 22 | 16 | |||||||||
Income before cumulative effect of accounting change | 75 | 67 | 42 | |||||||||
Cumulative effect of accounting change, net of tax [1] | — | (1 | ) | — | ||||||||
Net income | $ | 75 | $ | 66 | $ | 42 | ||||||
2005 | 2004 | 2003 | ||||||||||
Assets Under Management | ||||||||||||
Governmental account values | $ | 10,475 | $ | 9,962 | $ | 8,965 | ||||||
401(k) account values | 8,842 | 6,531 | 4,606 | |||||||||
Total account values | 19,317 | 16,493 | 13,571 | |||||||||
Government mutual fund assets under management | 163 | 756 | 770 | |||||||||
401(k) mutual fund assets under management | 947 | 755 | 585 | |||||||||
Total mutual fund assets under management | 1,110 | 1,511 | 1,355 | |||||||||
Total assets under management | $ | 20,427 | $ | 18,004 | $ | 14,926 | ||||||
[1] | Represents the cumulative impact of the Company’s adoption of SOP 03-1. |
• | 401(k) fee income increased 39% or $30 for the year ended December 31, 2005 compared to the prior year. This increase is a result of positive net flows from the 401(k) business of $1.8 billion over the prior year driven by strong sales and increasing ongoing deposits contributing to the growth in 401(k) assets under management of 34% to $9.8 billion. Total 401(k) deposits and net flows increased substantially by 32% and 26%, respectively, over the prior year primarily due to the full year impact of 2004’s expansion of wholesaling capabilities and new product offerings. | |
• | The DAC amortization rate decreased in 2005 compared to 2004 as a result of higher profits. |
• | General account spread decreased for both 401(k) and Governmental businesses for the year ended December 31, 2005 compared to prior year. The decrease is attributable to a decrease in the net investment income earned rate for both businesses. Average general account assets for the Retirement Plans segment increased approximately 7% in 2005 compared to 2004, while net investment income increased 2% compared to the prior year. Benefits and claims expense, which mainly consists of interest credited, increased 5% for the year ended December 31, 2005 compared to prior year, which was driven by a 7% increase in Governmental’s general account business. | |
• | An increase in insurance operating costs and other expenses of $19 during 2005 was principally driven by the 401(k) business. The additional costs can be attributed to greater sales and assets under management, resulting in a 20% increase in asset-based commissions to third parties, technology expenditures, and marketing and servicing costs supporting the segment’s business. However, the increase in 401(k) sales has driven down the overall general insurance expense per case by over 4% compared to the prior year. |
• | 401(k) fee income increased 57% or $28 for year ended December 31, 2004 compared to the prior year. This increase is a result of positive net flows from the 401(k) business of $1.4 billion over the past four quarters driven by strong sales contributing to the |
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increase in 401(k) assets under management of 42% to $6.5 billion. Total deposits and net flows increased substantially by 45% and 42%, respectively, over the prior year primarily due to the expansion of wholesaling capabilities and new product offerings. | ||
• | The Governmental business contributed significantly higher income in 2004. The 11% increase in net investment income in 2004 compared to 2003 as well as $9 of additional fee income was attributed to the growth in the average account values as a result of positive net flows of $230 and market appreciation of $767. | |
• | The effective tax rate decreased for the year ended December 31, 2004 due to an increase in the DRD benefit as a percentage of pre-tax income. |
• | Insurance operating costs and other expenses for 401(k) increased for the year ended December 31, 2004 compared to the prior year mainly driven by greater sales and assets under management, resulting in a 50% increase in commissions over prior year, in addition to growth in investment technology services and sales and marketing costs. |
2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Fee income and other | $ | 119 | $ | 161 | $ | 154 | ||||||
Earned premiums | 504 | 463 | 783 | |||||||||
Net investment income | 802 | 664 | 581 | |||||||||
Net realized capital gains (losses) | (5 | ) | 3 | 4 | ||||||||
Total revenues | 1,420 | 1,291 | 1,522 | |||||||||
Benefits, claims and claim adjustment expenses | 1,212 | 1,116 | 1,344 | |||||||||
Insurance operating costs and expenses | 56 | 55 | 109 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 32 | 26 | 28 | |||||||||
Total benefits, claims and expenses | 1,300 | 1,197 | 1,481 | |||||||||
Income before income taxes and cumulative effect of accounting change | 120 | 94 | 41 | |||||||||
Income tax expense | 32 | 26 | 9 | |||||||||
Net income | $ | 88 | $ | 68 | $ | 32 | ||||||
2005 | 2004 | 2003 | ||||||||||
Assets Under Management | ||||||||||||
Institutional account values | $ | 17,917 | $ | 14,599 | $ | 12,660 | ||||||
Private Placement Life Insurance account values [1] | 23,836 | 22,498 | 20,992 | |||||||||
Mutual fund assets under management | 1,528 | 676 | 438 | |||||||||
Total assets under management | $ | 43,281 | $ | 37,773 | $ | 34,090 | ||||||
[1] | Includes policyholder balances for investment contracts and reserves for future policy benefits for insurance contracts. |
• | Total revenues increased in Institutional driven by positive net flows of $2.4 billion during the past four quarters, which resulted in higher assets under management. Net flows for Institutional increased for the year ended December 31, 2005 compared to the prior year, primarily as a result of the Company’s funding agreement backed Investor Notes program, which was launched in the third quarter of 2004. Investor Note sales for the years ended December 31, 2005 and 2004 were $2.0 billion and $643, respectively. | |
• | General account spread is one of the main drivers of net income for the Institutional line of business. An increase in spread income in 2005 was driven by higher assets under management noted above, combined with improved partnership income and mortality gains related to terminal funding and structured settlement contracts that include life contingencies. For the year ended December 31, 2005 and 2004, gains related to mortality, investments or other activity were $10 and $3 after-tax, respectively. During 2005, |
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the Company invested in more variable rate assets to back the increasing block of variable rate liabilities sold under the stable value product line. This asset/liability matching strategy has decreased portfolio yields, as variable rate assets have lower initial coupon yields then fixed rate assets. At the same time the stable value variable rate liabilities have lower crediting rates in the current period than stable value fixed rate liabilities, which has allowed the Company to maintain-to-slightly-increase its general account spread on a yield basis. |
• | PPLI’s net income increased $3 or 17% compared to prior year primarily due to asset growth in the variable business combined with favorable mortality experience. |
• | PPLI’s cost of insurance charges has decreased due to reductions in the face amount of certain cases. These face reductions have also resulted in lower death benefits. This impact combined with favorable mortality, which increases the provision for future experience rate credits has led to the year over year decrease in fee income and other. |
• | The decrease in other expenses was primarily attributed to a PPLI $40 after-tax charge, recorded in the third quarter ended September 30, 2003, associated with the settlement of a certain litigation matter. |
• | Lower income from the IIP and PPLI businesses, excluding the aforementioned settlement of a certain litigation matter. | |
• | The decrease in net income in IIP was due primarily to lower spread income and slightly higher insurance operating costs for the year ended December 31, 2004 as compared to 2003. In addition, IIP reported lower earnings for 2004 compared to the prior year due to favorable mortality experience in 2003. | |
• | Additionally, income tax expense was higher for 2004 due primarily to decreases in other expenses related to the PPLI business, as discussed above. The effective tax rate increased over the previous year-end because the percentage increase in tax preferred items (DRD, tax-exempt interest) was not as great as the percentage increase in pre-tax income from 2003 to 2004. | |
• | Earned Premiums decreased for the year ended December 31, 2004 compared to 2003 due to lower sales on limited payment contracts for the Structured Settlement and Terminal Funding products, consistent with a corresponding decrease in Benefits, Claims and Claim Adjustment Expenses. |
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2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Fee income and other | $ | 802 | $ | 767 | $ | 747 | ||||||
Earned premiums | (33 | ) | (21 | ) | (20 | ) | ||||||
Net investment income | 305 | 303 | 263 | |||||||||
Net realized capital gains (losses) | 5 | 7 | (7 | ) | ||||||||
Total revenues | 1,079 | 1,056 | 983 | |||||||||
Benefits, claims and claim adjustment expenses | 469 | 480 | 436 | |||||||||
Insurance operating costs and other expenses | 167 | 164 | 161 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 205 | 185 | 177 | |||||||||
Total benefits, claims and expenses | 841 | 829 | 774 | |||||||||
Income before income taxes and cumulative effect of accounting change | 238 | 227 | 209 | |||||||||
Income tax expense | 72 | 71 | 64 | |||||||||
Income before cumulative effect of accounting change | 166 | 156 | 145 | |||||||||
Cumulative effect of accounting change, net of tax [1] | — | (1 | ) | — | ||||||||
Net income | $ | 166 | $ | 155 | $ | 145 | ||||||
2005 | 2004 | 2003 | ||||||||||
Account Values | ||||||||||||
Variable universal life insurance | $ | 5,902 | $ | 5,356 | $ | 4,725 | ||||||
Universal life/interest sensitive whole life | 3,696 | 3,402 | 3,259 | |||||||||
Modified guaranteed life and other | 716 | 729 | 742 | |||||||||
Total account values | $ | 10,314 | $ | 9,487 | $ | 8,726 | ||||||
Life Insurance Inforce | ||||||||||||
Variable universal life insurance | $ | 71,365 | $ | 69,089 | $ | 67,031 | ||||||
Universal life/interest sensitive whole life | 41,714 | 39,109 | 38,320 | |||||||||
Modified guaranteed life and other | 37,722 | 31,691 | 25,447 | |||||||||
Total life insurance inforce | $ | 150,801 | $ | 139,889 | $ | 130,798 | ||||||
[1] | Represents the cumulative impact of the Company’s adoption of SOP 03-1. |
• | Fee income increased $35 for the year ended December 31, 2005 as compared to the prior year. Cost of insurance charges, a component of total fee income, increased $22 in 2005, driven by business growth and aging of the prior year block of variable universal, universal, and interest-sensitive whole life insurance inforce. Other fee income, another component of total fee income, increased $7 in 2005 primarily due to growth and improved product performance primarily in interest-sensitive whole life and variable universal life insurance products. Variable fee income grew $6 in 2005, as equity market performance and premiums in excess of withdrawals added to the variable universal life account value. | |
• | Net investment income increased a moderate $2 for the year ended December 31, 2005 as compared to the prior year due to increased general account assets from business growth, partially offset by lower interest rates on new investments and reduced prepayments on bonds in 2005. | |
• | Benefits, claims and claim adjustment expenses decreased for the year ended December 31, 2005 as compared to the prior year. | |
• | Income tax expense and the resulting tax rate for the year ended December 31, 2005 was aided by a DRD tax benefit of $7, whereas income tax expense for the year ended December 31, 2004 includes a DRD tax benefit of $5. |
• | Amortization of DAC increased for the year ended December 31, 2005 compared to the prior year primarily as a result of product mix and higher gross margins within variable universal and interest-sensitive whole life insurance products. | |
• | Insurance operating costs and other expenses increased $3 for the year ended December 31, 2005 compared to the prior year as a result of business growth. |
• | Fee income increased for the year ended December 31, 2004 as compared to the prior year primarily due to increased cost of insurance charges as life insurance inforce grew and aged and variable universal life account values increased driven by favorable equity markets and new sales. Account values and life insurance inforce grew 9% and 7% from 2003 to 2004, respectively. | |
• | Net investment income increased for the year ended December 31, 2004 as compared to the prior year primarily due to the adoption of SOP 03-1, growth in general account values and prepayments on bonds. The adoption of SOP 03-1 also resulted in |
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increases in benefits, claims and claim adjustment expenses and a decrease to fee income and other for the year ended December 31, 2004 as compared to the prior year period for the segment’s Modified Guarantee Life Insurance product, which was formerly classified as a separate account product. |
• | Benefits, claims and claim adjustment expenses increased for the year ended December 31, 2004 as compared to the prior year primarily due to the absence in 2004 of the unusually favorable mortality experienced in 2003, along with continued growth and aging of life insurance inforce. | |
• | Insurance operating costs and other expenses increased for the year ended December 31, 2004 as compared to the prior year as a result of business growth. | |
• | Additionally, income tax expense was higher for the year ended December 31, 2004 as compared to the prior year due primarily to earnings growth, as discussed above. Income tax expense includes a DRD tax benefit of $5 related to the 2004 tax year, whereas, income tax expense for 2003 includes a total DRD tax benefit of $6. |
2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Earned premiums and other | $ | 3,810 | $ | 3,652 | $ | 2,362 | ||||||
Net investment income | 398 | 373 | 262 | |||||||||
Net realized capital gains | 1 | 2 | — | |||||||||
Total revenues | 4,209 | 4,027 | 2,624 | |||||||||
Benefits, claims and claim adjustment expenses | 2,794 | 2,703 | 1,862 | |||||||||
Insurance operating costs and other expenses | 1,022 | 989 | 553 | |||||||||
Amortization of deferred policy acquisition costs | 31 | 23 | 18 | |||||||||
Total benefits, claims and expenses | 3,847 | 3,715 | 2,433 | |||||||||
Income before income taxes | 362 | 312 | 191 | |||||||||
Income tax expense | 90 | 83 | 43 | |||||||||
Net income | $ | 272 | $ | 229 | $ | 148 | ||||||
Earned Premiums and Other | ||||||||||||
Fully insured — ongoing premiums | $ | 3,747 | $ | 3,611 | $ | 2,302 | ||||||
Buyout premiums | 27 | 4 | 40 | |||||||||
Other | 36 | 37 | 20 | |||||||||
Total earned premiums and other | $ | 3,810 | $ | 3,652 | $ | 2,362 | ||||||
• | Earned premiums, excluding buyouts, increased 4% driven by sales growth of 23%, particularly in disability, for the year ended December 31, 2005 and continued strong persistency during 2005. | |
• | Net investment income increased due to higher average asset balances as well as slightly higher average investment yields. | |
• | The segment’s loss ratio (defined as benefits, claims and claim adjustment expenses as a percentage of premiums and other considerations excluding buyouts) was 73.1% for the year ended December 31, 2005, down from 74.0% in the prior year due to improved morbidity experience as well as favorable mortality experience. Excluding financial institutions, the loss ratio was 77.3%, down from 78.7% in the prior year. |
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• | Operating costs were higher for the year ended December 31, 2005 as compared to the prior year primarily due to higher operating expenses related to business growth. |
• | Earned premiums excluding buyouts, increased 57% for the year ended December 31, 2004 as compared to the prior year driven by premium growth resulting from the CNA Acquisition, sales growth of 25%, and favorable persistency. | |
• | The segment’s loss ratio was 74.0% for the year ended December 31, 2004 as compared to 78.5% for the prior year, which contributed favorably to net income. The improvement in loss ratio in 2004 was the result of improved mortality and morbidity experience. Excluding financial institutions, the loss ratio was 78.7%, down from 79.5% in the prior year. |
• | Higher commissions due to higher sales and premiums previously discussed. | |
• | Operating costs increased due to business growth and the CNA Acquisition. | |
• | The segment’s ratio of insurance operating costs and other expenses to premiums and other considerations (excluding buyouts) increased to 27.7% for the year ended December 31, 2004, from 24.6% for prior year. The increase in expense ratio was primarily attributed to lower losses, which resulted in increased commissions, on a larger block of experience rated financial institution business. Excluding the financial institution business, the 2004 expense ratio was 23.6% for the year ended December 31, 2004, down from 23.8% for the prior year. |
2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Fee income and other | $ | 483 | $ | 240 | $ | 90 | ||||||
Net investment income | 75 | 11 | 2 | |||||||||
Net realized capital losses | (34 | ) | (1 | ) | (2 | ) | ||||||
Total revenues | 524 | 250 | 90 | |||||||||
Benefits, claims and claim adjustment expenses | 42 | 20 | 1 | |||||||||
Insurance operating costs and other expenses | 188 | 98 | 42 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 133 | 77 | 32 | |||||||||
Total benefits, claims and expenses | 363 | 195 | 75 | |||||||||
Income before income taxes and cumulative effect of | 161 | 55 | 15 | |||||||||
accounting change | ||||||||||||
Income tax expense | 65 | 12 | 2 | |||||||||
Income before cumulative effect of accounting change | 96 | 43 | 13 | |||||||||
Cumulative effect of accounting change, net of tax [1] | — | (4 | ) | — | ||||||||
Net income | $ | 96 | $ | 39 | $ | 13 | ||||||
2005 | 2004 | 2003 | ||||||||||
Assets Under Management | ||||||||||||
Japan variable annuity assets under management | $ | 24,641 | $ | 14,129 | $ | 6,220 | ||||||
Japan MVA fixed annuity assets under management | 1,463 | 502 | — | |||||||||
Total assets under management | $ | 26,104 | $ | 14,631 | $ | 6,220 | ||||||
[1] | Represents the cumulative impact of the Company’s adoption of SOP 03-1. |
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• | The increase in fee income in 2005 was mainly a result of growth in Japan’s variable annuity assets under management. As of December 31, 2005, Japan’s variable annuity assets under management were $24.6 billion, a 74% increase from the prior year. The increase in assets under management was driven by positive net flow of $9.8 billion and favorable market appreciation of $3.4 billion, partially offset by a ($2.6) billion impact of foreign currency exchange. | |
• | Higher fees in 2005 were also the result of increased surrender activity, as customers surrendered policies in order to take advantage of significant appreciation in their account balances. | |
• | The Japan MVA fixed annuity business contributed $13 of higher investment spread income, including net periodic coupon settlements included in realized losses, in 2005 compared to 2004. This increase in investment spread was driven by higher assets under management. As of December 31, 2005, Japan’s MVA assets under management increased to $1.5 billion compared to $502 in the prior year. The increase in fixed annuity assets under management can be attributed to sales of $1.2 billion for the year ending December 31, 2005 as compared to $521 for the prior year. | |
Partially offsetting the positive earnings drivers discussed above were the following items: | ||
• | The increase in operating costs in 2005 was primarily due to the significant growth in the Japan operation and the investment in our Ireland operation. | |
• | DAC amortization was higher in the current year as compared to the prior year due to higher EGP’s consistent with the growth in the Japan operation. | |
• | Tax rates increased in 2005 primarily due to a deferred tax valuation allowance established for losses on the United Kingdom operation. |
• | The increase in fee income was primarily attributed to higher variable annuity assets under management in our Japan operations. As of December 31, 2004, Japan’s variable annuity assets under management were $14.1 billion, a 127% increase from the previous year. | |
• | At the end of the third quarter of 2004, the MVA fixed annuity product was introduced to provided a diversified product portfolio to customers in Japan. Japan fixed annuity sales and assets under management for the year ending December 31, 2004 were $521 and $502, respectively. |
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2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Fee income and other | $ | 83 | $ | 119 | $ | 143 | ||||||
Net investment income | 4,021 | 1,007 | 220 | |||||||||
Net realized capital gains | 2 | 156 | 22 | |||||||||
Total revenues | 4,106 | 1,282 | 385 | |||||||||
Benefits, claims and claim adjustment expenses | 4,166 | 1,017 | 228 | |||||||||
Insurance operating costs and other expenses | 105 | 56 | 103 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 1 | 6 | (15 | ) | ||||||||
Total benefits, claims and expenses | 4,272 | 1,079 | 316 | |||||||||
Income before income taxes and cumulative effect of accounting change | (166 | ) | 203 | 69 | ||||||||
Income tax expense (benefit) | (51 | ) | (117 | ) | 16 | |||||||
Income (loss) before cumulative effect of accounting change | (115 | ) | 320 | 53 | ||||||||
Cumulative effect of accounting change, net of tax [1] | — | 2 | — | |||||||||
Net income (loss) | $ | (115 | ) | $ | 322 | $ | 53 | |||||
[1] | Represents the cumulative impact of the Company’s adoption of SOP 03-1. |
• | Net realized capital gains decreased for the year ended December 31, 2005 due to increasing interest rates and the realized loss associated with the GMWB derivatives. | |
• | Income tax benefit decreased for the year ended December 31, 2005 due to the absence of a $190 tax benefit recorded during 2004. | |
• | Other than the impact of Japan interest credited, benefits, claims, and claim adjustment expenses increased for the year ended December 31, 2005 primarily due to the establishment of a $102 after-tax reserve for investigations related to market timing by the SEC and the New York Attorney General’s Office, directed brokerage by the SEC and single premium group annuities by the New York Attorney General’s Office and the Connecticut Attorney General’s Office. |
• | Net realized capital gains increased for the year ended December 31, 2004 due to net gains on bond sales and lower impairments. | |
• | Income tax benefit for the year ended December 31, 2004 included a $190 tax benefit. |
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2005 | 2004 | 2003 | ||||||||||
Growth Ratios and Measures | ||||||||||||
Polices in Force as of year-end | ||||||||||||
Personal Lines Automobile | 2,222,688 | 2,166,922 | 2,058,825 | |||||||||
Personal Lines Homeowners | 1,384,364 | 1,348,573 | 1,319,629 | |||||||||
Written Pricing Increase (Decrease) | ||||||||||||
Business Insurance | (2 | %) | 2 | % | 9 | % | ||||||
Personal Lines Automobile | — | 3 | % | 10 | % | |||||||
Personal Lines Homeowners | 6 | % | 9 | % | 14 | % | ||||||
Premium Renewal Retention | ||||||||||||
Business Insurance | 84 | % | 85 | % | 87 | % | ||||||
Personal Lines Automobile | 87 | % | 89 | % | 91 | % | ||||||
Personal Lines Homeowners | 94 | % | 100 | % | 101 | % | ||||||
New Business % to Net Written Premium | ||||||||||||
Business Insurance | 24 | % | 25 | % | 26 | % | ||||||
Personal Lines Automobile | 15 | % | 18 | % | 15 | % | ||||||
Personal Lines Homeowners | 14 | % | 13 | % | 10 | % | ||||||
Policies in force as of year end: | ||
Policies in force represent the number of policies with coverage in effect as of the end of the period. In both automobile and homeowners, the policy in force count in 2005 has increased as a result of the new Dimensions class plan rolled out in 2004 and 2005. The increase is also attributable to continued growth in AARP business, reflecting an increase in the penetration of the AARP |
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target market and direct marketing programs to increase premium writings. The policy in force count is primarily a reflection of new business growth. | ||
Written pricing increase (decrease): | ||
Written pricing increase (decrease) over the comparable period of the prior year includes the impact of rate filings, the impact of changes in the value of the rating bases and individual risk pricing decisions. A number of factors impact written pricing increases (decreases) including expected loss costs as projected by the Company’s pricing actuaries, rate filings approved by state regulators, risk selection decisions made by the Company’s underwriters and marketplace competition. Written pricing changes reflect the property and casualty insurance market cycle. Prices tend to increase for a particular line of business when insurance carriers have incurred significant losses in that line of business in the recent past or the industry as a whole commits less of its capital to writing exposures in that line of business. Prices tend to decrease when recent loss experience has been favorable or when competition among insurance carriers increases. In 2005, written pricing in Personal Lines homeowners and small commercial continued to increase, but at a slower rate than in 2004. Written pricing for middle market continued to decrease in 2005 and written pricing for Personal Lines auto was flat. | ||
As one of the factors used to determine pricing, the Company’s practice is to first make an overall assumption about claim frequency and severity for a given line of business and then, as part of the ratemaking process, adjust the assumption as appropriate for the particular state, product or coverage. Claim frequency represents the percentage change in the average number of reported claims per unit of exposure in the current accident year compared to that of the previous accident year. Claim severity represents the percentage change in the estimated average cost per claim in the current accident year compared to that of the previous accident year. | ||
Premium renewal retention: | ||
Premium renewal retention represents the ratio of net written premium in the current period that is not derived from new business divided by total net written premium of the prior period. Accordingly, premium renewal retention includes the effect of written pricing changes on renewed business. In addition, the renewal retention rate is affected by a number of other factors, including the percentage of renewal policy quotes accepted and decisions by the Company to non-renew policies because of specific policy underwriting concerns or because of a decision to reduce premium writings in certain lines of business or states. Premium renewal retention has decreased from 2004 to 2005 due to the effect of written pricing decreases in Business Insurance and lower written pricing increases in Personal Lines. Before the effect of written pricing changes, premium renewal retention in 2005 increased in Personal Lines auto and Business Insurance and decreased in Personal Lines homeowners. While Personal Lines premium retention continues to be strong, increased advertising and modest rate reductions by competitors contributed to the decrease in retention. Before the impacts of written pricing changes,premium renewal retention in Business Insurance increased for both small commercial and middle market accounts. | ||
New business premium as a percentage of written premium: | ||
From 2004 to 2005, new business as a percentage of written premium has remained relatively flat for Business Insurance and Personal Lines homeowners and has decreased for Personal Lines auto. The decrease in Personal Lines auto new business premium as a percentage of written premium has been driven by companies in the industry, including The Hartford, concentrating on securing renewals and reducing rate shopping by customers. |
2005 | 2004 | 2003 | ||||||||||
Profitability Ratios and Measures | ||||||||||||
Ongoing Operations ratios and measures: | ||||||||||||
Earned Pricing Increase | ||||||||||||
Business Insurance | — | 5 | % | 12 | % | |||||||
Personal Lines Automobile | 1 | % | 5 | % | 9 | % | ||||||
Personal Lines Homeowners | 7 | % | 11 | % | 14 | % | ||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current year | 66.1 | 69.2 | 68.8 | |||||||||
Prior years [1] | 0.4 | 0.1 | 0.5 | |||||||||
Total loss and loss adjustment expense ratio | 66.5 | 69.3 | 69.2 | |||||||||
Expense ratio | 26.5 | 25.9 | 26.8 | |||||||||
Policyholder dividend ratio | 0.1 | 0.1 | 0.4 | |||||||||
Combined ratio | 93.2 | 95.3 | 96.5 | |||||||||
Catastrophe ratio [1] | 3.6 | 2.2 | 3.1 | |||||||||
Combined ratio before catastrophes and prior year development | 89.4 | 89.7 | 92.8 | |||||||||
Other Operations net income (loss) | $ | 71 | ($45 | ) | ($1,528 | ) | ||||||
[1] | Included in both the prior year loss and loss adjustment expense ratio and the catastrophe ratio is prior accident year development on catastrophe losses, including, in 2004, the net reserve release of (3.1) points related to September 11. |
Earned pricing increase (decrease): | ||
Because the Company earns premiums over the 6 to 12 month term of the policies, earned pricing increases (decreases) lag written pricing increases (decreases) by 6 to 12 months. Written premiums are earned over the policy term, which is six months for certain Personal Lines auto business and 12 months for substantially all of the remainder of the Company’s business. In 2005, earned |
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pricing increases have moderated in Personal Lines as written pricing increases over the prior 6 to 12 months have declined. Earned pricing in Business Insurance was flat in 2005 as written pricing turned slightly negative during 2005 after having been favorable in 2004. | ||
Loss and loss adjustment expense ratio: | ||
The current year loss and loss adjustment expense ratio is a measure of the cost of claims incurred in the current accident year divided by earned premiums. The prior year loss and loss adjustment expense ratio represents the increase (decrease) in the estimated cost of settling claims incurred in prior accident years as recorded in the current calendar year divided by earned premiums. Among other factors, the loss and loss adjustment expense ratio needed for the Company to achieve its targeted return on equity fluctuates from year to year based on changes in the expected investment yield over the claim settlement period, the timing of expected claim settlements and the targeted returns set by management based on the competitive environment. The current accident year loss and loss adjustment expense ratio decreased by 3.1 points from 2004 to 2005 due largely to a 2.0 point decrease in current accident year catastrophe losses. Also contributing to the improvement in the current accident year loss and loss adjustment expense ratio is improved current accident year performance for auto bodily injury and workers’ compensation claims, partially offset by the effect of an increase in non-catastrophe loss costs for property coverages. | ||
In the latter half of 2005, claim frequency for property coverages became less favorable than it had been in 2003, 2004 and the first half of 2005. As a result, beginning in the latter half of 2005, increases in claim severity outpaced favorable claim frequency. Management expects the trend of increasing loss costs to continue in 2006, resulting in a higher current accident year loss and loss adjustment expense ratio, given that earned pricing is expected to decrease slightly in Business Insurance and become less positive in Personal Lines. Claim severity is expected to increase as a result of inflation in claim settlement costs, driven principally by medical cost inflation, property value increases and other indemnity cost increases. Reserve estimates, including reserves for catastrophe claims, are inherently uncertain. While the Company believes its recorded reserves are established at a level to meet the ultimate cost of unpaid claims, reserve estimates may change in the future based on information or trends that are not currently known. See “Reserves” below for a detailed discussion of prior accident year loss development and “Critical Accounting Estimates” for a discussion of current trends contributing to reserve uncertainty and the impact of changes in key assumptions on reserve volatility. | ||
Expense ratio: | ||
The expense ratio is the ratio of underwriting expenses, excluding bad debt expense, to earned premiums. Underwriting expenses include the amortization of deferred policy acquisition costs and insurance operating costs and expenses. Deferred policy acquisition costs include commissions, taxes, licenses and fees and other underwriting expenses and are amortized over the policy term. While changes in the expense ratio vary by segment, the overall expense ratio for Ongoing Operations’ segments has increased from 2004 to 2005, primarily due to $64 of hurricane related assessments incurred in 2005 related to the 2004 and 2005 hurricanes. | ||
Policyholder dividend ratio: | ||
The policyholder dividend ratio is the ratio of policyholder dividends to earned premium. | ||
Combined ratio: | ||
The combined ratio is the sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. This ratio is a relative measurement that describes the related cost of losses and expense for every $100 of earned premiums. A combined ratio below 100.0 demonstrates underwriting profit; a combined ratio above 100.0 demonstrates underwriting losses. The combined ratio has decreased from 2004 to 2005, primarily because of a 2.0 point reduction in current accident year catastrophe losses. | ||
Catastrophe ratio: | ||
The catastrophe ratio (a component of the loss and loss adjustment expense ratio) represents the ratio of catastrophe losses (net of reinsurance) to earned premiums. A catastrophe is an event that causes $25 or more in industry insured property losses and affects a significant number of property and casualty policyholders and insurers. By their nature, catastrophe losses vary dramatically from year to year. Based on the mix and geographic dispersion of premium written and estimates derived from various catastrophe loss models, the Company’s expected catastrophe ratio over the long-term is 3.0 points. Reinstatement premium represents additional ceded premium paid for the reinstatement of the amount of reinsurance coverage that was reduced as a result of a reinsurance loss payment. See “Risk Management Strategy” below for a discussion of the Company’s property catastrophe risk management program that serves to mitigate the Company’s net exposure to catastrophe losses. The catastrophe ratio includes the effect of catastrophe losses, but does not include the effect of reinstatement premiums. Current accident year catastrophe loss and loss adjustment expenses and reinstatement premiums were as follows in each period: |
2005 | 2004 | 2003 | ||||||||||
Current accident year catastrophe loss and loss adjustment expenses | $ | 351 | $ | 523 | $ | 272 | ||||||
Third and fourth quarter property catastrophe treaty reinstatement premium | $ | 73 | $ | 17 | $ | — | ||||||
• | Current accident year catastrophe loss and loss adjustment expenses in 2005 included $264 for Hurricanes Katrina, Rita and Wilma. |
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• | Current accident year catastrophe loss and loss adjustment expenses in 2004 included $394 for Hurricanes Charley, Frances, Ivan and Jeanne. |
Combined ratio before catastrophes and prior accident year development: | ||
The combined ratio before catastrophes and prior accident year development represents the combined ratio for the current accident year, excluding the impact of catastrophes. The Company believes this ratio is an important measure of the trend in profitability since it removes the impact of volatile and unpredictable catastrophe losses and prior accident year reserve development. Before considering catastrophes, the combined ratio related to current accident year business has improved from 2004 to 2005 principally due to improved current accident year performance for auto bodily injury and workers’ compensation claims, partially offset by the effect of an increase in non-catastrophe loss costs for property coverages and an increase in the expense ratio, which was largely due to the hurricane-related assessments of $64 in 2005. | ||
Other Operations net income (loss): | ||
The Other Operations segment is responsible for managing operations of The Hartford that have discontinued writing new or renewal business as well as managing the claims related to asbestos and environmental exposures. As such, neither earned premiums nor underwriting ratios are meaningful financial measures. Instead, management believes that net income (loss) is a more meaningful measure. Whether Other Operations reports net income or a net loss is largely a function of the amount of prior accident year development and the amount of investment income earned on assets held to meet claim liabilities. In 2005, Other Operations reported net income of $71 as net investment income earned exceeded unfavorable prior accident year loss development. In 2003 and 2004, the segment reported net losses as unfavorable prior accident year loss development exceeded net investment income. Unfavorable prior accident year development decreased from $409 in 2004 to $212 in 2005. The net loss in 2003 includes net asbestos reserve strengthening of $1.7 billion after-tax. Reserve estimates within Other Operations, including estimates for asbestos and environmental claims, are inherently uncertain. Refer to the Other Operations segment MD&A for further discussion of Other Operations prior accident year development and operating results. |
2005 | 2004 | 2003 | ||||||||||
Investment yield, after-tax | 4.1 | % | 4.1 | % | 4.2 | % | ||||||
Net realized capital gains, after-tax | $ | 29 | $ | 87 | $ | 165 | ||||||
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2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Earned premiums [1] | $ | 10,156 | $ | 9,494 | $ | 8,805 | ||||||
Net investment income | 1,365 | 1,248 | 1,172 | |||||||||
Other revenues [2] | 463 | 436 | 428 | |||||||||
Net realized capital gains | 44 | 133 | 253 | |||||||||
Total revenues | 12,028 | 11,311 | 10,658 | |||||||||
Benefits, claims and claim adjustment expenses [3],[4] | ||||||||||||
Current year | 6,715 | 6,590 | 6,102 | |||||||||
Prior year [5] | 248 | 414 | 2,824 | |||||||||
Total benefits, claims and claim adjustment expenses | 6,963 | 7,004 | 8,926 | |||||||||
Amortization of deferred policy acquisition costs | 1,997 | 1,850 | 1,642 | |||||||||
Insurance operating costs and expenses | 731 | 643 | 779 | |||||||||
Other expenses [6] | 617 | 629 | 634 | |||||||||
Total benefits, claims and expenses | 10,308 | 10,126 | 11,981 | |||||||||
Income (loss) before income taxes | 1,720 | 1,185 | (1,323 | ) | ||||||||
Income tax expense (benefit) [7] | 484 | 275 | (578 | ) | ||||||||
Net income (loss) [8] | $ | 1,236 | $ | 910 | $ | (745 | ) | |||||
2005 | 2004 | 2003 | ||||||||||
Net Income (loss) | ||||||||||||
Ongoing Operations | $ | 1,165 | $ | 955 | $ | 783 | ||||||
Other Operations | 71 | (45 | ) | (1,528 | ) | |||||||
Total Property & Casualty net income (loss) | $ | 1,236 | $ | 910 | $ | (745 | ) | |||||
[1] | Includes reinstatement premiums related to hurricanes of $73 recorded in the third and fourth quarter of 2005 and reinstatement premiums related to hurricanes of $17 recorded in the third quarter of 2004. | |
[2] | Primarily servicing revenue. | |
[3] | Includes the impact of 2003 asbestos reserve addition of $2,604. | |
[4] | Includes 2005 catastrophes of $365 and 2004 catastrophes of $507, before the net reserve release of $395 related to September 11. | |
[5] | Net prior year incurred losses in 2005 includes an increase in reserves for assumed reinsurance of $85 and net reserve strengthening for workers’ compensation reserves of $45, partially offset by a net reserve release of $95, predominantly related to allocated loss adjustment expenses on auto liability claims. | |
[6] | Includes severance charges of $41 for 2003. | |
[7] | Includes a $26 tax benefit related to tax years prior to 2004. | |
[8] | Includes net realized capital gains (losses), after tax, of$29, $87, and $165 for the years ended December 31, 2005, 2004 and 2003, respectively. |
• | A $172 reduction in current accident year catastrophe losses. Current accident year catastrophe losses of $351 in 2005 included losses from hurricanes Katrina, Rita and Wilma. Current accident year catastrophe losses of $523 in 2004 included losses from hurricanes Charley, Frances, Ivan and Jeanne. | |
• | A $166 reduction in net unfavorable prior accident year development. | |
• | A $90 reduction in earned premium on retrospectively-rated policies recorded within Specialty Commercial in 2004. | |
• | An increase in underwriting profit derived from a $572 increase in earned premium, before considering the $90 retrospective earned premium adjustment in 2004. The earned premium growth was generated in Business Insurance and Personal Lines. | |
• | A $117 increase in net investment income, primarily as a result of a larger investment base due to increased cash flows from underwriting, higher investment yields on fixed maturity investments and an increase in income from limited partnership investments, | |
• | An improvement in current accident year non-catastrophe loss and loss adjustment expenses for auto liability and workers’ compensation claims. |
• | An $89 decrease in net realized capital gains due to lower net realized gains on the sale of fixed maturity investments and net losses on non-qualifying derivatives during 2005 compared to net gains during 2004. | ||
• | An $88 increase in insurance operating costs, principally related to hurricane-related assessments. Hurricane-related assessments in 2005 were $64, primarily for assessments payable to the Florida Citizens Property Insurance Corporation (Citizens) as a result of losses incurred by Citizens from the 2004 and 2005 Florida hurricanes. | ||
• | An increase in property non-catastrophe current accident year loss and loss adjustment expenses as a percentage of earned premium. |
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• | A $2.6 billion increase in asbestos and environmental reserves recorded in 2003, | ||
• | An increase in underwriting profit derived from a $779 increase in earned premium, before considering the $90 reduction in earned premium on retrospectively-rated policies in 2004. The $779 increase in earned premium reflected growth in Business Insurance, Personal Lines and Specialty Commercial, partially offset by a $346 decline in Other Operations earned premium as a result of exiting the assumed reinsurance business. | ||
• | A $76 increase in net investment income, primarily driven by an increase in underwriting cash flow, partially offset by a decrease in the investment yield, and | ||
• | An improvement in non-catastrophe current accident year loss and loss adjustment expenses as a percentage of earned premium in all segments of Ongoing Operations. The improvement was principally driven by strong earned pricing and favorable property claim frequency in 2004. |
• | A $246 increase in current accident year catastrophe losses. Current accident year catastrophe losses of $523 in 2004 included losses from Hurricanes Charley, Frances, Ivan and Jeanne. | ||
• | A $194 increase in net unfavorable prior accident year development, before considering the $2.6 billion of net asbestos and environmental reserve strengthening in 2003. Refer to the Ongoing Operations and Other Operations sections herein. | ||
• | A $120 decrease in net realized capital gains due to lower net realized gains on the sale of fixed maturity investments. | ||
• | A $90 reduction in earned premium on retrospectively-rated policies recorded within Specialty Commercial in 2004. |
For the year ended December 31, 2005 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations | P&C | |||||||||||||||||||
Beginning liabilities for unpaid claims and claim adjustment expenses-gross | $ | 6,057 | $ | 2,000 | $ | 5,519 | $ | 13,576 | $ | 7,753 | $ | 21,329 | ||||||||||||
Reinsurance and other recoverables | 474 | 190 | 2,091 | 2,755 | 2,383 | 5,138 | ||||||||||||||||||
Beginning liabilities for unpaid claims and claim adjustment expenses-net | 5,583 | 1,810 | 3,428 | 10,821 | 5,370 | 16,191 | ||||||||||||||||||
Provision for unpaid claims and claim adjustment expenses | ||||||||||||||||||||||||
Current year | 2,949 | 2,389 | 1,377 | 6,715 | — | 6,715 | ||||||||||||||||||
Prior years | 22 | (95 | ) | 109 | 36 | 212 | 248 | |||||||||||||||||
Total provision for unpaid claims and claim adjustment expenses | 2,971 | 2,294 | 1,486 | 6,751 | 212 | 6,963 | ||||||||||||||||||
Less: Payments [1] | (2,197 | ) | (2,337 | ) | (1,066 | ) | (5,600 | ) | (691 | ) | (6,291 | ) | ||||||||||||
Ending liabilities for unpaid claims and claim adjustment expenses-net | 6,357 | 1,767 | 3,848 | 11,972 | 4,891 | 16,863 | ||||||||||||||||||
Reinsurance and other recoverables | 709 | 385 | 2,354 | 3,448 | 1,955 | 5,403 | ||||||||||||||||||
Ending liabilities for unpaid claims and claim adjustment expenses-gross | $ | 7,066 | $ | 2,152 | $ | 6,202 | $ | 15,420 | $ | 6,846 | $ | 22,266 | ||||||||||||
Earned premiums | $ | 4,785 | $ | 3,610 | $ | 1,757 | $ | 10,152 | $ | 4 | $ | 10,156 | ||||||||||||
Loss and loss expense paid ratio [1] | 45.9 | 64.8 | 60.6 | 55.1 | ||||||||||||||||||||
Loss and loss expense incurred ratio | 62.1 | 63.6 | 84.6 | 66.5 | ||||||||||||||||||||
Prior accident year development (pts.) [2] | 0.5 | (2.6 | ) | 6.2 | 0.4 | |||||||||||||||||||
[1] | The “loss and loss expense paid ratio” represents the ratio of paid claims and claim adjustment expenses to earned premiums. | |
[2] | “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums |
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Year Ended December 31, 2005 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations | P&C | |||||||||||||||||||
Gross incurred claim and claim adjustment expenses for current accident year catastrophes | $ | 337 | $ | 394 | $ | 594 | $ | 1,325 | $ | — | $ | 1,325 | ||||||||||||
Ceded claim and claim adjustment expenses for current accident year catastrophes | 248 | 296 | 430 | 974 | — | 974 | ||||||||||||||||||
Net incurred claim and claim adjustment expenses for current accident year catastrophes | $ | 89 | $ | 98 | $ | 164 | $ | 351 | $ | — | $ | 351 | ||||||||||||
Reinstatement premium ceded to reinsurers | $ | 16 | $ | 31 | $ | 26 | $ | 73 | $ | — | $ | 73 | ||||||||||||
Year Ended December 31, 2005 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations | P&C | |||||||||||||||||||
Strengthening of workers’ compensation reserves for claim payments expected to emerge after 20 years of development | $ | 50 | $ | — | $ | 70 | $ | 120 | $ | — | $ | 120 | ||||||||||||
Release of 2003 and 2004 accident year workers’ compensation reserves | (75 | ) | — | — | (75 | ) | — | (75 | ) | |||||||||||||||
Release of reserves for allocated loss adjustment expenses | (25 | ) | (95 | ) | — | (120 | ) | — | (120 | ) | ||||||||||||||
Strengthening of reserves for 2004 hurricanes | 20 | 9 | 4 | 33 | — | 33 | ||||||||||||||||||
Strengthening of general liability reserves in Business Insurance | 40 | — | — | 40 | — | 40 | ||||||||||||||||||
Strengthening of environmental reserves | — | — | — | — | 37 | 37 | ||||||||||||||||||
Strengthening of assumed casualty reinsurance reserves | — | — | — | — | 85 | 85 | ||||||||||||||||||
Other reserve reestimates, net | 12 | (9 | ) | 35 | 38 | 90 | 128 | |||||||||||||||||
Total prior accident year development for the year ended December 31, 2005 | $ | 22 | $ | (95 | ) | $ | 109 | $ | 36 | $ | 212 | $ | 248 | |||||||||||
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• | Strengthened workers’ compensation reserves for claim payments expected to emerge after 20 years of development by $120. For workers’ compensation claims involving permanent disability, it is particularly difficult to estimate how such claims will develop more than 20 years after the year the claims were incurred. The revision was based on modeling using new techniques and extensive data gathering. The $120 of reserve strengthening represented 3% of the Company’s net reserves for workers’ compensation claims as of December 31, 2004. | |
• | Released reserves for workers’ compensation losses in Business Insurance on accident years 2003 and 2004 by $75. The latest evaluations of workers’ compensation claims indicate that underwriting actions of recent years and reform in California have had a greater impact in controlling loss costs than was originally estimated. The $75 reserve release represented 2% of the Company’s net reserves for workers’ compensation claims as of December 31, 2004. | |
• | Released prior accident year reserves for allocated loss adjustment expenses by $120, largely as the result of cost reduction initiatives implemented by the Company to reduce allocated loss adjustment expenses for both legal and non-legal expenses as well as improved actuarial techniques. The improved actuarial techniques included an analysis of claims involving legal expenses separate from claims that do not involve legal expenses. This analysis included a review of the trends in the number of claims involving legal expenses, the average expenses incurred and trends in legal expenses. The release of $95 in Personal Lines represented 5% of Personal Lines net reserves as of December 31, 2004. | |
• | Strengthened general liability reserves within Business Insurance by $40 for accident years 2000-2003 due to higher than anticipated loss payments beyond four years of development. The $40 reserve release represented 2% of the Company’s net reserves for general liability claims as of December 31, 2004. | |
• | Strengthened reserves for loss and loss adjustment expenses related to the third quarter 2004 hurricanes by a total of $33. The main drivers of the increase were late-reported claims for condominium assessments and increases in the costs of building materials and contracting services. | |
• | Within the Specialty Commercial segment, there were other offsetting positive and negative adjustments to prior accident year reserves. The principal offsetting adjustments were a release of reserves for directors and officers insurance related to accident years 2003 and 2004 and strengthening of prior accident year reserves for contracts that provide auto financing gap coverage and auto lease residual value coverage; the release and offsetting strengthening were each approximately $80. |
• | Strengthened assumed reinsurance reserves by $85, principally for accident years 1997 through 2001. In recent years, the Company has seen an increase in reported losses above previous expectations and this increase in reported losses contributed to the reserve re-estimates. Assumed reinsurance exposures are inherently less predictable than direct insurance exposures because the Company may not receive notice of a reinsurance claim until the underlying direct insurance claim is mature. The reserve strengthening of $85 represents 6% of the $1.3 billion of net Reinsurance reserves within Other Operations as of December 31, 2004. The “all other” category of reserves covers a wide range of insurance and assumed reinsurance coverages, including, but not limited to, potential liability for construction defects, lead paint, molestation, silica, pharmaceutical products and other long-tail liabilities. | |
• | Strengthened environmental reserves by $37 as a result of an environmental reserve evaluation completed during the third quarter of 2005. While the review found no apparent underlying cause or change in the claim environment, loss estimates for individual cases changed based upon the particular circumstances of each account. The $37 of reserve strengthening represented 1% of the Company’s net reserves for asbestos and environmental claims as of December 31, 2004. |
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For the year ended December 31, 2004 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations [1] | P&C | |||||||||||||||||||
Beginning liabilities for unpaid claims and claim adjustment expenses-gross | $ | 5,296 | $ | 1,733 | $ | 5,148 | $ | 12,177 | $ | 9,538 | $ | 21,715 | ||||||||||||
Reinsurance and other recoverables | 395 | 43 | 2,096 | 2,534 | 2,963 | 5,497 | ||||||||||||||||||
Beginning liabilities for unpaid claims and claim adjustment expenses-net | 4,901 | 1,690 | 3,052 | 9,643 | 6,575 | 16,218 | ||||||||||||||||||
Provision for unpaid claims and claim adjustment expenses | ||||||||||||||||||||||||
Current year | 2,700 | 2,509 | 1,345 | 6,554 | 36 | 6,590 | ||||||||||||||||||
Prior years | (67 | ) | 3 | 69 | 5 | 409 | 414 | |||||||||||||||||
Total provision for unpaid claims and claim adjustment expenses | 2,633 | 2,512 | 1,414 | 6,559 | 445 | 7,004 | ||||||||||||||||||
Less: Payments [1] | (1,951 | ) | (2,392 | ) | (1,038 | ) | (5,381 | ) | (1,650 | ) | (7,031 | ) | ||||||||||||
Ending liabilities for unpaid claims and claim adjustment expenses-net | 5,583 | 1,810 | 3,428 | 10,821 | 5,370 | 16,191 | ||||||||||||||||||
Reinsurance and other recoverables | 474 | 190 | 2,091 | 2,755 | 2,383 | 5,138 | ||||||||||||||||||
Ending liabilities for unpaid claims and claim adjustment expenses-gross | $ | 6,057 | $ | 2,000 | $ | 5,519 | $ | 13,576 | $ | 7,753 | $ | 21,329 | ||||||||||||
Earned premiums | $ | 4,299 | $ | 3,445 | $ | 1,726 | $ | 9,470 | $ | 24 | $ | 9,494 | ||||||||||||
Loss and loss expense paid ratio [2] | 45.4 | 69.4 | 59.9 | 56.8 | ||||||||||||||||||||
Loss and loss expense incurred ratio | 61.2 | 72.9 | 81.9 | 69.3 | ||||||||||||||||||||
Prior accident year development (pts.) [3] | (1.6 | ) | 0.1 | 4.0 | 0.1 | |||||||||||||||||||
[1] | Other Operations included payments pursuant to the MacArthur settlement. | |
[2] | The “loss and loss expense paid ratio” represents the ratio of paid claims and claim adjustment expenses to earned premiums. | |
[3] | “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums |
Year Ended December 31, 2004 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations | P&C | |||||||||||||||||||
Release of September 11 reserves | $ | (175 | ) | $ | (7 | ) | $ | (116 | ) | $ | (298 | ) | $ | (97 | ) | $ | (395 | ) | ||||||
Strengthening of reserves for construction defects claims | 23 | — | 167 | 190 | — | 190 | ||||||||||||||||||
Strengthening of reserves for auto liability and package business | 63 | — | — | 63 | — | 63 | ||||||||||||||||||
Reduction in the reinsurance recoverable asset associated with older, long-term casualty liabilities, including asbestos liabilities | — | — | — | — | 181 | 181 | ||||||||||||||||||
Strengthening of environmental reserves | — | — | — | — | 75 | 75 | ||||||||||||||||||
Strengthening of reserves for assumed casualty reinsurance | — | — | — | — | 170 | 170 | ||||||||||||||||||
Other reserve reestimates, net | 22 | 10 | 18 | 50 | 80 | 130 | ||||||||||||||||||
Total prior accident year development for the year ended December 31, 2004 | $ | (67 | ) | $ | 3 | $ | 69 | $ | 5 | $ | 409 | $ | 414 | |||||||||||
• | Released September 11 net reserves by $298 due to favorable developments in 2004, including the closure of primary insurance property cases, a high participation rate within the Victim’s Compensation Fund and the expiration of the deadline for filing a liability claim in March 2004. |
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• | Strengthened reserves for construction defects claims by $190, representing 11% of the Company’s $1.8 billion of net reserves for general liability claims as of December 31, 2004. The Company’s construction defects claims, which relate primarily to accident years prior to 2000, have experienced increasing severity, particularly due to losses from contractors in California. | |
• | Strengthened auto liability reserves by $25 and package business reserves by $38 related to accident years 1998 to 2002 as actual reported losses were above previous expectations. In particular, the Company observed a higher frequency of large claims (generally those greater than $100,000) than had been anticipated in prior estimates. The auto liability reserve strengthening of $25 represented 1% of the Company’s net reserves for auto liability claims as of December 31, 2004 and the package business reserve strengthening of $38 represented 3% of the Company’s net reserves for package business as of December 31, 2004. | |
• | Within the Specialty Commercial segment there were other offsetting positive and negative adjustments. The principal offsetting adjustments related to a strengthening in specialty large deductible workers’ compensation reserves and a release in other liability reserves, each approximately $150. |
• | Reduced the reinsurance recoverable asset associated with older, long-term casualty liabilities, including asbestos liabilities, by $181. Strengthened environmental reserves by $75. | |
• | Strengthened reserves for assumed casualty reinsurance by $170, primarily related to assumed casualty treaty reinsurance for the years 1997 through 2001. The $170 of strengthening represents 13% of the $1.3 billion of net Reinsurance reserves as of December 31, 2004. In recent years, the Company has seen an increase in reported assumed reinsurance claims above previous expectations and this increase in reported claims contributed to the reserve re-estimates. | |
• | Released September 11 net reserves by $97 due to favorable developments, including a lack of significant additional loss notices on assumed reinsurance property treaties. |
For the year ended December 31, 2003 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations [1] | P&C | |||||||||||||||||||
Beginning liabilities for unpaid claims and claim adjustment expenses-gross | $ | 4,744 | $ | 1,692 | $ | 5,000 | $ | 11,436 | $ | 5,655 | $ | 17,091 | ||||||||||||
Reinsurance and other recoverables | 366 | 49 | 2,007 | 2,422 | 1,528 | 3,950 | ||||||||||||||||||
Beginning liabilities for unpaid claims and claim adjustment expenses-net | 4,378 | 1,643 | 2,993 | 9,014 | 4,127 | 13,141 | ||||||||||||||||||
Provision for unpaid claims and claim adjustment expenses | ||||||||||||||||||||||||
Current year | 2,346 | 2,324 | 1,130 | 5,800 | 302 | 6,102 | ||||||||||||||||||
Prior years | (6 | ) | (6 | ) | 52 | 40 | 2,784 | 2,824 | ||||||||||||||||
Total provision for unpaid claims and claim adjustment expenses | 2,340 | 2,318 | 1,182 | 5,840 | 3,086 | 8,926 | ||||||||||||||||||
Payments | (1,761 | ) | (2,211 | ) | (1,017 | ) | (4,989 | ) | (860 | ) | (5,849 | ) | ||||||||||||
Other [1] | (56 | ) | (60 | ) | (106 | ) | (222 | ) | 222 | — | ||||||||||||||
Ending liabilities for unpaid claims and claim adjustment expenses-net | 4,901 | 1,690 | 3,052 | 9,643 | 6,575 | 16,218 | ||||||||||||||||||
Reinsurance and other recoverables | 395 | 43 | 2,096 | 2,534 | 2,963 | 5,497 | ||||||||||||||||||
Ending liabilities for unpaid claims and claim adjustment expenses-gross | $ | 5,296 | $ | 1,733 | $ | 5,148 | $ | 12,177 | $ | 9,538 | $ | 21,715 | ||||||||||||
Earned premiums | $ | 3,696 | $ | 3,181 | $ | 1,558 | $ | 8,435 | $ | 370 | $ | 8,805 | ||||||||||||
Loss and loss expense paid ratio [2] | 47.7 | 69.5 | 65.4 | 59.2 | ||||||||||||||||||||
Loss and loss expense incurred ratio | 63.3 | 72.9 | 75.8 | 69.2 | ||||||||||||||||||||
Prior accident year development (pts.) [3] | (0.2 | ) | (0.2 | ) | 3.3 | 0.4 | ||||||||||||||||||
[1] | Includes transfer of reserves from Ongoing to Other Operations pursuant to the MacArthur settlement. | |
[2] | The “loss and loss expense paid ratio” represents the ratio of paid claims and claim adjustment expenses to earned premiums. | |
[3] | “Prior accident year development (pts)” represents the ratio of prior accident year development to earned premium. |
Year Ended December 31, 2003 | ||||||||||||||||||||||||
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations | P&C | |||||||||||||||||||
Strengthened net asbestos reserves | $ | — | $ | — | $ | — | $ | — | $ | 2,604 | $ | 2,604 | ||||||||||||
Strengthened reserves for bond and professional liability | — | — | 45 | 45 | — | 45 | ||||||||||||||||||
Strengthened assumed casualty reinsurance reserves | — | — | — | — | 129 | 129 | ||||||||||||||||||
Other reserve reestimates, net | (6 | ) | (6 | ) | 7 | (5 | ) | 51 | 46 | |||||||||||||||
Total prior accident year development for the year ended December 31, 2003 | $ | (6 | ) | $ | (6 | ) | $ | 52 | $ | 40 | $ | 2,784 | $ | 2,824 | ||||||||||
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• | Strengthened reserves in Specialty Commercial by $52, primarily as a result of losses in the bond and professional liability lines of business. The bond reserve strengthening was isolated to a few severe contract surety claims related to accident year 2002. The professional liability reserve strengthening involved a provision for anticipated settlements of reinsurance obligations for contracts outstanding at the time of the original acquisition of Reliance Group Holdings’ auto residual value portfolio in the third quarter of 2000. |
• | As discussed in the Other Operations segment section, strengthened net asbestos reserves by $2.6 billion. | |
• | Strengthened assumed reinsurance reserves by $129, primarily related to accident years 1997 through 2000 and principally in the casualty line of HartRe assumed reinsurance. |
Business | Personal | Specialty | Ongoing | Other | Total | |||||||||||||||||||
Insurance | Lines | Commercial | Operations | Operations | P&C | |||||||||||||||||||
Range of prior accident year development for the five years ended December 31, 2005 [1] [2] | (1.4) – 0.5 | (5.2) – 5.1 | 0.8 – 3.2 | 0.1 -1.4 | 2.9 – 67.5 | 1.2 – 21.5 | ||||||||||||||||||
[1] | Bracketed prior accident year development indicates favorable development. Unbracketed amounts represent unfavorable development. | |
[2] | Before the reserve strengthening for asbestos and environmental reserves over the past ten years, reserve re-estimates for total Property and Casualty ranged from (3.0%) to 1.6% . |
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2005 | 2004 | 2003 | ||||||||||
Written premiums [1] | ||||||||||||
Business Insurance | $ | 5,001 | $ | 4,575 | $ | 3,957 | ||||||
Personal Lines | 3,676 | 3,557 | 3,272 | |||||||||
Specialty Commercial | 1,806 | 1,840 | 1,691 | |||||||||
Total | $ | 10,483 | $ | 9,972 | $ | 8,920 | ||||||
Earned premiums [1] | ||||||||||||
Business Insurance | $ | 4,785 | $ | 4,299 | $ | 3,696 | ||||||
Personal Lines | 3,610 | 3,445 | 3,181 | |||||||||
Specialty Commercial | 1,757 | 1,726 | 1,558 | |||||||||
Total | $ | 10,152 | $ | 9,470 | $ | 8,435 | ||||||
[1] | The difference between written premiums and earned premiums is attributable to the change in unearned premium reserve. |
2005 | compared to 2004 |
• | Total Ongoing Operations’ earned premiums grew $682, or 7%, due primarily to growth in Business Insurance and Personal Lines. Earned premiums are net of third and fourth quarter property catastrophe reinstatement premiums related to hurricanes totaling $73 in 2005 and $17 in 2004. | ||
• | Earned premium growth of $486 in Business Insurance was primarily driven by new business premium growth outpacing non-renewals in the prior 12 months. Earned premium growth of $165 in Personal Lines was primarily driven by new business growth outpacing non-renewals in auto and the effect of earned pricing increases in homeowners. | ||
• | Specialty Commercial earned premiums increased by $31, primarily driven by a $90 reduction in earned premiums under retrospectively-rated policies during 2004 and increases in casualty, bond, professional liability and other premiums, partially offset by a $216 decrease in property earned premiums, primarily due to a decrease of $127 from exiting the multi-peril crop insurance business during 2004. |
2004 | compared to 2003 |
• | Total Ongoing Operations’ earned premiums grew $1.1 billion, or 13%, due to growth in all three segments. Earned premiums are net of third quarter property catastrophe reinstatement premium of $17 in 2004. | ||
• | Business Insurance and Personal Lines earned premiums increased by $867 due to earned pricing increases and new business premium growth outpacing non-renewals. | ||
• | Specialty Commercial earned premiums increased by $168, primarily due to a $75 increase in earned premiums from a captive insurance program and increases in earned premium for property, bond, professional liability and other, partially offset by a $90 decrease in earned premiums under retrospectively rated-rated policies recorded in 2004. |
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2005 | 2004 | 2003 | ||||||||||
Operating Summary | ||||||||||||
Written premiums | $ | 10,483 | $ | 9,972 | $ | 8,920 | ||||||
Change in unearned premium reserve | 331 | 502 | 485 | |||||||||
Earned premiums | 10,152 | 9,470 | 8,435 | |||||||||
Benefits, claims and claim adjustment expenses | ||||||||||||
Current year | 6,715 | 6,554 | 5,800 | |||||||||
Prior year | 36 | 5 | 40 | |||||||||
Total benefits, claims and claim adjustment expenses | 6,751 | 6,559 | 5,840 | |||||||||
Amortization of deferred policy acquisition costs | 2,000 | 1,845 | 1,553 | |||||||||
Insurance operating costs and expenses | 710 | 621 | 744 | |||||||||
Underwriting results | 691 | 445 | 298 | |||||||||
Net servicing income [1] | 49 | 42 | 8 | |||||||||
Net investment income | 1,082 | 903 | 836 | |||||||||
Net realized capital gains | 19 | 98 | 151 | |||||||||
Other expenses | (202 | ) | (198 | ) | (260 | ) | ||||||
Income tax expense | (474 | ) | (335 | ) | (250 | ) | ||||||
Net income | $ | 1,165 | $ | 955 | $ | 783 | ||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current year | 66.1 | 69.2 | 68.8 | |||||||||
Prior year | 0.4 | 0.1 | 0.5 | |||||||||
Total loss and loss adjustment expense ratio | 66.5 | 69.3 | 69.2 | |||||||||
Expense ratio | 26.5 | 25.9 | 26.8 | |||||||||
Policyholder dividend ratio | 0.1 | 0.1 | 0.4 | |||||||||
Combined ratio | 93.2 | 95.3 | 96.5 | |||||||||
Catastrophe ratio | 3.6 | 2.2 | 3.1 | |||||||||
Combined ratio before catastrophes | 89.6 | 93.1 | 93.4 | |||||||||
Combined ratio before catastrophes and prior accident year development | 89.4 | 89.7 | 92.8 | |||||||||
[1] | Net of expenses related to service business. |
• | A $246 increase in underwriting results, and | ||
• | A $179 increase in net investment income due, in part, to a larger investment base due to increased cash flows from underwriting, higher investment yields on fixed maturity investments and an increase in income from limited partnership investments. Also contributing to the increase, was the effect of allocating more invested assets to Ongoing Operations in 2005. Less invested assets were needed in Other Operations given the reduction in Other Operations’ loss reserves and the reduction in invested assets needed to support those reserves. |
• | A $79 decrease in net realized capital gains due to lower net realized gains on the sale of fixed maturity investments and lower net gains on non-qualifying derivatives, and | ||
• | A $139 increase in income tax expense, reflecting an increase in income before income taxes. |
• | A $171 decrease in current accident year catastrophe losses. Catastrophe losses in 2005 included $264 of losses from Hurricanes Katrina, Rita and Wilma, whereas catastrophe losses in 2004 included $394 of losses from Hurricanes Charley, Frances, Ivan and Jeanne, | ||
• | A $106 improvement in current accident year underwriting results before catastrophes, with a corresponding 0.3 point improvement in the combined ratio before catastrophes and prior accident year development, | ||
• | A net reserve release of $95 in 2005, predominantly related to allocated loss adjustment expenses on Personal Lines auto liability claims, | ||
• | A $75 release of workers’ compensation reserves in 2005 related to accident years 2003 and 2004, and |
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• | Net unfavorable reserve development of $5 in 2004, including reserve increases of $303, partially offset by a reserve release of $298 for September 11. Reserve increases in 2004 included $190 for construction defects claims, $38 for small commercial package business and $25 for auto liability claims. |
• | A $120 strengthening of workers’ compensation reserves in 2005 related to reserves for claim payments expected to emerge after 20 years of development, | ||
• | A $40 strengthening of general liability reserves within Business Insurance related to accident years 2000 to 2003, and | ||
• | Reserve strengthening of $33 related to the third quarter 2004 hurricanes. |
• | A $147 increase in underwriting results. | ||
• | A $67 increase in net investment income, primarily as a result of an increase in underwriting cash flow, partially offset by a decrease in the before-tax investment yield, and | ||
• | A $62 decrease in other expenses, primarily due to $41 of severance costs in 2003 and a reduction in bad debt expense in 2004 due to improved collection efforts in Business Insurance. |
• | A $53 decrease in net realized capital gains due to lower net realized gains on the sale of fixed maturity investments, and | ||
• | An $85 increase in income tax expense reflecting the increase in income before income taxes. |
• | A $362 improvement in current accident year underwriting results before catastrophes, with a corresponding 3.1 point improvement in the combined ratio before catastrophes and prior accident year development, and | ||
• | A $20 strengthening of contract surety claim reserves in 2003 related to accident year 2002 and a $25 provision in 2003 related to the auto residual value business acquired from Reliance Group Holdings in 2000. |
• | A $250 increase in current accident year catastrophe losses, due to losses from Hurricanes Charley, Frances, Ivan and Jeanne in the third quarter of 2004. |
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• | Net unfavorable reserve development of $5 in 2004, including reserve increases of $303, partially offset by a reserve release of $298 for September 11. Reserve increases in 2004 included $190 for construction defects claims, $38 for small commercial package business and $25 for auto liability claims. |
2005 | 2004 | 2003 | ||||||||||
Written Premiums [1] | ||||||||||||
Small Commercial | $ | 2,545 | $ | 2,255 | $ | 1,862 | ||||||
Middle Market | 2,456 | 2,320 | 2,095 | |||||||||
Total | $ | 5,001 | $ | 4,575 | $ | 3,957 | ||||||
Earned Premiums [1] | ||||||||||||
Small Commercial | $ | 2,421 | $ | 2,077 | $ | 1,782 | ||||||
Middle Market | 2,364 | 2,222 | 1,914 | |||||||||
Total | $ | 4,785 | $ | 4,299 | $ | 3,696 | ||||||
[1] | The difference between written premiums and earned premiums is attributable to the change in unearned premium reserve. |
• | Growth in small commercial earned premium was driven primarily by growth in workers’ compensation and package business for both Select Xpand and traditional Select. New business written premium for small commercial increased by $6, as an increase in new business for workers’ compensation was largely offset by a decrease in new business for package and commercial auto. Premium renewal retention for small commercial increased from 83% to 86% in 2005, excluding the impact of modest written pricing increases. | ||
• | Growth in middle market earned premium was driven primarily by growth in workers’ compensation and marine, partially offset by a decrease in property and commercial auto. New business written premium for middle market increased by $22 for the year ended December 31, 2005, mostly related to workers’ compensation business. Premium renewal retention for middle market increased from 83% to 86%, excluding the impact of written pricing decreases, as stronger retention on smaller accounts was partially offset by a decrease in retention on larger accounts. |
• | Written pricing for small commercial increased 4% in the last six months of 2004 and 2% in 2005. | ||
• | Written pricing for middle market decreased 2% in the last six of 2004 and 5% in 2005. |
• | Growth in small commercial earned premiums was driven primarily by written premium growth for Select Xpand. The new business premium growth of $172 in Small Commercial was due primarily to growth from the Select Xpand product and growth from an increase in the number of agents, partially offset by the moderation in written pricing increases. | ||
• | Growth in middle market earned premiums was driven primarily by growth in workers’ compensation premium. New business premium decreased by $61 due largely to written pricing decreases. |
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2005 | 2004 | 2003 | ||||||||||
Underwriting Summary | ||||||||||||
Written premiums | $ | 5,001 | $ | 4,575 | $ | 3,957 | ||||||
Change in unearned premium reserve | 216 | 276 | 261 | |||||||||
Earned premiums | 4,785 | 4,299 | 3,696 | |||||||||
Benefits, claims and claim adjustment expenses | ||||||||||||
Current year | 2,949 | 2,700 | 2,346 | |||||||||
Prior year | 22 | (67 | ) | (6 | ) | |||||||
Total benefits, claims and claim adjustment expenses | 2,971 | 2,633 | 2,340 | |||||||||
Amortization of deferred policy acquisition costs | 1,138 | 1,058 | 913 | |||||||||
Insurance operating costs and expenses | 280 | 248 | 285 | |||||||||
Underwriting results | $ | 396 | $ | 360 | $ | 158 | ||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current year | 61.6 | 62.8 | 63.5 | |||||||||
Prior year | 0.5 | (1.6 | ) | (0.2 | ) | |||||||
Total loss and loss adjustment expense ratio | 62.1 | 61.2 | 63.3 | |||||||||
Expense ratio | 29.5 | 30.1 | 31.8 | |||||||||
Policyholder dividend ratio | 0.1 | 0.2 | 0.6 | |||||||||
Combined ratio | 91.7 | 91.6 | 95.7 | |||||||||
Catastrophe ratio | 2.0 | (0.9 | ) | 2.7 | ||||||||
Combined ratio before catastrophes | 89.7 | 92.5 | 93.0 | |||||||||
Combined ratio before catastrophes and prior accident year development | 89.4 | 89.7 | 93.0 | |||||||||
• | A $67 improvement resulting from earned premium growth at a combined ratio less than 100.0 and from a decrease in the combined ratio before catastrophes and prior accident year development of 0.3 points, from 89.7 to 89.4 | |
• | A $58 decrease in current accident year catastrophe losses. Catastrophe losses in 2005 for Hurricanes Katrina, Rita and Wilma were $68 compared to catastrophe losses in 2004 for Hurricanes Charley, Frances, Ivan and Jeanne of $98, | |
• | A $75 release of workers’ compensation reserves during 2005 related to accident years 2003 and 2004, and | |
• | A $25 release of prior accident year reserves for allocated loss adjustment expenses during 2005. |
• | Net favorable reserve development of $67 in 2004 included a $175 release of September 11 reserves, partially offset by a $38 strengthening of reserves for small commercial package business, a $25 strengthening of automobile liability reserves and a $23 strengthening of reserves for construction defects claims, | |
• | A $50 strengthening of workers’ compensation reserves during 2005 related to reserves for claim payments expected to emerge after 20 years of development, | |
• | A $40 strengthening of general liability reserves during 2005 for accident years 2000-2003 due to higher than anticipated loss payments beyond four years of development, and | |
• | A $20 strengthening of third quarter 2004 hurricane reserves during 2005. |
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• | A $181 improvement resulting from earned premium growth at a combined ratio less than 100.0 and from a decrease in the combined ratio before catastrophes and prior accident year development of 3.3 points, from 93.0 to 89.7, and | |
• | Net favorable reserve development of $67 in 2004, including a $175 release of September 11 reserves, partially offset by a $38 strengthening of small commercial package business reserves, a $25 strengthening of auto liability claim reserves and a $23 strengthening of construction defects claim reserves. |
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2005 | 2004 | 2003 | ||||||||||
Written Premiums [1] | ||||||||||||
Business Unit | ||||||||||||
AARP | $ | 2,373 | $ | 2,244 | $ | 2,066 | ||||||
Other Affinity | 109 | 128 | 148 | |||||||||
Agency | 1,020 | 942 | 804 | |||||||||
Omni | 174 | 243 | 254 | |||||||||
Total | $ | 3,676 | $ | 3,557 | $ | 3,272 | ||||||
Product Line | ||||||||||||
Automobile | $ | 2,753 | $ | 2,685 | $ | 2,508 | ||||||
Homeowners | 923 | 872 | 764 | |||||||||
Total | $ | 3,676 | $ | 3,557 | $ | 3,272 | ||||||
2005 | 2004 | 2003 | ||||||||||
Earned Premiums [1] | ||||||||||||
Business Unit | ||||||||||||
AARP | $ | 2,296 | $ | 2,146 | $ | 1,956 | ||||||
Other Affinity | 118 | 138 | 163 | |||||||||
Agency | 997 | 907 | 807 | |||||||||
Omni | 199 | 254 | 255 | |||||||||
Total | $ | 3,610 | $ | 3,445 | $ | 3,181 | ||||||
Product Line | ||||||||||||
Automobile | $ | 2,728 | $ | 2,622 | $ | 2,458 | ||||||
Homeowners | 882 | 823 | 723 | |||||||||
Total | $ | 3,610 | $ | 3,445 | $ | 3,181 | ||||||
Combined Ratios | ||||||||||||
Automobile | 90.7 | 95.7 | 98.0 | |||||||||
Homeowners | 76.6 | 96.8 | 88.8 | |||||||||
Total | 87.3 | 96.0 | 95.9 | |||||||||
[1] | The difference between written premiums and earned premiums is attributable to the change in unearned premium reserve. |
• | AARP earned premium grew $150, or 7%, reflecting an increase in the penetration of the AARP target market and the effect of direct marketing programs to increase premium writings, particularly in auto. | |
• | Agency earned premium grew $90, or 10%, as a result of continued growth of the Dimensions class plans first introduced in 2004. Dimensions, which has been rolled out to 41 states for auto and 37 states for homeowners, allows Personal Lines to write a broader class of risks. | |
• | Omni earned premium decreased by $55, or 22%, because of a strategic decision by management to focus on more profitable non-standard auto business. |
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• | �� | Written pricing for automobile increased 2% in the last six months of 2004 but was flat in 2005. |
• | Written pricing for homeowners increased 7% in the last six months of 2004 and 6% in 2005. |
• | AARP earned premium grew $190, or 10%, reflecting growth in the size of the AARP target market and the effect of direct marketing programs to increase premium writings, in both auto and homeowners. | |
• | Agency earned premium grew $100, or 12%, as a result of the growth of the Dimensions auto and homeowners’ class plans. Dimensions, which had been rolled out to 37 states for auto and 28 states for homeowners in 2004, allows Personal Lines to write a broader class of risks. | |
• | Omni earned premium was flat during 2004 because of a strategic decision by management to focus on more profitable non-standard auto business. |
• | Written pricing for automobile increased 8% in the last six months of 2003 and 3% in 2004. | |
• | Written pricing for homeowners increased 13% in the last six months of 2003 and 9% in 2004. |
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2005 | 2004 | 2003 | ||||||||||
Underwriting Summary | ||||||||||||
Written premiums | $ | 3,676 | $ | 3,557 | $ | 3,272 | ||||||
Change in unearned premium reserve | 66 | 112 | 91 | |||||||||
Earned premiums | 3,610 | 3,445 | 3,181 | |||||||||
Benefits, claims and claim adjustment expenses | ||||||||||||
Current year | 2,389 | 2,509 | 2,324 | |||||||||
Prior year | (95 | ) | 3 | (6 | ) | |||||||
Total benefits, claims and claim adjustment expenses | 2,294 | 2,512 | 2,318 | |||||||||
Amortization of deferred policy acquisition costs | 581 | 530 | 386 | |||||||||
Insurance operating costs and expenses | 275 | 265 | 347 | |||||||||
Underwriting results | $ | 460 | $ | 138 | $ | 130 | ||||||
Loss and loss adjustment expense ratio | ||||||||||||
Current year | 66.2 | 72.8 | 73.1 | |||||||||
Prior year | (2.6 | ) | 0.1 | (0.2 | ) | |||||||
Total loss and loss adjustment expense ratio | 63.6 | 72.9 | 72.9 | |||||||||
Expense ratio | 23.7 | 23.1 | 23.0 | |||||||||
Combined ratio | 87.3 | 96.0 | 95.9 | |||||||||
Catastrophe ratio | 2.9 | 7.4 | 4.1 | |||||||||
Combined ratio before catastrophes | 84.4 | 88.6 | 91.8 | |||||||||
Combined ratio before catastrophes and prior accident year development | 87.2 | 88.2 | 91.7 | |||||||||
Other revenues [1] | $ | 121 | $ | 123 | $ | 123 | ||||||
[1] | Represents servicing revenue. |
• | A $166 decrease in current accident year catastrophe losses. Catastrophe losses in 2005 included losses for Hurricanes Katrina, Rita and Wilma of $50 whereas catastrophe losses in 2004 included losses for Hurricanes Charley, Frances, Ivan and Jeanne of $215, | |
• | A $95 reduction in prior accident year reserves for allocated loss adjustment expenses, predominantly related to auto liability claims, and | |
• | A $58 improvement in current accident year underwriting results derived from earned premium growth at a combined ratio less than 100.0, as well as from a decrease in the combined ratio before catastrophes and prior accident year development of 1.0 point, from 88.2 to 87.2. |
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2005 | 2004 | 2003 | ||||||||||
Written Premiums [1] | ||||||||||||
Property | $ | 211 | $ | 443 | $ | 440 | ||||||
Casualty | 815 | 743 | 670 | |||||||||
Bond | 228 | 197 | 162 | |||||||||
Professional Liability | 385 | 342 | 324 | |||||||||
Other | 167 | 115 | 95 | |||||||||
Total | $ | 1,806 | $ | 1,840 | $ | 1,691 | ||||||
Earned Premiums [1] | ||||||||||||
Property | $ | 245 | $ | 461 | $ | 429 | ||||||
Casualty | 787 | 635 | 615 | |||||||||
Bond | 210 | 188 | 152 | |||||||||
Professional Liability | 345 | 335 | 296 | |||||||||
Other | 170 | 107 | 66 | |||||||||
Total | $ | 1,757 | $ | 1,726 | $ | 1,558 | ||||||
[1] | The difference between written premiums and earned premiums is attributable to the change in unearned premium reserve. |
• | Property earned premium decreased $216, or 47%, primarily because of a decline in new business and a decrease of $127 due to the decision made in the fourth quarter of 2004 to exit the multi-peril crop insurance (“MPCI”) business, partially offset by an increase in premium renewal retention. Also reducing earned premium was a $22 increase in reinstatement premiums paid to reinstate reinsurance treaty limits as a result of losses ceded from third and fourth quarter hurricanes of 2005 compared to reinstatement premiums paid as a result of losses ceded from the third quarter hurricanes of 2004. | |
• | Casualty earned premiums grew $152, or 24%, primarily because earned premium in 2004 included a $90 decrease in earned premiums under retrospectively-rated policies. The remaining growth of $62 was largely attributable to the effect of earned pricing increases, partially offset by a decrease in new business growth. In 2005 and 2004, a single captive insurance program accounted for earned premium of $241 and $226, respectively. While this program was not renewed, the non-renewal is not expected to have a significant impact on Specialty Commercial’s underwriting results in 2006. | |
• | Bond earned premium grew $22, or 12%, due to new business growth in commercial and contract surety business, an increase in earned pricing, a decrease in the portion of risks ceded to outside reinsurers and a decrease in the price of reinsurance with outside reinsurers. | |
• | Professional liability earned premium increased $10, or 3%, primarily due to a decrease in the portion of risks ceded to outside reinsurers, partially offset by earned pricing decreases. | |
• | Within the “other” category, earned premium increased by $63, or 59%, primarily due to increased premiums on inter-segment reinsurance programs. |
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• | Property earned premium increased $32, or 7%, primarily due to an increase of $43 in the portion of property business derived from multi-peril crop insurance premiums. In the fourth quarter of 2004, the Company transferred its entire book of multi-peril crop insurance (MPCI) to Rural Community Insurance Company (RCIC), a subsidiary of Wells Fargo & Company. The agreement transferred in bulk all 2005 crop year policies to RCIC in exchange for an initial payment and renewal fees based upon retention of the transferred business over a three year period. The Company retained responsibility for the MPCI business written for the 2004 and prior crop years. Earned premium for MPCI business for the year ended December 31, 2004 was $127. Before considering the increase in MPCI premiums, earned premiums for property declined by 6%, reflecting a business decision to write less new business and renew less premium as a result of the decline in written pricing. |
• | Casualty earned premiums increased $20, or 3%, primarily because of written premium growth in a single captive insurance program and high single-digit earned pricing increases, partially offset by a decrease in premium renewal retention. Of the total growth in earned premium for the year ended December 31, 2004, $75 was attributable to a single captive insurance program. The increase in earned premiums was partially offset by a $90 decrease in earned premiums under retrospectively-rated policies. |
• | Bond earned premium grew $36, or 24%, primarily as a result of an increase in contract surety business and a decrease in ceded premiums, partially offset by a slight decrease in premium renewal retention. |
• | Professional liability earned premiums grew $39, or 13%, primarily due to a decrease in the portion of risks ceded to outside reinsurers and earned pricing increases, partially offset by a decrease in renewal retention and new business growth. Earned pricing increases in professional liability were due entirely to written pricing increases in 2003 as prices declined in 2004. |
• | Within the “other” category, earned premiums increased $41, or 62%, primarily due to increased premiums on inter-segment reinsurance programs. |
Underwriting Summary | 2005 | 2004 | 2003 | |||||||||
Written premiums | $ | 1,806 | $ | 1,840 | $ | 1,691 | ||||||
Change in unearned premium reserve | 49 | 114 | 133 | |||||||||
Earned premiums | 1,757 | 1,726 | 1,558 | |||||||||
Benefits, claims and claim adjustment expenses | ||||||||||||
Current year | 1,377 | 1,345 | 1,130 | |||||||||
Prior year | 109 | 69 | 52 | |||||||||
Total benefits, claims and claim adjustment expenses | 1,486 | 1,414 | 1,182 | |||||||||
Amortization of deferred policy acquisition costs | 281 | 257 | 254 | |||||||||
Insurance operating costs and expenses | 155 | 108 | 112 | |||||||||
Underwriting results | $ | (165 | ) | $ | (53 | ) | $ | 10 | ||||
Loss and loss adjustment expense ratio | ||||||||||||
Current year | 78.4 | 77.9 | 72.5 | |||||||||
Prior year | 6.2 | 4.0 | 3.3 | |||||||||
Total loss and loss adjustment expense ratio | 84.6 | 81.9 | 75.8 | |||||||||
Expense ratio | 24.3 | 21.1 | 22.9 | |||||||||
Policyholder dividend ratio | 0.5 | 0.1 | 0.7 | |||||||||
Combined ratio | 109.4 | 103.1 | 99.3 | |||||||||
Catastrophe ratio | 9.5 | (0.4 | ) | 1.7 | ||||||||
Combined ratio before catastrophes | 99.9 | 103.5 | 97.6 | |||||||||
Combined ratio before catastrophes and prior accident year development | 93.8 | 92.8 | 94.3 | |||||||||
Other revenue [1] | $ | 342 | $ | 314 | $ | 306 | ||||||
[1] | Represents servicing revenue |
• | A $109 decrease in current accident year non-catastrophe underwriting results, |
• | A $53 increase in current accident year catastrophe losses. Catastrophe losses in 2005 for Hurricanes Katrina, Rita and Wilma were $145 compared to catastrophe losses in 2004 for Hurricanes Charley, Frances, Ivan and Jeanne of $81. Catastrophe losses in 2005 and 2004 include $70 and $19, respectively, of catastrophe losses assumed under inter-segment reinsurance programs and |
• | A $40 increase in unfavorable prior accident year loss development. Prior accident year loss development of $109 in 2005 consisted primarily of $70 of reserve strengthening for workers’ compensation reserves for claim payments expected to emerge after 20 years of development and $20 of reserve development for large deductible workers’ compensation reserves. Reserve development in 2005 also included a release of reserves for directors and officers insurance related to accident years 2003 and 2004 and strengthening of prior accident year reserves for contracts that provide auto financing gap coverage and auto lease residual value coverage; the release and offsetting strengthening were each approximately $80. Prior accident year loss development of $69 in 2004 included $167 of reserve strengthening for construction defect claims, a release of $116 in September 11 reserves and strengthening in large deductible workers’ compensation reserves and a release in other liability reserves, each approximately $150. |
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• | A $131 improvement in current accident year underwriting results, partially offset by |
• | An $86 increase in current accident year catastrophe losses, principally due to losses incurred for hurricanes Charley, Frances, Ivan and Jeanne in the third quarter of 2004 and |
• | A $17 increase in unfavorable prior accident year loss development. Prior accident year loss development of $69 in 2004 included $167 of reserve strengthening for construction defect claims, a release of $116 in September 11 reserves and strengthening in large deductible workers’ compensation reserves and a release in other liability reserves, each approximately $150. Prior accident year loss development of $52 in 2003 consisted primarily of $20 of reserve strengthening for a few severe contract surety claims related to accident year 2002 and a $25 provision for anticipated settlements on reinsurance obligations for contracts outstanding at the time of the original acquisition of Reliance Group Holdings’ auto residual value portfolio in the third quarter of 2000. |
2005 | 2004 | 2003 | ||||||||||
Written premiums | $ | 4 | $ | (10 | ) | $ | 224 | |||||
Change in unearned premium reserve | — | (34 | ) | (146 | ) | |||||||
Earned premiums | 4 | 24 | 370 | |||||||||
Benefits, claims and claim adjustment expenses | ||||||||||||
Current year | — | 36 | 302 | |||||||||
Prior year | 212 | 409 | 2,784 | |||||||||
Total benefits, claims and claim adjustment expenses | 212 | 445 | 3,086 | |||||||||
Amortization of deferred policy acquisition costs | (3 | ) | 5 | 89 | ||||||||
Insurance operating costs and expenses | 21 | 22 | 35 | |||||||||
Underwriting results | $ | (226 | ) | $ | (448 | ) | $ | (2,840 | ) | |||
Net investment income | 283 | 345 | 336 | |||||||||
Net realized capital gains | 25 | 35 | 102 | |||||||||
Other income (expense) | (1 | ) | (37 | ) | 46 | |||||||
Income tax benefit (expense) | (10 | ) | 60 | 828 | ||||||||
Net income (loss) | $ | 71 | $ | (45 | ) | $ | (1,528 | ) | ||||
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• | A $222 increase in underwriting results, primarily due to a $197 decrease in prior year loss development. Reserve development in 2005 included $85 of reserve strengthening for assumed reinsurance, $37 of environmental reserve strengthening, and a $20 increase in the allowance for uncollectible reinsurance. In 2004, reserve development was driven by a $181 provision for the reinsurance recoverable asset associated with older, long-term casualty liabilities, $170 of reserve strengthening for assumed reinsurance, and $75 of environmental reserve strengthening, which was partially offset by a $97 release of September 11 reserves. |
• | A $62 decrease in net investment income, primarily as a result of a decrease in invested assets resulting from net claims and claim adjustment expenses paid in 2004 and 2005. Other Operations net investment income includes income earned on the separate portfolios of Heritage Holdings and its subsidiaries, and on the Hartford Fire invested asset portfolio, which is allocated between Ongoing Operations and Other Operations. The Company attributes capital and invested assets to each segment using an internally developed, risk-based capital attribution methodology. |
• | A $70 decrease in income tax benefit (expense) reflecting an increase in income before taxes. |
• | A $2.4 billion increase in underwriting results, primarily due to a $2.4 billion decrease in prior year loss development. Reserve development in 2004 included a $181 provision for the reinsurance recoverable asset associated with older, long-term casualty liabilities, $170 of reserve strengthening for assumed reinsurance, and $75 of environmental reserve strengthening, which was partially offset by a $97 release of September 11 reserves. In 2003, reserve development was driven by $2.6 billion of asbestos reserve strengthening. The $346 decrease in earned premiums and related decrease of $266 in current year benefits, claims and claim adjustment expenses were the result of the Company’s decision to exit from the assumed reinsurance business in the second quarter of 2003. |
• | A $768 decrease in income tax benefit reflecting a decrease in the loss before taxes. |
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2005 | Asbestos | Environmental | All Other [1] | Total | ||||||||||||
Beginning liability — net [2] [3] | $ | 2,471 | $ | 385 | $ | 2,514 | $ | 5,370 | ||||||||
Claims and claim adjustment expenses incurred | 29 | 52 | 131 | 212 | ||||||||||||
Claims and claim adjustment expenses paid | (209 | ) | (77 | ) | (405 | ) | (691 | ) | ||||||||
Ending liability — net [2] [3] | $ | 2,291 | [4] | $ | 360 | $ | 2,240 | $ | 4,891 | |||||||
2004 | ||||||||||||||||
Beginning liability — net [2] [3] | $ | 3,783 | $ | 400 | $ | 2,392 | $ | 6,575 | ||||||||
Claims and claim adjustment expenses incurred | 217 | 78 | 150 | 445 | ||||||||||||
Claims and claim adjustment expenses paid [5] | (1,199 | ) | (83 | ) | (368 | ) | (1,650 | ) | ||||||||
Reclassification of allowance for uncollectible reinsurance | (330 | ) | (10 | ) | 340 | 0 | ||||||||||
Ending liability — net [2] [3] | $ | 2,471 | $ | 385 | $ | 2,514 | $ | 5,370 | ||||||||
2003 | ||||||||||||||||
Beginning liability — net | $ | 1,107 | $ | 584 | $ | 2,436 | �� | $ | 4,127 | |||||||
Claims and claim adjustment expenses incurred | 2,609 | (7 | ) | 484 | 3,086 | |||||||||||
Claims and claim adjustment expenses paid | (158 | ) | (177 | ) | (525 | ) | (860 | ) | ||||||||
Other [6] | 225 | 0 | (3 | ) | 222 | |||||||||||
Ending liability — net [2] [3] | $ | 3,783 | $ | 400 | $ | 2,392 | $ | 6,575 | ||||||||
[1] | “All Other” also includes unallocated loss adjustment expense reserves and the allowance for uncollectible reinsurance. | |
[2] | Excludes asbestos and environmental net liabilities reported in Ongoing Operations of $10 and $6, respectively, as of December 31, 2005, $13 and $9, respectively, as of December 31, 2004, and $11 and $8, respectively, as of December 31, 2003. Total net claim and claim adjustment expenses incurred in Ongoing Operations for the twelve months ended December 31, 2005, 2004, and 2003 includes $11, $13, and $13, respectively, related to asbestos and environmental claims. Total net claim and claim adjustment expenses paid in Ongoing Operations for the twelve months ended December 31, 2005, 2004, and 2003 includes $17, $11, and $12, respectively, related to asbestos and environmental claims. | |
[3] | Gross of reinsurance, asbestos and environmental reserves, including liabilities in Ongoing Operations, were $3,845 and $432, respectively, as of December 31, 2005, $4,322 and $501, respectively, as of December 31, 2004, and $5,884 and $542, respectively, as of December 31, 2003. | |
[4] | The one year and average three year net paid amounts for asbestos claims, including Ongoing Operations, are $215 and $526, respectively, resulting in a one year net survival ratio of 10.7 and a three year net survival ratio of 4.4 (12.7 excluding the MacArthur payments). Net survival ratio is the quotient of the net carried reserves divided by the average annual payment amount and is an indication of the number of years that the net carried reserve would last (i.e. survive) if the future annual claim payments were consistent with the calculated historical average. | |
[5] | Asbestos payments include payments pursuant to the MacArthur settlement. | |
[6] | Represents the transfer of reserves pursuant to the MacArthur settlement. |
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Asbestos [1] | Environmental [1] | |||||||||||||||
Paid | Incurred | Paid | Incurred | |||||||||||||
2005 | Loss & LAE | Loss & LAE | Loss & LAE | Loss & LAE | ||||||||||||
Gross | ||||||||||||||||
Direct | $ | 349 | $ | 10 | $ | 50 | $ | 14 | ||||||||
Assumed — Domestic | 70 | (4 | ) | 21 | — | |||||||||||
London Market | 61 | — | 9 | — | ||||||||||||
Total | 480 | 6 | 80 | 14 | ||||||||||||
Ceded | (271 | ) | 23 | (3 | ) | 38 | ||||||||||
Net | $ | 209 | $ | 29 | $ | 77 | $ | 52 | ||||||||
2004 | ||||||||||||||||
Gross | ||||||||||||||||
Direct [2] | $ | 1,487 | $ | (18 | ) | $ | 79 | $ | 75 | |||||||
Assumed — Domestic | 66 | 30 | 19 | — | ||||||||||||
London Market | 22 | — | 19 | — | ||||||||||||
Total | 1,575 | 12 | 117 | 75 | ||||||||||||
Ceded | (376 | ) | 205 | (34 | ) | 3 | ||||||||||
Net | $ | 1,199 | $ | 217 | $ | 83 | $ | 78 | ||||||||
2003 | ||||||||||||||||
Gross | ||||||||||||||||
Direct | $ | 222 | $ | 3,109 | $ | 100 | $ | 3 | ||||||||
Assumed — Domestic | 53 | 585 | 16 | (3 | ) | |||||||||||
London Market | 40 | 286 | 17 | (8 | ) | |||||||||||
Total | 315 | 3,980 | 133 | (8 | ) | |||||||||||
Ceded | (157 | ) | (1,371 | ) | 44 | 1 | ||||||||||
Net | $ | 158 | $ | 2,609 | $ | 177 | $ | (7 | ) | |||||||
[1] | Excludes asbestos and environmental paid and incurred loss and LAE reported in Ongoing Operations. Total gross claim and claim adjustment expenses paid in Ongoing Operations for the twelve months ended December 31, 2005, 2004, and 2003 includes $23, $11, and $13, respectively, related to asbestos and environmental claims. Total gross claim and claim adjustment expenses incurred in Ongoing Operations for the twelve months ended December 31, 2005, 2004, and 2003 includes $17, $14, and $13, respectively, related to asbestos and environmental claims. | |
[2] | Reflects payments pursuant to the MacArthur settlement of $1.15 billion. |
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2005 | 2004 | |||||||||||||||
Percentage of Total | Percentage of Total | |||||||||||||||
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||
Priced via independent market quotations | $ | 65,986 | 86.3 | % | $ | 63,176 | 84.1 | % | ||||||||
Priced via broker quotations | 2,728 | 3.6 | % | 4,273 | 5.6 | % | ||||||||||
Priced via matrices | 5,452 | 7.1 | % | 4,847 | 6.5 | % | ||||||||||
Priced via other methods | 211 | 0.3 | % | 52 | 0.1 | % | ||||||||||
Short-term investments [1] | 2,063 | 2.7 | % | 2,752 | 3.7 | % | ||||||||||
Total | $ | 76,440 | 100.0 | % | $ | 75,100 | 100.0 | % | ||||||||
[1] | Short-term investments are primarily valued at amortized cost, which approximates fair value. |
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2005 | 2004 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Fixed maturities, available-for-sale, at fair value | $ | 50,812 | 63.7 | % | $ | 50,531 | 73.5 | % | ||||||||
Equity securities, available-for-sale, at fair value | 800 | 1.0 | % | 525 | 0.8 | % | ||||||||||
Equity securities held for trading, at fair value | 24,034 | 30.1 | % | 13,634 | 19.8 | % | ||||||||||
Policy loans, at outstanding balance | 2,016 | 2.5 | % | 2,662 | 3.9 | % | ||||||||||
Mortgage loans, at amortized cost | 1,513 | 1.9 | % | 923 | 1.3 | % | ||||||||||
Limited partnerships, at fair value | 431 | 0.6 | % | 256 | 0.4 | % | ||||||||||
Other investments | 178 | 0.2 | % | 185 | 0.3 | % | ||||||||||
Total investments | $ | 79,784 | 100.0 | % | $ | 68,716 | 100.0 | % | ||||||||
(Before-tax) | 2005 | 2004 | 2003 | |||||||||
Net investment income — excluding income on policy loans and equity securities held for trading | $ | 2,854 | $ | 2,690 | $ | 1,831 | ||||||
Equity securities held for trading [1] | 3,847 | 799 | — | |||||||||
Policy loan income | 144 | 186 | 210 | |||||||||
Net investment income — total | $ | 6,845 | $ | 3,675 | $ | 2,041 | ||||||
Yield on average invested assets [2] | 5.7 | % | 5.8 | % | 6.0 | % | ||||||
Gross gains on sale | $ | 346 | $ | 359 | $ | 267 | ||||||
Gross losses on sale | (254 | ) | (147 | ) | (95 | ) | ||||||
Impairments | (37 | ) | (25 | ) | (162 | ) | ||||||
Japanese fixed annuity contract hedges, net [3] | (36 | ) | 3 | — | ||||||||
Periodic net coupon settlements on credit derivatives/Japan | (32 | ) | 8 | 3 | ||||||||
GMWB derivatives, net | (46 | ) | 8 | 6 | ||||||||
Other, net [4] | 34 | (42 | ) | 7 | ||||||||
Net realized capital gains (losses), before-tax | $ | (25 | ) | $ | 164 | $ | 26 | |||||
[1] | Represents the change in value of equity securities held for trading. | |
[2] | Represents annualized net investment income (excluding income related to equity securities held for trading) divided by the monthly weighted average invested assets at cost or amortized cost, as applicable, excluding equity securities held for trading, the collateral received associated with the securities lending program and consolidated variable interest entity minority interests. | |
[3] | Relates to the Japanese fixed annuity product (product and related derivative hedging instruments excluding periodic net coupon settlements). | |
[4] | Primarily consists of changes in fair value on non-qualifying derivatives, changes in fair value of certain derivatives in fair value hedge relationships and hedge ineffectiveness on qualifying derivative instruments. |
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• | The lower net gains on fixed maturity sales in 2005 were primarily the result of rising interest rates and losses associated with a major automotive manufacturer. See additional discussion of the gross gains and losses on sales below. If interest rates remain at current levels or rise during 2006, or credit spreads widen, net realized capital gains on fixed maturity sales for 2006 will likely be lower than the 2005 levels. The losses associated with the GMWB derivatives were primarily driven by changes in the GMWB rider valuation assumptions in the fourth quarter of 2005. For further discussion of the GMWB rider valuation assumption, see the Capital Markets Risk Management section of the MD&A under “Market Risk-Life”. |
• | The Japanese fixed annuity contract hedges amount consists of the foreign currency transaction remeasurements associated with the yen denominated fixed annuity contracts offered in Japan and the corresponding offsetting cross currency swaps. Although the Japanese fixed annuity contracts are economically hedged, the net realized capital losses result from the mixed attribute accounting model, which requires fixed annuity liabilities to be recorded at cost but the associated derivatives to be reported at fair value. The net realized capital losses in 2005 resulted from rising Japanese interest rates, and in the first half of the year, a decrease in U.S. interest rates. For additional discussion of the Japanese fixed annuity contract hedges see the Capital Markets Risk Management section of the MD&A under “Market Risk-Life” and Note 4 of Notes to Consolidated Financial Statements. The periodic net coupon settlements on credit derivatives and the Japan fixed annuity cross currency swaps includes the net periodic income/expense or coupon associated with the swap contracts. The net loss for 2005 is associated with the Japan fixed annuity cross currency swaps and results from the interest rate differential between U.S. and Japanese interest rates. The Japanese fixed annuity product was first offered by the Company in the fourth quarter 2004. The adverse change in 2005 in comparison to 2004 primarily resulted from a full year of the Japanese fixed annuity product swap accruals in 2005. |
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Composition of Invested Assets | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Amount | Percent | Amount | Percent | |||||||||||||
Fixed maturities, available-for-sale, at fair value | $ | 25,330 | 94.3 | % | $ | 24,410 | 95.6 | % | ||||||||
Equity securities, available-for-sale, at fair value | 661 | 2.5 | % | 307 | 1.2 | % | ||||||||||
Real estate/Mortgage loans, at amortized cost | 220 | 0.8 | % | 253 | 1.0 | % | ||||||||||
Limited partnerships, at fair value | 237 | 0.9 | % | 177 | 0.7 | % | ||||||||||
Other investments | 405 | 1.5 | % | 379 | 1.5 | % | ||||||||||
Total investments | $ | 26,853 | 100.0 | % | $ | 25,526 | 100.0 | % | ||||||||
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(Before-tax) | 2005 | 2004 | 2003 | |||||||||
Net investment income, before-tax | $ | 1,365 | $ | 1,248 | $ | 1,172 | ||||||
Net investment income, after-tax [1] | $ | 1,016 | $ | 932 | $ | 889 | ||||||
Yield on average invested assets, before-tax [2] | 5.5 | % | 5.4 | % | 5.5 | % | ||||||
Yield on average invested assets, after-tax [1] [2] | 4.1 | % | 4.1 | % | 4.2 | % | ||||||
Gross gains on sale | $ | 163 | $ | 210 | $ | 397 | ||||||
Gross losses on sale | (110 | ) | (83 | ) | (125 | ) | ||||||
Impairments | (10 | ) | (13 | ) | (38 | ) | ||||||
Periodic net coupon settlements on credit derivatives | — | 9 | 18 | |||||||||
Other, net [3] | 1 | 10 | 1 | |||||||||
Net realized capital gains, before-tax | $ | 44 | $ | 133 | $ | 253 | ||||||
[1] | Due to significant holdings in tax-exempt investments, after-tax net investment income and yield are also included. | |
[2] | Represents annualized net investment income divided by the monthly weighted average invested assets at cost or amortized cost, as applicable, excluding the collateral received associated with the securities lending program. | |
[3] | Primarily consists of changes in fair value on non-qualifying derivatives and hedge ineffectiveness on qualifying derivative instruments. |
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2005 | 2004 | 2003 | ||||||||||
ABS | $ | 5 | $ | 13 | $ | 101 | ||||||
Commercial mortgages | — | 3 | — | |||||||||
CMBS/Collateralized mortgage obligations (“CMOs”) | 1 | 3 | 5 | |||||||||
Corporate | 32 | 5 | 56 | |||||||||
Equity | 9 | 12 | 30 | |||||||||
MBS – interest only securities | — | 2 | 8 | |||||||||
Total other-than-temporary impairments | $ | 47 | $ | 38 | $ | 200 | ||||||
• | Approximately $15 of other-than-temporary impairments recorded on corporate securities related to three Canadian paper companies. These companies’ operations have recently suffered from high energy prices and falling demand, in part due to the appreciation of the Canadian dollar in comparison to the U.S. dollar. These investments continue to perform in accordance with the contractual terms of the securities. As of December 31, 2005, the Company held approximately $96 of securities issued by these three companies in a total net unrealized loss position of $5. Substantially all of the securities in an unrealized loss position, as of December 31, 2005, were depressed only to a minor extent and, as a result, the unrealized losses were deemed to be temporary in nature. | |
• | Also included in the corporate securities other-than-temporary impairment amount for 2005 was $9 recorded on securities related to two major automotive manufacturers. The market values of these securities had fallen due to a downward adjustment in earnings and cash flow guidance primarily due to sluggish sales, rising employee and retiree benefit costs and an increased debt service burden. These investments continue to perform in accordance with the contractual terms of the securities. As of December 31, 2005, the Company held approximately $137 of securities issued by these two companies in a total net unrealized loss position of $7. Substantially all of the securities in an unrealized loss position, as of December 31, 2005, were depressed only to a minor extent and, as a result, the unrealized losses were deemed to be temporary in nature. |
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• | Approximately $25 of impairments on corporate fixed maturities were within the food and beverage sector and related to securities issued by the Italian dairy concern, Parmalat SpA. Parmalat filed for bankruptcy in December 2003 due to liquidity problems when it was discovered that 4 billion euros of liquid investments previously reported on its balance sheet were non-existent. |
• | Within ABS other-than-temporary impairments, there were approximately $31 of collateralized debt obligations (“CDOs”) and $29 of aircraft lease receivables. The CDO impairments consisted of approximately ten securities, the majority of which were interests in the lower tranches of securities backed by high yield corporate debt and were primarily the result of continued high default rates in 2003 and lower recovery rates on the CDOs’ underlying collateral. The aircraft lease receivable impairments primarily consisted of investments in lower tranches of five transactions. These securities are supported by aircraft leases and enhanced equipment trust certificates issued by multiple airlines that had sustained a steep decline in market value and adverse change in expected cash flows due to continued lower aircraft lease rates, airline bankruptcies and the prolonged decline in airline travel. | |
• | The $30 of the other-than-temporary impairments recorded on equity securities primarily related to various diversified mutual funds. The market values of these funds had fallen since the date of purchase due to declines in primarily the equity markets and were not expected to recover within a reasonable period of time. Due to the severity of the price depression and length of time the holdings were in an unrealized loss position, these securities were deemed to be other-than-temporarily impaired. |
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• | Total return swaps and credit spreadlocks involve the periodic exchange of payments with other parties, at specified intervals, calculated using the agreed upon index and notional principal amounts. Generally, no cash or principal payments are exchanged at the inception of the contract. Typically, at the time a swap is entered into, the cash flow streams exchanged by the counterparties are equal in value. As of December 31, 2005 and 2004, the notional value of total return swaps and credit spreadlocks totaled $1.9 billion and $1.5 billion, respectively, and the fair value totaled $5 and $6, respectively. | |
• | Credit default swaps involve a transfer of credit risk from one party to another in exchange for periodic payments. One party to the contract will make a payment based on an agreed upon rate and a notional amount. The second party, who assumes credit exposure, will only make a payment when there is a credit event and such payment will be equal to the notional value of the swap contract less the value of the referenced security issuer debt obligation. A credit event is generally defined as default on contractually obligated interest or principal payments or bankruptcy. As of December 31, 2005 and 2004, the notional value of these credit default swaps, which exposed the Company to credit risk, totaled $700 and $447, respectively, and the swap fair value totaled $(4) and $3, respectively. As of December 31, 2005, the average S&P rating for these referenced security issuer debt obligations is A-. | |
• | The Company also uses credit default swaps to reduce its credit exposure by entering into agreements in which the Company pays a derivative counterparty a periodic fee in exchange for compensation from the counterparty should a credit event occur on the part of the referenced security issuer. Alternatively, the derivative counterparty may be required to purchase the referenced security at a predetermined value. The Company enters into these agreements as an efficient means to reduce credit exposure to the specified issuers. As of December 31, 2005 and 2004, the notional value of these credit default swaps totaled $254 and $215, respectively, and the swap fair value totaled $2 and $(1), respectively. As of December 31, 2005, the average S&P rating for these referenced securities issuers is BBB. |
Consolidated Fixed Maturities by Type | ||||||||||||||||||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||||||||||||||||||
of Total | of Total | |||||||||||||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Fair | Amortized | Unrealized | Unrealized | Fair | Fair | |||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | Value | Cost | Gains | Losses | Value | Value | |||||||||||||||||||||||||||||||
ABS | $ | 7,907 | $ | 60 | $ | (89 | ) | $ | 7,878 | 10.3 | % | $ | 7,446 | $ | 95 | $ | (72 | ) | $ | 7,469 | 9.9 | % | ||||||||||||||||||
CMBS | 12,930 | 234 | (162 | ) | 13,002 | 17.0 | % | 11,306 | 475 | (33 | ) | 11,748 | 15.6 | % | ||||||||||||||||||||||||||
Collateralized mortgage obligations (“CMOs”) | 993 | 3 | (6 | ) | 990 | 1.3 | % | 1,218 | 12 | (3 | ) | 1,227 | 1.6 | % | ||||||||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||||||||||
Basic industry | 3,086 | 107 | (49 | ) | 3,144 | 4.1 | % | 3,143 | 234 | (9 | ) | 3,368 | 4.5 | % | ||||||||||||||||||||||||||
Capital goods | 2,308 | 103 | (28 | ) | 2,383 | 3.1 | % | 2,053 | 159 | (10 | ) | 2,202 | 3.0 | % | ||||||||||||||||||||||||||
Consumer cyclical | 2,910 | 91 | (56 | ) | 2,945 | 3.8 | % | 3,264 | 207 | (13 | ) | 3,458 | 4.6 | % | ||||||||||||||||||||||||||
Consumer non-cyclical | 3,164 | 139 | (37 | ) | 3,266 | 4.3 | % | 3,394 | 245 | (12 | ) | 3,627 | 4.8 | % | ||||||||||||||||||||||||||
Energy | 1,545 | 118 | (12 | ) | 1,651 | 2.2 | % | 1,770 | 147 | (5 | ) | 1,912 | 2.5 | % | ||||||||||||||||||||||||||
Financial services | 9,413 | 350 | (84 | ) | 9,679 | 12.7 | % | 8,779 | 589 | (33 | ) | 9,335 | 12.4 | % | ||||||||||||||||||||||||||
Technology and communications | 4,256 | 239 | (58 | ) | 4,437 | 5.8 | % | 4,940 | 440 | (15 | ) | 5,365 | 7.2 | % | ||||||||||||||||||||||||||
Transportation | 850 | 33 | (9 | ) | 874 | 1.1 | % | 769 | 52 | (2 | ) | 819 | 1.1 | % | ||||||||||||||||||||||||||
Utilities | 4,043 | 182 | (44 | ) | 4,181 | 5.5 | % | 3,361 | 302 | (13 | ) | 3,650 | 4.9 | % | ||||||||||||||||||||||||||
Other | 1,444 | 33 | (19 | ) | 1,458 | 1.9 | % | 1,001 | 69 | (5 | ) | 1,065 | 1.4 | % | ||||||||||||||||||||||||||
Government/Government agencies | ||||||||||||||||||||||||||||||||||||||||
Foreign | 1,378 | 96 | (7 | ) | 1,467 | 1.9 | % | 1,648 | 153 | (5 | ) | 1,796 | 2.4 | % | ||||||||||||||||||||||||||
United States | 877 | 27 | (6 | ) | 898 | 1.2 | % | 1,116 | 22 | (6 | ) | 1,132 | 1.5 | % | ||||||||||||||||||||||||||
MBS – agency | 3,914 | 7 | (60 | ) | 3,861 | 5.0 | % | 2,774 | 29 | (4 | ) | 2,799 | 3.7 | % | ||||||||||||||||||||||||||
Municipal Taxable | 1,155 | 52 | (8 | ) | 1,199 | 1.6 | % | 919 | 34 | (9 | ) | 944 | 1.3 | % | ||||||||||||||||||||||||||
Tax-exempt | 10,486 | 549 | (16 | ) | 11,019 | 14.4 | % | 9,670 | 726 | (3 | ) | 10,393 | 13.8 | % | ||||||||||||||||||||||||||
Redeemable preferred stock | 44 | 1 | ¾ | 45 | 0.1 | % | 36 | 3 | ¾ | 39 | 0.1 | % | ||||||||||||||||||||||||||||
Short-term | 2,063 | ¾ | ¾ | 2,063 | 2.7 | % | 2,752 | ¾ | ¾ | 2,752 | 3.7 | % | ||||||||||||||||||||||||||||
Total fixed maturities | $ | 74,766 | $ | 2,424 | $ | (750 | ) | $ | 76,440 | 100.0 | % | $ | 71,359 | $ | 3,993 | $ | (252 | ) | $ | 75,100 | 100.0 | % | ||||||||||||||||||
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Consolidated Fixed Maturities by Credit Quality | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amortized | Total Fair | Amortized | Total Fair | |||||||||||||||||||||
Cost | Fair Value | Value | Cost | Fair Value | Value | |||||||||||||||||||
United States Government/Government agencies | $ | 5,720 | $ | 5,686 | 7.4 | % | $ | 5,109 | $ | 5,160 | 6.9 | % | ||||||||||||
AAA | 19,414 | 19,837 | 26.0 | % | 17,984 | 18,787 | 25.0 | % | ||||||||||||||||
AA | 9,901 | 10,143 | 13.3 | % | 8,479 | 8,935 | 11.9 | % | ||||||||||||||||
A | 18,232 | 18,914 | 24.7 | % | 17,156 | 18,382 | 24.5 | % | ||||||||||||||||
BBB | 16,560 | 16,892 | 22.1 | % | 16,861 | 17,912 | 23.8 | % | ||||||||||||||||
BB & below | 2,876 | 2,905 | 3.8 | % | 3,018 | 3,172 | 4.2 | % | ||||||||||||||||
Short-term | 2,063 | 2,063 | 2.7 | % | 2,752 | 2,752 | 3.7 | % | ||||||||||||||||
Total fixed maturities | $ | 74,766 | $ | 76,440 | 100.0 | % | $ | 71,359 | $ | 75,100 | 100.0 | % | ||||||||||||
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Consolidated BIG Fixed Maturities by Type | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Amortized | Total Fair | Amortized | Total Fair | |||||||||||||||||||||
Cost | Fair Value | Value | Cost | Fair Value | Value | |||||||||||||||||||
ABS | $ | 298 | $ | 264 | 9.1 | % | $ | 257 | $ | 228 | 7.2 | % | ||||||||||||
CMBS | 105 | 121 | 4.2 | % | 154 | 166 | 5.3 | % | ||||||||||||||||
Corporate | ||||||||||||||||||||||||
Basic industry | 302 | 298 | 10.2 | % | 327 | 347 | 11.0 | % | ||||||||||||||||
Capital goods | 177 | 175 | 6.0 | % | 180 | 181 | 5.7 | % | ||||||||||||||||
Consumer cyclical | 376 | 371 | 12.8 | % | 227 | 242 | 7.6 | % | ||||||||||||||||
Consumer non-cyclical | 252 | 257 | 8.8 | % | 250 | 263 | 8.3 | % | ||||||||||||||||
Energy | 139 | 136 | 4.7 | % | 91 | 96 | 3.0 | % | ||||||||||||||||
Financial services | 17 | 17 | 0.6 | % | 23 | 24 | 0.8 | % | ||||||||||||||||
Technology and communications | 324 | 340 | 11.7 | % | 470 | 508 | 16.0 | % | ||||||||||||||||
Transportation | 24 | 23 | 0.8 | % | 12 | 13 | 0.4 | % | ||||||||||||||||
Utilities | 259 | 267 | 9.2 | % | 456 | 486 | 15.3 | % | ||||||||||||||||
Foreign government | 503 | 535 | 18.4 | % | 484 | 531 | 16.7 | % | ||||||||||||||||
Other | 100 | 101 | 3.5 | % | 87 | 87 | 2.7 | % | ||||||||||||||||
Total fixed maturities | $ | 2,876 | $ | 2,905 | 100.0 | % | $ | 3,018 | $ | 3,172 | 100.0 | % | ||||||||||||
Consolidated Unrealized Loss Aging of Total Available-for-Sale Securities | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||
Cost | Value | Loss | Cost | Value | Loss | |||||||||||||||||||
Three months or less | $ | 17,986 | $ | 17,704 | $ | (282 | ) | $ | 7,572 | $ | 7,525 | $ | (47 | ) | ||||||||||
Greater than three months to six months | 5,143 | 5,013 | (130 | ) | 573 | 567 | (6 | ) | ||||||||||||||||
Greater than six months to nine months | 1,061 | 1,036 | (25 | ) | 3,405 | 3,342 | (63 | ) | ||||||||||||||||
Greater than nine months to twelve months | 3,001 | 2,907 | (94 | ) | 462 | 445 | (17 | ) | ||||||||||||||||
Greater than twelve months | 5,053 | 4,826 | (227 | ) | 2,417 | 2,285 | (132 | ) | ||||||||||||||||
Total | $ | 32,244 | $ | 31,486 | $ | (758 | ) | $ | 14,429 | $ | 14,164 | $ | (265 | ) | ||||||||||
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Consolidated Total Available-for-Sale Securities with Unrealized Loss Greater Than Six Months by Type | ||||||||||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Unrealized | Amortized | Fair | Unrealized | Unrealized | |||||||||||||||||||||||||
Cost | Value | Loss | Loss | Cost | Value | Loss | Loss | |||||||||||||||||||||||||
ABS | ||||||||||||||||||||||||||||||||
Aircraft lease receivables | $ | 204 | $ | 152 | $ | (52 | ) | 15.0 | % | $ | 227 | $ | 172 | $ | (55 | ) | 25.9 | % | ||||||||||||||
CDOs | 25 | 24 | (1 | ) | 0.3 | % | 76 | 72 | (4 | ) | 1.9 | % | ||||||||||||||||||||
Credit card receivables | 162 | 160 | (2 | ) | 0.6 | % | 88 | 86 | (2 | ) | 0.9 | % | ||||||||||||||||||||
Other ABS | 727 | 713 | (14 | ) | 4.0 | % | 502 | 496 | (6 | ) | 2.8 | % | ||||||||||||||||||||
CMBS | 1,961 | 1,902 | (59 | ) | 17.1 | % | 896 | 878 | (18 | ) | 8.5 | % | ||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||
Basic industry | 501 | 480 | (21 | ) | 6.1 | % | 355 | 347 | (8 | ) | 3.8 | % | ||||||||||||||||||||
Consumer cyclical | 459 | 434 | (25 | ) | 7.2 | % | 277 | 269 | (8 | ) | 3.8 | % | ||||||||||||||||||||
Consumer non-cyclical | 418 | 401 | (17 | ) | 4.9 | % | 436 | 425 | (11 | ) | 5.2 | % | ||||||||||||||||||||
Financial services | 1,847 | 1,796 | (51 | ) | 14.7 | % | 1,271 | 1,234 | (37 | ) | 17.5 | % | ||||||||||||||||||||
Technology and communications | 481 | 458 | (23 | ) | 6.7 | % | 435 | 421 | (14 | ) | 6.6 | % | ||||||||||||||||||||
Transportation | 40 | 39 | (1 | ) | 0.3 | % | 31 | 31 | — | — | ||||||||||||||||||||||
Utilities | 246 | 235 | (11 | ) | 3.2 | % | 324 | 313 | (11 | ) | 5.2 | % | ||||||||||||||||||||
Other | 553 | 526 | (27 | ) | 7.8 | % | 453 | 437 | (16 | ) | 7.5 | % | ||||||||||||||||||||
Other securities | 1,491 | 1,449 | (42 | ) | 12.1 | % | 913 | 891 | (22 | ) | 10.4 | % | ||||||||||||||||||||
Total | $ | 9,115 | $ | 8,769 | $ | (346 | ) | 100.0 | % | $ | 6,284 | $ | 6,072 | $ | (212 | ) | 100.0 | % | ||||||||||||||
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Consolidated Unrealized Loss Aging of Available-for-Sale BIG and Equity Securities | ||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | |||||||||||||||||||
Cost | Value | Loss | Cost | Value | Loss | |||||||||||||||||||
Three months or less | $ | 686 | $ | 657 | $ | (29 | ) | $ | 326 | $ | 322 | $ | (4 | ) | ||||||||||
Greater than three months to six months | 252 | 242 | (10 | ) | 33 | 32 | (1 | ) | ||||||||||||||||
Greater than six months to nine months | 170 | 165 | (5 | ) | 174 | 165 | (9 | ) | ||||||||||||||||
Greater than nine months to twelve months | 89 | 85 | (4 | ) | 81 | 75 | (6 | ) | ||||||||||||||||
Greater than twelve months | 353 | 309 | (44 | ) | 285 | 240 | (45 | ) | ||||||||||||||||
Total | $ | 1,550 | $ | 1,458 | $ | (92 | ) | $ | 899 | $ | 834 | $ | (65 | ) | ||||||||||
Consolidated Available-for-Sale BIG and Equity Securities with Unrealized Loss Greater Than Six Months by Type | ||||||||||||||||||||||||||||||||
2005 | 2004 | |||||||||||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||||||||||
Total | Total | |||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Unrealized | Amortized | Fair | Unrealized | Unrealized | |||||||||||||||||||||||||
Cost | Value | Loss | Loss | Cost | Value | Loss | Loss | |||||||||||||||||||||||||
ABS | ||||||||||||||||||||||||||||||||
Aircraft lease receivables | $ | 119 | $ | 89 | $ | (30 | ) | 56.6 | % | $ | 129 | $ | 96 | $ | (33 | ) | 55.0 | % | ||||||||||||||
CDOs | 2 | 1 | (1 | ) | 1.9 | % | 27 | 25 | (2 | ) | 3.3 | % | ||||||||||||||||||||
Credit card receivables | — | — | — | — | 8 | 8 | — | — | ||||||||||||||||||||||||
Other ABS | 18 | 16 | (2 | ) | 3.8 | % | 11 | 10 | (1 | ) | 1.7 | % | ||||||||||||||||||||
Corporate | ||||||||||||||||||||||||||||||||
Basic industry | 73 | 72 | (1 | ) | 1.9 | % | 24 | 23 | (1 | ) | 1.7 | % | ||||||||||||||||||||
Consumer cyclical | 92 | 89 | (3 | ) | 5.6 | % | 9 | 9 | — | — | ||||||||||||||||||||||
Consumer non-cyclical | 27 | 26 | (1 | ) | 1.9 | % | 3 | 3 | — | — | ||||||||||||||||||||||
Financial services | 92 | 89 | (3 | ) | 5.6 | % | 169 | 158 | (11 | ) | 18.3 | % | ||||||||||||||||||||
Technology & communication | 52 | 50 | (2 | ) | 3.8 | % | 61 | 57 | (4 | ) | 6.7 | % | ||||||||||||||||||||
Utilities | 26 | 24 | (2 | ) | 3.8 | % | 37 | 34 | (3 | ) | 5.0 | % | ||||||||||||||||||||
Other | 108 | 101 | (7 | ) | 13.2 | % | 46 | 41 | (5 | ) | 8.3 | % | ||||||||||||||||||||
Other securities | 3 | 2 | (1 | ) | 1.9 | % | 16 | 16 | — | — | ||||||||||||||||||||||
Total | $ | 612 | $ | 559 | $ | (53 | ) | 100.0 | % | $ | 540 | $ | 480 | $ | (60 | ) | 100.0 | % | ||||||||||||||
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Change in Net Economic Value As of December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | (48 | ) | $ | 10 | $ | (73 | ) | $ | 15 | ||||||
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Change in Fair Value As of December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | 471 | $ | (451 | ) | $ | 501 | $ | (491 | ) | ||||||
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Change in Fair Value As of December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Basis point shift | - 100 | + 100 | - 100 | + 100 | ||||||||||||
Amount | $ | 861 | $ | (760 | ) | $ | 750 | $ | (725 | ) | ||||||
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in its Japanese operations to be included as part of the aggregate statutory capital (for the purposes of regulatory and rating agency capital adequacy measures) of HLA.
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Maximum Available As of | Outstanding As of | ||||||||||||||||||||||||
Effective | Expiration | December | December 31, | December | December | ||||||||||||||||||||
Description | Date | Date | 31, 2005 | 2004 | 31, 2005 | 31, 2004 | |||||||||||||||||||
Commercial Paper | |||||||||||||||||||||||||
The Hartford | 11/10/86 | N/A | $ | 2,000 | $ | 2,000 | $ | 471 | $ | 372 | |||||||||||||||
HLI | 2/7/97 | N/A | 250 | 250 | — | — | |||||||||||||||||||
Total commercial paper | $ | 2,250 | 2,250 | $ | 471 | $ | 372 | ||||||||||||||||||
Revolving Credit Facility | |||||||||||||||||||||||||
5-year revolving credit facility | 9/7/05 | 9/7/10 | $ | 1,600 | $ | — | $ | — | $ | — | |||||||||||||||
5-year revolving credit facility [1] | 6/20/01 | 6/20/06 | — | 1,000 | — | — | |||||||||||||||||||
3-year revolving credit facility [1] | 12/31/02 | 12/31/05 | — | 490 | — | — | |||||||||||||||||||
Total revolving credit facility | $ | 1,600 | $ | 1,490 | $ | — | $ | — | |||||||||||||||||
Total Outstanding Commercial Paper and Revolving Credit Facility | $ | 3,850 | $ | 3,740 | $ | 471 | $ | 372 | |||||||||||||||||
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Payments due by period | ||||||||||||||||||||
Less | More | |||||||||||||||||||
than 1 | 1-3 | 3-5 | than 5 | |||||||||||||||||
Total | Year | years | years | years | ||||||||||||||||
Property and casualty obligations [1] | $ | 22,874 | $ | 6,605 | $ | 5,118 | $ | 3,276 | $ | 7,875 | ||||||||||
Life, annuity and disability obligations [2] | 334,460 | 21,974 | 47,105 | 47,973 | 217,408 | |||||||||||||||
Long-term debt obligations [3] | 8,557 | 524 | 2,214 | 588 | 5,231 | |||||||||||||||
Operating lease obligations | 668 | 187 | 356 | 73 | 52 | |||||||||||||||
Purchase obligations [4] | 1,494 | 1,285 | 102 | 10 | 97 | |||||||||||||||
Other long-term liabilities reflected on the balance sheet [5] [6] | 1,292 | 1,250 | — | — | 42 | |||||||||||||||
Total [7] | $ | 369,345 | $ | 31,825 | $ | 54,895 | $ | 51,920 | $ | 230,705 | ||||||||||
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As of December 31, | ||||||||
2005 | 2004 | |||||||
Short-term debt (includes current maturities of long-term debt) | $ | 719 | $ | 621 | ||||
Long-term debt [1] | 4,048 | 4,308 | ||||||
Total debt | $ | 4,767 | $ | 4,929 | ||||
Equity excluding accumulated other comprehensive income, net of tax (“AOCI”) | $ | 15,235 | $ | 12,813 | ||||
AOCI | 90 | 1,425 | ||||||
Total stockholders’ equity | $ | 15,325 | $ | 14,238 | ||||
Total capitalization including AOCI | $ | 20,092 | $ | 19,167 | ||||
Debt to equity | 31 | % | 35 | % | ||||
Debt to capitalization | 24 | % | 26 | % | ||||
[1] | Includes junior subordinated debentures of $691 and $704 and debt associated with equity units of $1,020 and $1,020 as of December 31, 2005 and 2004, respectively. |
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Cash Flow | 2005 | 2004 | 2003 | |||||||||
Net cash provided by operating activities | $ | 3,732 | $ | 2,634 | $ | 3,896 | ||||||
Net cash used for investing activities | $ | (4,860 | ) | $ | (2,401 | ) | $ | (8,387 | ) | |||
Net cash provided by financing activities | $ | 1,280 | $ | 477 | $ | 4,608 | ||||||
Cash — end of year | $ | 1,273 | $ | 1,148 | $ | 462 | ||||||
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Insurance Financial Strength Ratings: | A.M. Best | Fitch | Standard & Poor’s | Moody’s | ||||
Hartford Fire Insurance Company | A+ | AA | AA- | Aa3 | ||||
Hartford Life Insurance Company | A+ | AA | AA- | Aa3 | ||||
Hartford Life and Accident Insurance Company | A+ | AA | AA- | Aa3 | ||||
Hartford Life Group Insurance Company | A+ | AA | — | — | ||||
Hartford Life and Annuity Insurance Company | A+ | AA | AA- | Aa3 | ||||
Hartford Life Insurance KK (Japan) | — | — | AA- | — | ||||
Hartford Life Limited (Ireland) | — | — | AA- | — | ||||
Other Ratings: | ||||||||
The Hartford Financial Services Group, Inc.: | ||||||||
Senior debt Commercial paper | a- AMB-2 | A F1 | A- A-2 | A3 P-2 | ||||
Hartford Capital III trust originated preferred securities | bbb | A- | BBB | Baa1 | ||||
Hartford Life, Inc. | ||||||||
Senior debt Commercial paper | a- AMB-1 | A F1 | A- A-2 | A3 P-2 | ||||
Hartford Life, Inc.: | ||||||||
Capital II trust preferred securities | bbb | A- | BBB | Baa1 | ||||
Hartford Life Insurance Company: | ||||||||
Short Term Rating | — | — | A-1+ | P-1 | ||||
2005 | 2004 | |||||||
Life Operations | $ | 4,364 | $ | 5,119 | ||||
Japan Life Operations [1] | 1,017 | — | ||||||
Property & Casualty Operations | 6,981 | 6,337 | ||||||
Total | $ | 12,362 | $ | 11,456 | ||||
[1] | Japan Life Operation was valued in accordance with prescribed statutory accounting practices. Prior to September 1, 2005, Japan Life Operations was included in Life Operations. |
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116
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The Hartford Financial Services Group, Inc.
Hartford, Connecticut
Hartford, Connecticut
February 22, 2006
117
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(Executive Vice President, Human Resources)
(Executive Vice President and Chief Financial Officer)
(Senior Vice President and Controller)
(Executive Vice President and General Counsel)
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(Executive Vice President and Chief Investment Officer)
(a) | (b) | (c) | ||||||||||
Number of Securities to be | Weighted-average | Number of Securities Remaining | ||||||||||
Issued Upon Exercise of | Exercise Price of | Available for Future Issuance Under | ||||||||||
Outstanding Options, | Outstanding Options, | Equity Compensation Plans (Excluding | ||||||||||
Warrants and Rights | Warrants and Rights | Securities Reflected in Column (a)) | ||||||||||
Equity compensation plans approved by stockholders | 11,400,201 | $ | 54.18 | 9,294,685 [1] | ||||||||
Equity compensation plans not approved by stockholders | 70,799 | 50.72 | 225,858 | |||||||||
Total | 11,471,000 | $ | 54.16 | 9,520,543 | ||||||||
[1] | Of these shares, 2,354,952 shares remain available for purchase under the ESPP. |
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(1) | Consolidated Financial Statements.See Index to Consolidated Financial Statements elsewhere herein. | ||
(2) | Consolidated Financial Statement Schedules.See Index to Consolidated Financial Statement Schedules elsewhere herein. | ||
(3) | Exhibits.See Exhibit Index elsewhere herein. |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page(s) | ||
Report of Independent Registered Public Accounting Firm | F-2 | |
Consolidated Statements of Operations for the three years ended December 31, 2005 | F-3 | |
Consolidated Balance Sheets as of December 31, 2005 and 2004 | F-4 | |
Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2005 | F-5 | |
Consolidated Statements of Comprehensive Income for the three years ended December 31, 2005 | F-5 | |
Consolidated Statements of Cash Flows for the three years ended December 31, 2005 | F-6 | |
Notes to Consolidated Financial Statements | F-7-65 | |
Schedule I – Summary of Investments — Other Than Investments in Affiliates | S-1 | |
Schedule II – Condensed Financial Information of The Hartford Financial Services Group, Inc. | S-2-3 | |
Schedule III – Supplementary Insurance Information | S-4-5 | |
Schedule IV – Reinsurance | S-6 | |
Schedule V – Valuation and Qualifying Accounts | S-7 | |
Schedule VI – Supplemental Information Concerning Property and Casualty Insurance Operations | S-7 |
Table of Contents
The Hartford Financial Services Group, Inc.
Hartford, Connecticut
Hartford, Connecticut
February 22, 2006
Table of Contents
Consolidated Statements of Operations
For the years ended December 31, | ||||||||||||
(In millions, except for per share data) | 2005 | 2004 | 2003 | |||||||||
Revenues | ||||||||||||
Earned premiums | $ | 14,359 | $ | 13,566 | $ | 11,891 | ||||||
Fee income | 4,012 | 3,471 | 2,760 | |||||||||
Net investment income | ||||||||||||
Securities available-for-sale and other | 4,384 | 4,144 | 3,233 | |||||||||
Equity securities held for trading | 3,847 | 799 | — | |||||||||
Total net investment income | 8,231 | 4,943 | 3,233 | |||||||||
Other revenues | 464 | 437 | 556 | |||||||||
Net realized capital gains | 17 | 291 | 279 | |||||||||
Total revenues | 27,083 | 22,708 | 18,719 | |||||||||
Benefits, claims and expenses | ||||||||||||
Benefits, claims and claim adjustment expenses | 16,776 | 13,640 | 13,548 | |||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 3,169 | 2,843 | 2,397 | |||||||||
Insurance operating costs and expenses | 3,227 | 2,776 | 2,314 | |||||||||
Interest expense | 252 | 251 | 271 | |||||||||
Other expenses | 674 | 675 | 739 | |||||||||
Total benefits, claims and expenses | 24,098 | 20,185 | 19,269 | |||||||||
Income (loss) before income taxes and cumulative effect of accounting change | 2,985 | 2,523 | (550 | ) | ||||||||
Income tax expense (benefit) | 711 | 385 | (459 | ) | ||||||||
Income (loss) before cumulative effect of accounting change | 2,274 | 2,138 | (91 | ) | ||||||||
Cumulative effect of accounting change, net of tax | — | (23 | ) | — | ||||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
Basic earnings (loss) per share | ||||||||||||
Income (loss) before cumulative effect of accounting change | $ | 7.63 | $ | 7.32 | $ | (0.33 | ) | |||||
Cumulative effect of accounting change, net of tax | — | (0.08 | ) | — | ||||||||
Net income (loss) | $ | 7.63 | $ | 7.24 | $ | (0.33 | ) | |||||
Diluted earnings (loss) per share | ||||||||||||
Income (loss) before cumulative effect of accounting change | $ | 7.44 | $ | 7.20 | $ | (0.33 | ) | |||||
Cumulative effect of accounting change, net of tax | — | (0.08 | ) | — | ||||||||
Net income (loss) | $ | 7.44 | $ | 7.12 | $ | (0.33 | ) | |||||
Weighted average common shares outstanding | 298.0 | 292.3 | 272.4 | |||||||||
Weighted average common shares outstanding and dilutive potential common shares | 305.6 | 297.0 | 272.4 | |||||||||
Cash dividends declared per share | $ | 1.17 | $ | 1.13 | $ | 1.09 | ||||||
F-3
Table of Contents
Consolidated Balance Sheets
As of December 31, | ||||||||||||
(In millions, except for share data) | 2005 | 2004 | ||||||||||
Assets | ||||||||||||
Investments | ||||||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $74,766 and $71,359) | $ | 76,440 | $ | 75,100 | ||||||||
Equity securities, held for trading, at fair value (cost of $19,570 and $12,514) | 24,034 | 13,634 | ||||||||||
Equity securities, available-for-sale, at fair value (cost of $1,330 and $742) | 1,461 | 832 | ||||||||||
Policy loans, at outstanding balance | 2,016 | 2,662 | ||||||||||
Mortgage loans on real estate | 1,731 | 1,174 | ||||||||||
Other investments | 1,253 | 1,006 | ||||||||||
Total investments | 106,935 | 94,408 | ||||||||||
Cash | 1,273 | 1,148 | ||||||||||
Premiums receivable and agents’ balances | 3,734 | 3,235 | ||||||||||
Reinsurance recoverables | 6,360 | 6,178 | ||||||||||
Deferred policy acquisition costs and present value of future profits | 9,702 | 8,509 | ||||||||||
Deferred income taxes | 675 | 419 | ||||||||||
Goodwill | 1,720 | 1,720 | ||||||||||
Property and equipment, net | 683 | 643 | ||||||||||
Other assets | 3,600 | 3,452 | ||||||||||
Separate account assets | 150,875 | 140,023 | ||||||||||
Total assets | $ | 285,557 | $ | 259,735 | ||||||||
Liabilities | ||||||||||||
Reserve for future policy benefits and unpaid claims and claim adjustment expenses | ||||||||||||
Property and casualty | $ | 22,266 | $ | 21,329 | ||||||||
Life | 12,987 | 12,246 | ||||||||||
Other policyholder funds and benefits payable | 64,452 | 52,833 | ||||||||||
Unearned premiums | 5,566 | 4,807 | ||||||||||
Short-term debt | 719 | 621 | ||||||||||
Long-term debt | 4,048 | 4,308 | ||||||||||
Other liabilities | 9,319 | 9,330 | ||||||||||
Separate account liabilities | 150,875 | 140,023 | ||||||||||
Total liabilities | 270,232 | 245,497 | ||||||||||
Commitments and Contingencies (Note 12) | ||||||||||||
Stockholders’ Equity | ||||||||||||
Common stock – 750,000,000 shares authorized, 305,188,238 and 297,200,090 shares issued, $0.01 par value | 3 | 3 | ||||||||||
Additional paid-in capital | 5,067 | 4,567 | ||||||||||
Retained earnings | 10,207 | 8,283 | ||||||||||
Treasury stock, at cost 3,035,916 and 2,991,820 shares | (42 | ) | (40 | ) | ||||||||
Accumulated other comprehensive income | 90 | 1,425 | ||||||||||
Total stockholders’ equity | 15,325 | 14,238 | ||||||||||
Total liabilities and stockholders’ equity | $ | 285,557 | $ | 259,735 | ||||||||
F-4
Table of Contents
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, | ||||||||||||
(In millions, except for share data) | 2005 | 2004 | 2003 | |||||||||
Common Stock/Additional Paid-in Capital | ||||||||||||
Balance at beginning of year | $ | 4,570 | $ | 3,932 | $ | 2,787 | ||||||
Issuance of common stock in underwritten offerings | — | 411 | 1,161 | |||||||||
Issuance of equity units | — | — | (112 | ) | ||||||||
Issuance of shares and compensation expense associated with incentive and stock compensation plans | 443 | 200 | 83 | |||||||||
Tax benefit on employee stock options and awards and other | 57 | 27 | 13 | |||||||||
Balance at end of year | 5,070 | 4,570 | 3,932 | |||||||||
Retained Earnings | ||||||||||||
Balance at beginning of year | 8,283 | 6,499 | 6,890 | |||||||||
Net income (loss) | 2,274 | 2,115 | (91 | ) | ||||||||
Dividends declared on common stock | (350 | ) | (331 | ) | (300 | ) | ||||||
Balance at end of year | 10,207 | 8,283 | 6,499 | |||||||||
Treasury Stock, at Cost | ||||||||||||
Balance at beginning of year | (40 | ) | (38 | ) | (37 | ) | ||||||
Return of shares to treasury stock under incentive and stock compensation plans | (2 | ) | (2 | ) | (1 | ) | ||||||
Balance at end of year | (42 | ) | (40 | ) | (38 | ) | ||||||
Accumulated Other Comprehensive Income, Net of Tax | ||||||||||||
Balance at beginning of year | 1,425 | 1,246 | 1,094 | |||||||||
Change in unrealized gain/loss on securities | ||||||||||||
Change in unrealized gain/loss on securities | (1,193 | ) | 106 | 320 | ||||||||
Cumulative effect of accounting change | — | 292 | — | |||||||||
Change in net gain/loss on cash-flow hedging instruments | 105 | (173 | ) | (170 | ) | |||||||
Change in foreign currency translation adjustments | (107 | ) | 59 | (6 | ) | |||||||
Change in minimum pension liability adjustment | (140 | ) | (105 | ) | 8 | |||||||
Total other comprehensive income (loss) | (1,335 | ) | 179 | 152 | ||||||||
Balance at end of year | 90 | 1,425 | 1,246 | |||||||||
Total stockholders’ equity | $ | 15,325 | $ | 14,238 | $ | 11,639 | ||||||
Outstanding Shares (in thousands) | ||||||||||||
Balance at beginning of year | 294,208 | 283,380 | 255,241 | |||||||||
Issuance of common stock in underwritten offerings | — | 6,703 | 26,377 | |||||||||
Issuance of shares under incentive and stock compensation plans | 7,988 | 4,157 | 1,778 | |||||||||
Return of shares to treasury stock under incentive and stock compensation plans | (44 | ) | (32 | ) | (16 | ) | ||||||
Balance at end of year | 302,152 | 294,208 | 283,380 | |||||||||
For the years ended December 31, | ||||||||||||
(In millions) | 2005 | 2004 | 2003 | |||||||||
Comprehensive Income | ||||||||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
Other Comprehensive Income (Loss), Net of Tax | ||||||||||||
Change in unrealized gain/loss on securities | ||||||||||||
Change in unrealized gain/loss on securities | (1,193 | ) | 106 | 320 | ||||||||
Cumulative effect of accounting change | — | 292 | — | |||||||||
Change in net gain/loss on cash-flow hedging instruments | 105 | (173 | ) | (170 | ) | |||||||
Change in foreign currency translation adjustments | (107 | ) | 59 | (6 | ) | |||||||
Change in minimum pension liability adjustment | (140 | ) | (105 | ) | 8 | |||||||
Total other comprehensive income (loss) | (1,335 | ) | 179 | 152 | ||||||||
Total comprehensive income | $ | 939 | $ | 2,294 | $ | 61 | ||||||
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Consolidated Statements of Cash Flows
For the years ended December 31, | ||||||||||||
(In millions) | 2005 | 2004 | 2003 | |||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||||||
Amortization of deferred policy acquisition costs and present value of future profits | 3,169 | 2,843 | 2,397 | |||||||||
Additions to deferred policy acquisition costs and present value of future profits | (4,131 | ) | (3,914 | ) | (3,313 | ) | ||||||
Change in: | ||||||||||||
Reserve for future policy benefits, unpaid claims and claim adjustment expenses and unearned premiums | 2,163 | 877 | 5,597 | |||||||||
Reinsurance recoverables | (361 | ) | 128 | (1,105 | ) | |||||||
Receivables | (682 | ) | (395 | ) | (47 | ) | ||||||
Payables and accruals | (267 | ) | (11 | ) | 576 | |||||||
Accrued and deferred income taxes | 168 | 529 | (327 | ) | ||||||||
Net realized capital gains | (17 | ) | (291 | ) | (279 | ) | ||||||
Net increase in equity securities, held for trading | (12,872 | ) | (7,409 | ) | — | |||||||
Net receipts from investment contracts credited to policyholder accounts associated with equity securities, held for trading | 13,087 | 7,909 | — | |||||||||
Depreciation and amortization | 561 | 274 | 219 | |||||||||
Cumulative effect of accounting change, net of tax | — | 23 | — | |||||||||
Other, net | 640 | (44 | ) | 269 | ||||||||
Net cash provided by operating activities | 3,732 | 2,634 | 3,896 | |||||||||
Investing Activities | ||||||||||||
Purchase of investments | (34,984 | ) | (27,950 | ) | (28,918 | ) | ||||||
Sale of investments | 26,589 | 21,592 | 17,320 | |||||||||
Maturity of investments | 3,738 | 4,195 | 3,731 | |||||||||
Purchase of business/affiliate, net of cash acquired | 8 | (58 | ) | (464 | ) | |||||||
Sale of affiliates | — | — | 33 | |||||||||
Additions to property and equipment, net | (211 | ) | (180 | ) | (89 | ) | ||||||
Net cash used for investing activities | (4,860 | ) | (2,401 | ) | (8,387 | ) | ||||||
Financing Activities | ||||||||||||
Issuance (repayment) of short-term debt, net | 100 | (477 | ) | 535 | ||||||||
Issuance of long-term debt | — | 197 | 1,235 | |||||||||
Repayment of long-term debt | (250 | ) | (450 | ) | (500 | ) | ||||||
Issuance of common stock in underwritten offering | — | 411 | 1,161 | |||||||||
Net receipts from investment and universal life-type contracts | 1,387 | 962 | 2,409 | |||||||||
Dividends paid | (345 | ) | (325 | ) | (291 | ) | ||||||
Return of shares to treasury under incentive and stock compensation plans | (2 | ) | (2 | ) | (1 | ) | ||||||
Proceeds from issuances of shares under incentive and stock compensation plans | 390 | 161 | 60 | |||||||||
Net cash provided by financing activities | 1,280 | 477 | 4,608 | |||||||||
Foreign exchange rate effect on cash | (27 | ) | (24 | ) | (32 | ) | ||||||
Net increase in cash | 125 | 686 | 85 | |||||||||
Cash – beginning of year | 1,148 | 462 | 377 | |||||||||
Cash – end of year | $ | 1,273 | $ | 1,148 | $ | 462 | ||||||
Supplemental Disclosure of Cash Flow Information: | ||||||||||||
Net Cash Paid (Received) During the Year for: | ||||||||||||
Income taxes | $ | 447 | $ | 32 | $ | (107 | ) | |||||
Interest | $ | 248 | $ | 246 | $ | 233 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
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• | Recognizing expenses for a variety of contracts and contract features, including guaranteed minimum death benefits (“GMDB”), certain death benefits on universal-life type contracts and annuitization options, on an accrual basis versus the previous method of recognition upon payment; | |
• | Reporting and measuring assets and liabilities of certain separate account products as general account assets and liabilities when specified criteria are not met; | |
• | Reporting and measuring the Company’s interest in its separate accounts as general account assets based on the insurer’s proportionate beneficial interest in the separate account’s underlying assets; and | |
• | Capitalizing sales inducements that meet specified criteria and amortizing such amounts over the life of the contracts using the same methodology as used for amortizing deferred acquisition costs (“DAC”). |
Components of Cumulative Effect of Adoption | Net Income | Other Comprehensive Income | ||||||
Establishing GMDB and other benefit reserves for annuity contracts | $ | (54 | ) | $ | — | |||
Reclassifying certain separate accounts to general account | 30 | 294 | ||||||
Other | 1 | (2 | ) | |||||
Total cumulative effect of adoption | $ | (23 | ) | $ | 292 | |||
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For the years ended December 31, | ||||||||||||
(In millions, except for per share data) | 2005 | 2004 | 2003 | |||||||||
Net income (loss), as reported | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effects [1] | 38 | 27 | 20 | |||||||||
Deduct: Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects | (41 | ) | (38 | ) | (50 | ) | ||||||
Pro forma net income (loss) [2] | $ | 2,271 | $ | 2,104 | $ | (121 | ) | |||||
Earnings (loss) per share: | ||||||||||||
Basic — as reported | $ | 7.63 | $ | 7.24 | $ | (0.33 | ) | |||||
Basic — pro forma [2] | $ | 7.62 | $ | 7.20 | $ | (0.44 | ) | |||||
Diluted — as reported [3] | $ | 7.44 | $ | 7.12 | $ | (0.33 | ) | |||||
Diluted — pro forma [2] [3] | $ | 7.43 | $ | 7.08 | $ | (0.44 | ) | |||||
[1] | Includes the impact of non-option plans of $22, $9 and $6 for the years ended December 31, 2005, 2004 and 2003, respectively. | |
[2] | The pro forma disclosures are not representative of the effects on net income (loss) and earnings (loss) per share in future years. | |
[3] | As a result of the net loss for the year ended December 31, 2003, SFAS No. 128, “Earnings Per Share”, requires the Company to use basic weighted average common shares outstanding in the calculation of the year ended December 31, 2003 diluted earnings (loss) per share, since the inclusion of options of 1.8 would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 274.2. |
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2005 | 2004 | 2003 | ||||
Dividend yield | 1.9% | 2.1% | 2.3% | |||
Annualized spot volatility | 19.5% — 33.4% | 25.2% — 34.7% | 39.8% | |||
Risk-free spot rate | 2.4% — 4.7% | 1.08% — 4.28% | 2.77% | |||
Expected term | 7 years | 7 years | 6 years | |||
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2005 | 2004 | |||||||||||||||
Percentage | Percentage | |||||||||||||||
of Total | of Total | |||||||||||||||
Fair Value | Fair Value | Fair Value | Fair Value | |||||||||||||
Priced via independent market quotations | $ | 65,986 | 86.3 | % | $ | 63,176 | 84.1 | % | ||||||||
Priced via broker quotations | 2,728 | 3.6 | % | 4,273 | 5.6 | % | ||||||||||
Priced via matrices | 5,452 | 7.1 | % | 4,847 | 6.5 | % | ||||||||||
Priced via other methods | 211 | 0.3 | % | 52 | 0.1 | % | ||||||||||
Short-term investments [1] | 2,063 | 2.7 | % | 2,752 | 3.7 | % | ||||||||||
Total | $ | 76,440 | 100.0 | % | $ | 75,100 | 100.0 | % | ||||||||
[1] Short-term investments are primarily valued at amortized cost, which approximates fair value. |
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Net | Per Share | |||||||||||
2005 | Income (Loss) | Shares | Amount | |||||||||
Basic Earnings per Share | ||||||||||||
Net income available to common shareholders | $ | 2,274 | 298.0 | $ | 7.63 | |||||||
Diluted Earnings per Share | ||||||||||||
Stock compensation plans | — | 3.3 | ||||||||||
Equity Units | — | 4.3 | ||||||||||
Net income available to common shareholders plus assumed conversions | $ | 2,274 | 305.6 | $ | 7.44 | |||||||
2004 | ||||||||||||
Basic Earnings per share | ||||||||||||
Net income available to common shareholders | $ | 2,115 | 292.3 | $ | 7.24 | |||||||
Diluted Earnings per Share | ||||||||||||
Stock compensation plans | — | 2.8 | ||||||||||
Equity Units | — | 1.9 | ||||||||||
Net income available to common shareholders plus assumed conversions | $ | 2,115 | 297.0 | $ | 7.12 | |||||||
2003 | ||||||||||||
Basic Earnings (Loss) per Share | ||||||||||||
Net income (loss) available to common shareholders | $ | (91 | ) | 272.4 | $ | (0.33 | ) | |||||
Diluted Earnings (Loss) per Share [1] | ||||||||||||
Stock compensation plans | — | — | ||||||||||
Net income (loss) available to common shareholders plus assumed conversions | $ | (91 | ) | 272.4 | $ | (0.33 | ) | |||||
[1] | As a result of the net loss for the year ended December 31, 2003, SFAS No. 128 requires the Company to use basic weighted average common shares outstanding in the calculation of the year ended December 31, 2003 diluted earnings (loss) per share, since the inclusion of shares from stock compensation plans of 1.8 would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted average common shares outstanding and dilutive potential common shares would have totaled 274.2. |
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F-21
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2005 | 2004 | 2003 | ||||||||||
Retail | ||||||||||||
Realized gains (losses) | $ | 34 | $ | 24 | $ | 1 | ||||||
Credit risk fees | (26 | ) | (22 | ) | (14 | ) | ||||||
Retirement Plans | ||||||||||||
Realized gains (losses) | 6 | 5 | 5 | |||||||||
Credit risk fees | (8 | ) | (8 | ) | (7 | ) | ||||||
Institutional | ||||||||||||
Realized gains (losses) | 13 | 9 | 7 | |||||||||
Credit risk fees | (19 | ) | (17 | ) | (14 | ) | ||||||
Individual Life | ||||||||||||
Realized gains (losses) | 11 | 13 | — | |||||||||
Credit risk fees | (6 | ) | (6 | ) | (6 | ) | ||||||
Group Benefits | ||||||||||||
Realized gains (losses) | 10 | 8 | 7 | |||||||||
Credit risk fees | (9 | ) | (9 | ) | (5 | ) | ||||||
Other | ||||||||||||
Realized gains (losses) | (74 | ) | (59 | ) | (20 | ) | ||||||
Credit risk fees | 68 | 62 | 46 | |||||||||
Total | $ | — | $ | — | $ | — | ||||||
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Revenues by Product Line | For the years ended December 31, | |||||||||||
Revenues | 2005 | 2004 | 2003 | |||||||||
Life | ||||||||||||
Earned premiums, fees, and other considerations | ||||||||||||
Retail | ||||||||||||
Individual annuity | $ | 1,780 | $ | 1,618 | $ | 1,310 | ||||||
Retail mutual funds | 416 | 393 | 303 | |||||||||
Other | 77 | 13 | 7 | |||||||||
Total Retail | 2,273 | 2,024 | 1,620 | |||||||||
Retirement Plans | ||||||||||||
401(k) | 111 | 81 | 52 | |||||||||
Governmental | 51 | 50 | 46 | |||||||||
Total Retirement Plans | 162 | 131 | 98 | |||||||||
Institutional | ||||||||||||
Institutional | 518 | 474 | 790 | |||||||||
PPLI | 105 | 150 | 147 | |||||||||
Total Institutional | 623 | 624 | 937 | |||||||||
Individual Life | ||||||||||||
Total Individual Life | 769 | 746 | 727 | |||||||||
Group Benefits | ||||||||||||
Group disability | 1,749 | 1,602 | 1,010 | |||||||||
Group life | 1,643 | 1,655 | 1,012 | |||||||||
Other | 418 | 395 | 340 | |||||||||
Total Group Benefits | 3,810 | 3,652 | 2,362 | |||||||||
International | ||||||||||||
Total International | 483 | 240 | 90 | |||||||||
Other | 83 | 119 | 143 | |||||||||
Total Life premiums, fees, and other considerations | 8,203 | 7,536 | 5,977 | |||||||||
Net investment income | ||||||||||||
Securities available-for-sale and other | 2,998 | 2,876 | 2,041 | |||||||||
Equity securities held for trading | 3,847 | 799 | — | |||||||||
Net investment income [1] | 6,845 | 3,675 | 2,041 | |||||||||
Net realized capital gains (losses) | (25 | ) | 164 | 26 | ||||||||
Total Life | 15,023 | 11,375 | 8,044 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | ||||||||||||
Earned premiums | ||||||||||||
Business Insurance | ||||||||||||
Workers’ Compensation | 1,791 | 1,512 | 1,243 | |||||||||
Property | 1,348 | 1,235 | 1,116 | |||||||||
Automobile | 780 | 754 | 676 | |||||||||
Liability | 453 | 445 | 419 | |||||||||
Other | 413 | 353 | 242 | |||||||||
Total Business Insurance | 4,785 | 4,299 | 3,696 | |||||||||
Personal Lines | ||||||||||||
Automobile | 2,728 | 2,622 | 2,458 | |||||||||
Homeowners | 882 | 823 | 723 | |||||||||
Total Personal Lines | 3,610 | 3,445 | 3,181 | |||||||||
Specialty Commercial | ||||||||||||
Workers’ Compensation | 91 | 72 | 106 | |||||||||
Property | 136 | 201 | 238 | |||||||||
Automobile | 18 | 21 | 21 | |||||||||
Liability | 85 | 70 | 56 | |||||||||
Bond | 210 | 188 | 152 | |||||||||
Professional Liability | 345 | 335 | 296 | |||||||||
Other | 872 | 839 | 689 | |||||||||
Total Specialty Commercial | 1,757 | 1,726 | 1,558 | |||||||||
Total Ongoing Operations | 10,152 | 9,470 | 8,435 | |||||||||
Other Operations | 4 | 24 | 370 | |||||||||
Total earned premiums | 10,156 | 9,494 | 8,805 | |||||||||
Servicing revenue | 463 | 436 | 428 | |||||||||
Net investment income | 1,365 | 1,248 | 1,172 | |||||||||
Net realized capital gains | 44 | 133 | 253 | |||||||||
Total Property & Casualty | 12,028 | 11,311 | 10,658 | |||||||||
Corporate | 32 | 22 | 17 | |||||||||
Total revenues | $ | 27,083 | $ | 22,708 | $ | 18,719 | ||||||
[1] | Amounts reported in 2003 are prior to the adoption of SOP 03-1. |
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For the years ended December 31, | ||||||||||||
Net Income (Loss) | 2005 | 2004 | 2003 | |||||||||
Life | ||||||||||||
Retail | $ | 622 | $ | 503 | $ | 412 | ||||||
Retirement Plans | 75 | 66 | 42 | |||||||||
Institutional [1] | 88 | 68 | 32 | |||||||||
Individual Life | 166 | 155 | 145 | |||||||||
Group Benefits | 272 | 229 | 148 | |||||||||
International | 96 | 39 | 13 | |||||||||
Other [2] [3] | (115 | ) | 322 | 53 | ||||||||
Total Life | 1,204 | 1,382 | 845 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | ||||||||||||
Underwriting Results | ||||||||||||
Business Insurance | 396 | 360 | 158 | |||||||||
Personal Lines | 460 | 138 | 130 | |||||||||
Specialty Commercial | (165 | ) | (53 | ) | 10 | |||||||
Total Ongoing Operations underwriting results | 691 | 445 | 298 | |||||||||
Net servicing and other income [4] | 49 | 42 | 8 | |||||||||
Net investment income | 1,082 | 903 | 836 | |||||||||
Net realized capital gains | 19 | 98 | 151 | |||||||||
Other expenses | (202 | ) | (198 | ) | (260 | ) | ||||||
Income tax expense [2] | (474 | ) | (335 | ) | (250 | ) | ||||||
Ongoing Operations | 1,165 | 955 | 783 | |||||||||
Other Operations [5] | 71 | (45 | ) | (1,528 | ) | |||||||
Total Property & Casualty | 1,236 | 910 | (745 | ) | ||||||||
Corporate | (166 | ) | (177 | ) | (191 | ) | ||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
[1] | 2003 includes $40 of after-tax expense related to the settlement of certain litigation. | |
[2] | For the year ended December 31, 2004 Life includes a $190 tax benefit recorded in its Other category, and Property & Casualty includes a $26 tax benefit, which relates to an agreement with the IRS on the resolution of matters pertaining to tax years prior to 2004. For further discussion of this tax benefit, see Note 12. | |
[3] | For the year ended December 31, 2005, reflects an after-tax charge of $102 to reserve for investigations related to market timing by the SEC and New York Attorney General’s Office, directed brokerage by the SEC and single premium group annuities by the New York Attorney General’s Office and the Connecticut Attorney General’s Office, as discussed in Note 12. | |
[4] | Net of expenses related to service business. | |
[5] | Includes $1.7 billion for the year ended December 31, 2003 of after-tax impact of asbestos reserve addition. |
For the years ended December 31, | ||||||||||||
Amortization of deferred policy acquisition | ||||||||||||
costs and present value of future profits | 2005 | 2004 | 2003 | |||||||||
Life | ||||||||||||
Retail | $ | 744 | $ | 647 | $ | 498 | ||||||
Retirement Plans | 26 | 29 | 17 | |||||||||
Institutional | 32 | 26 | 28 | |||||||||
Individual Life | 205 | 185 | 177 | |||||||||
Group Benefits | 31 | 23 | 18 | |||||||||
International | 133 | 77 | 32 | |||||||||
Other | 1 | 6 | (15 | ) | ||||||||
Total Life | 1,172 | 993 | 755 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | ||||||||||||
Business Insurance | 1,138 | 1,058 | 913 | |||||||||
Personal Lines | 581 | 530 | 386 | |||||||||
Specialty Commercial | 281 | 257 | 254 | |||||||||
Total Ongoing Operations | 2,000 | 1,845 | 1,553 | |||||||||
Other Operations | (3 | ) | 5 | 89 | ||||||||
Total Property & Casualty | 1,997 | 1,850 | 1,642 | |||||||||
Total amortization of deferred policy acquisition costs and present value of future profits | $ | 3,169 | $ | 2,843 | $ | 2,397 | ||||||
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Table of Contents
For the years ended December 31, | ||||||||||||
Income tax expense (benefit) | 2005 | 2004 | 2003 | |||||||||
Life | ||||||||||||
Retail | $ | 85 | $ | 105 | $ | 71 | ||||||
Retirement Plans | 23 | 22 | 16 | |||||||||
Institutional | 32 | 26 | 9 | |||||||||
Individual Life | 72 | 71 | 64 | |||||||||
Group Benefits | 90 | 83 | 43 | |||||||||
International | 65 | 12 | 2 | |||||||||
Other [1] | (51 | ) | (117 | ) | 16 | |||||||
Total Life | 316 | 202 | 221 | |||||||||
Property & Casualty | ||||||||||||
Ongoing Operations | 474 | 335 | 250 | |||||||||
Other Operations | 10 | (60 | ) | (828 | ) | |||||||
Total Property & Casualty [1] | 484 | 275 | (578 | ) | ||||||||
Corporate | (89 | ) | (92 | ) | (102 | ) | ||||||
Total income tax expense (benefit) | $ | 711 | $ | 385 | $ | (459 | ) | |||||
[1] | Life includes tax benefits reflecting the impact of audit settlements of $190 for the year ended December 31, 2004. Property & Casualty includes a tax benefit of $26 in 2004 reflecting the impact of audit settlements. |
Geographical Segment Information | For the years ended December 31, | |||||||||||
Revenues | 2005 | 2004 | 2003 | |||||||||
North America | $ | 22,349 | $ | 21,328 | $ | 18,466 | ||||||
Other | 4,734 | 1,380 | 253 | |||||||||
Total revenues | $ | 27,083 | $ | 22,708 | $ | 18,719 | ||||||
As of December 31, | ||||||||
Assets | 2005 | 2004 | ||||||
Life | ||||||||
Retail | $ | 120,438 | $ | 115,504 | ||||
Retirement Plans | 20,064 | 17,142 | ||||||
Institutional | 48,825 | 44,914 | ||||||
Individual Life | 12,950 | 12,328 | ||||||
Group Benefits | 8,438 | 8,243 | ||||||
International | 27,822 | 16,088 | ||||||
Other | 5,283 | 6,216 | ||||||
Total Life | 243,820 | 220,435 | ||||||
Property & Casualty | ||||||||
Ongoing Operations | 31,780 | 28,293 | ||||||
Other Operations | 8,502 | 9,725 | ||||||
Total Property & Casualty | 40,282 | 38,018 | ||||||
Corporate | 1,455 | 1,282 | ||||||
Total Assets | $ | 285,557 | $ | 259,735 | ||||
For the years ended December 31, | ||||||||||||
Components of Net Investment Income | 2005 | 2004 | 2003 | |||||||||
Fixed maturities | $ | 3,952 | $ | 3,689 | $ | 2,800 | ||||||
Equity securities held for trading | 3,847 | 799 | — | |||||||||
Policy loans | 144 | 186 | 210 | |||||||||
Other investments | 351 | 324 | 267 | |||||||||
Gross investment income | 8,294 | 4,998 | 3,277 | |||||||||
Less: Investment expenses | 63 | 55 | 44 | |||||||||
Net investment income | $ | 8,231 | $ | 4,943 | $ | 3,233 | ||||||
Components of Net Realized Capital Gains (Losses) | ||||||||||||
Fixed maturities | $ | 95 | $ | 297 | $ | 255 | ||||||
Equity securities | 3 | 3 | (29 | ) | ||||||||
Foreign currency transaction remeasurements | 162 | (7 | ) | (2 | ) | |||||||
Sale of affiliates | — | 2 | 22 | |||||||||
Derivatives and other [1] | (243 | ) | (4 | ) | 33 | |||||||
Net realized capital gains | $ | 17 | $ | 291 | $ | 279 | ||||||
[1] | Primarily consists of changes in fair value on non-qualifying derivatives, changes in fair value of certain derivatives in fair value hedge relationships and hedge ineffectiveness on qualifying derivative instruments. |
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For the years ended December 31, | ||||||||||||
Components of Net Unrealized Gains (Losses) on Available-for-Sale Securities | 2005 | 2004 | 2003 | |||||||||
Fixed maturities | $ | 1,674 | $ | 3,741 | $ | 3,136 | ||||||
Equity securities | 131 | 90 | 60 | |||||||||
Net unrealized gains credited to policyholders | (9 | ) | (20 | ) | (63 | ) | ||||||
Net unrealized gains | 1,796 | 3,811 | 3,133 | |||||||||
Deferred income taxes and other items | 827 | 1,649 | 1,369 | |||||||||
Net unrealized gains, net of tax — end of year | 969 | 2,162 | 1,764 | |||||||||
Net unrealized gains, net of tax — beginning of year | 2,162 | 1,764 | 1,444 | |||||||||
Change in unrealized gains (losses) on available-for-sale securities | $ | (1,193 | ) | $ | 398 | $ | 320 | |||||
As of December 31, 2005 | As of December 31, 2004 | |||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Fair | Amortized | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||
Bonds and Notes | ||||||||||||||||||||||||||||||||
ABS | $ | 7,907 | $ | 60 | $ | (89 | ) | $ | 7,878 | $ | 7,446 | $ | 95 | $ | (72 | ) | $ | 7,469 | ||||||||||||||
Collateralized mortgage obligations (“CMOs”) | ||||||||||||||||||||||||||||||||
Agency backed | 860 | 3 | (6 | ) | 857 | 1,138 | 11 | (3 | ) | 1,146 | ||||||||||||||||||||||
Non-agency backed | 133 | — | — | 133 | 80 | 1 | — | 81 | ||||||||||||||||||||||||
CMBS | ||||||||||||||||||||||||||||||||
Agency backed | 70 | 1 | — | 71 | 71 | 2 | (1 | ) | 72 | |||||||||||||||||||||||
Non-agency backed | 12,860 | 233 | (162 | ) | 12,931 | 11,235 | 473 | (32 | ) | 11,676 | ||||||||||||||||||||||
Corporate | 33,019 | 1,395 | (396 | ) | 34,018 | 32,474 | 2,444 | (117 | ) | 34,801 | ||||||||||||||||||||||
Government/Government agencies | ||||||||||||||||||||||||||||||||
Foreign | 1,378 | 96 | (7 | ) | 1,467 | 1,648 | 153 | (5 | ) | 1,796 | ||||||||||||||||||||||
United States | 877 | 27 | (6 | ) | 898 | 1,116 | 22 | (6 | ) | 1,132 | ||||||||||||||||||||||
Mortgage-backed securities (“MBS”) —agency backed | 3,914 | 7 | (60 | ) | 3,861 | 2,774 | 29 | (4 | ) | 2,799 | ||||||||||||||||||||||
States, municipalities and political subdivisions | 11,641 | 601 | (24 | ) | 12,218 | 10,589 | 760 | (12 | ) | 11,337 | ||||||||||||||||||||||
Redeemable preferred stock | 44 | 1 | — | 45 | 36 | 3 | — | 39 | ||||||||||||||||||||||||
Short-term investments | 2,063 | — | — | 2,063 | 2,752 | — | — | 2,752 | ||||||||||||||||||||||||
Total fixed maturities | $ | 74,766 | $ | 2,424 | $ | (750 | ) | $ | 76,440 | $ | 71,359 | $ | 3,993 | $ | (252 | ) | $ | 75,100 | ||||||||||||||
Maturity | Amortized Cost | Fair Value | ||||||
One year or less | $ | 6,542 | $ | 6,541 | ||||
Over one year through five years | 19,481 | 19,799 | ||||||
Over five years through ten years | 21,914 | 22,078 | ||||||
Over ten years | 26,829 | 28,022 | ||||||
Total | $ | 74,766 | $ | 76,440 | ||||
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Table of Contents
For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Sale of Fixed Maturities | ||||||||||||
Sale proceeds | $ | 25,470 | $ | 21,339 | $ | 13,827 | ||||||
Gross gains | 497 | 525 | 576 | |||||||||
Gross losses | (364 | ) | (202 | ) | (150 | ) | ||||||
Sale of Available-for-Sale Equity Securities | ||||||||||||
Sale proceeds | $ | 114 | $ | 124 | $ | 490 | ||||||
Gross gains | 12 | 21 | 47 | |||||||||
Gross losses | — | (6 | ) | (46 | ) |
F-28
Table of Contents
2005 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | ||||||||||||||||||||||||||||
Cost | Value | Losses | Cost | Value | Losses | Cost | Value | Losses | ||||||||||||||||||||||||||||
ABS | $ | 1,951 | $ | 1,926 | $ | (25 | ) | $ | 728 | $ | 664 | $ | (64 | ) | $ | 2,679 | $ | 2,590 | $ | (89 | ) | |||||||||||||||
CMOs | ||||||||||||||||||||||||||||||||||||
Agency backed | 405 | 402 | (3 | ) | 235 | 232 | (3 | ) | 640 | 634 | (6 | ) | ||||||||||||||||||||||||
Non-agency backed | 46 | 46 | — | 1 | 1 | — | 47 | 47 | — | |||||||||||||||||||||||||||
CMBS | ||||||||||||||||||||||||||||||||||||
Agency backed | 2 | 2 | — | 11 | 11 | — | 13 | 13 | — | |||||||||||||||||||||||||||
Non-agency backed | 6,790 | 6,668 | (122 | ) | 1,075 | 1,035 | (40 | ) | 7,865 | 7,703 | (162 | ) | ||||||||||||||||||||||||
Corporate | 12,479 | 12,184 | (295 | ) | 2,494 | 2,393 | (101 | ) | 14,973 | 14,577 | (396 | ) | ||||||||||||||||||||||||
Government/Government agencies | ||||||||||||||||||||||||||||||||||||
Foreign | 343 | 337 | (6 | ) | 54 | 53 | (1 | ) | 397 | 390 | (7 | ) | ||||||||||||||||||||||||
United States | 350 | 348 | (2 | ) | 117 | 113 | (4 | ) | 467 | 461 | (6 | ) | ||||||||||||||||||||||||
MBS — U.S. Government/Government agencies | 2,761 | 2,712 | (49 | ) | 258 | 247 | (11 | ) | 3,019 | 2,959 | (60 | ) | ||||||||||||||||||||||||
States, municipalities and political subdivisions | 1,720 | 1,697 | (23 | ) | 21 | 20 | (1 | ) | 1,741 | 1,717 | (24 | ) | ||||||||||||||||||||||||
Short-term investments | 201 | 201 | — | — | — | — | 201 | 201 | — | |||||||||||||||||||||||||||
Total fixed maturities | 27,048 | 26,523 | (525 | ) | 4,994 | 4,769 | (225 | ) | 32,042 | 31,292 | (750 | ) | ||||||||||||||||||||||||
Common stock | 16 | 13 | (3 | ) | 2 | 2 | — | 18 | 15 | (3 | ) | |||||||||||||||||||||||||
Non-redeemable preferred stock | 127 | 124 | (3 | ) | 57 | 55 | (2 | ) | 184 | 179 | (5 | ) | ||||||||||||||||||||||||
Total equity | 143 | 137 | (6 | ) | 59 | 57 | (2 | ) | 202 | 194 | (8 | ) | ||||||||||||||||||||||||
Total temporarily impaired securities | $ | 27,191 | $ | 26,660 | $ | (531 | ) | $ | 5,053 | $ | 4,826 | $ | (227 | ) | $ | 32,244 | $ | 31,486 | $ | (758 | ) | |||||||||||||||
F-29
Table of Contents
2004 | ||||||||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||||||||||||||
Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | Amortized | Fair | Unrealized | ||||||||||||||||||||||||||||
Cost | Value | Losses | Cost | Value | Losses | Cost | Value | Losses | ||||||||||||||||||||||||||||
ABS | $ | 1,556 | $ | 1,540 | $ | (16 | ) | $ | 429 | $ | 373 | $ | (56 | ) | $ | 1,985 | $ | 1,913 | $ | (72 | ) | |||||||||||||||
CMOs | ||||||||||||||||||||||||||||||||||||
Agency backed | 555 | 552 | (3 | ) | 2 | 2 | — | 557 | 554 | (3 | ) | |||||||||||||||||||||||||
Non-agency backed | 39 | 39 | — | — | — | — | 39 | 39 | — | |||||||||||||||||||||||||||
CMBS | ||||||||||||||||||||||||||||||||||||
Agency backed | 26 | 25 | (1 | ) | — | — | — | 26 | 25 | (1 | ) | |||||||||||||||||||||||||
Non-agency backed | 2,788 | 2,764 | (24 | ) | 172 | 164 | (8 | ) | 2,960 | 2,928 | (32 | ) | ||||||||||||||||||||||||
Corporate | 4,940 | 4,873 | (67 | ) | 1,474 | 1,424 | (50 | ) | 6,414 | 6,297 | (117 | ) | ||||||||||||||||||||||||
Government/Government agencies Foreign | 236 | 234 | (2 | ) | 68 | 65 | (3 | ) | 304 | 299 | (5 | ) | ||||||||||||||||||||||||
United States | 640 | 634 | (6 | ) | 10 | 10 | — | 650 | 644 | (6 | ) | |||||||||||||||||||||||||
MBS — U.S. Government/Government agencies | 638 | 634 | (4 | ) | 29 | 29 | — | 667 | 663 | (4 | ) | |||||||||||||||||||||||||
States, municipalities and political subdivisions | 402 | 394 | (8 | ) | 91 | 87 | (4 | ) | 493 | 481 | (12 | ) | ||||||||||||||||||||||||
Short-term investments | 94 | 94 | — | — | — | — | 94 | 94 | — | |||||||||||||||||||||||||||
Total fixed maturities | 11,914 | 11,783 | (131 | ) | 2,275 | 2,154 | (121 | ) | 14,189 | 13,937 | (252 | ) | ||||||||||||||||||||||||
Common stock | 1 | 1 | — | 2 | 2 | — | 3 | 3 | — | |||||||||||||||||||||||||||
Non-redeemable preferred stock | 97 | 95 | (2 | ) | 140 | 129 | (11 | ) | 237 | 224 | (13 | ) | ||||||||||||||||||||||||
Total equity | 98 | 96 | (2 | ) | 142 | 131 | (11 | ) | 240 | 227 | (13 | ) | ||||||||||||||||||||||||
Total temporarily impaired securities | $ | 12,012 | $ | 11,879 | $ | (133 | ) | $ | 2,417 | $ | 2,285 | $ | (132 | ) | $ | 14,429 | $ | 14,164 | $ | (265 | ) | |||||||||||||||
F-30
Table of Contents
Asset Values | Liability Values | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Other investments | $ | 181 | $ | 196 | $ | — | $ | — | ||||||||
Reinsurance recoverables | — | — | 17 | 67 | ||||||||||||
Other policyholder funds and benefits payable | 8 | 129 | — | — | ||||||||||||
Fixed maturities | — | 4 | — | — | ||||||||||||
Other liabilities | — | — | 450 | 590 | ||||||||||||
Total | $ | 189 | $ | 329 | $ | 467 | $ | 657 | ||||||||
F-31
Table of Contents
Hedge | ||||||||||||||||||||||||
Ineffectiveness, | ||||||||||||||||||||||||
Notional Amount | Fair Value | After-tax | ||||||||||||||||||||||
Hedging Strategy | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||
Cash-Flow Hedges | ||||||||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||||||
Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed maturity securities to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities. The Company also enters into forward starting swap agreements to hedge the interest rate exposure on anticipated fixed-rate asset purchases due to changes in the benchmark interest rate, London-Interbank Offered Rate (“LIBOR”). These derivatives were structured to hedge interest rate exposure inherent in the assumptions used to price primarily certain long-term disability products. | ||||||||||||||||||||||||
Interest rate swaps are also used to hedge a portion of the Company’s floating rate guaranteed investment contracts. These derivatives convert the floating rate guaranteed investment contract payments to a fixed rate to better match the cash receipts earned from the supporting investment portfolio. | $ | 5,753 | $ | 6,044 | $ | (18 | ) | $ | 57 | $ | (11 | ) | $ | (11 | ) | |||||||||
Foreign currency swaps | ||||||||||||||||||||||||
Foreign currency swaps are used to convert foreign denominated cash flows associated with certain foreign denominated fixed maturity investments to U.S. dollars. The foreign fixed maturities are primarily denominated in euros and are swapped to minimize cash flow fluctuations due to changes in currency rates. | 1,758 | 1,735 | (242 | ) | (499 | ) | 4 | — | ||||||||||||||||
Fair-Value Hedges | ||||||||||||||||||||||||
Interest rate swaps | ||||||||||||||||||||||||
A portion of the Company’s fixed debt is hedged against increases in LIBOR, the designated benchmark interest rate. In addition, interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to changes in LIBOR. | 2,476 | 951 | (12 | ) | (2 | ) | 2 | — | ||||||||||||||||
Interest rate caps and floors | ||||||||||||||||||||||||
Interest rate caps and floors are used to offset the changes in fair value related to corresponding interest rate caps and floors that exist in certain of the Company’s variable-rate fixed maturity investments and are not required to be bifurcated. | — | 148 | — | (1 | ) | — | — | |||||||||||||||||
Swaptions | ||||||||||||||||||||||||
Swaption arrangements are utilized to offset the change in the fair value of call options embedded, not requiring bifurcation, in certain municipal fixed maturity securities. The swaptions give the Company the option to enter into a “received fixed” swap. The purpose of the swaptions is to mitigate re-investment risk arising from the call option embedded in the municipal security, providing for a fixed return over the original term to maturity. | — | 14 | — | 1 | — | — | ||||||||||||||||||
Net Investment Hedges | ||||||||||||||||||||||||
Forwards | ||||||||||||||||||||||||
Yen denominated forwards are used to hedge the net investment in the Japanese Life operation from potential volatility in the yen to U.S. dollar exchange rate. | — | 401 | — | (23 | ) | — | — | |||||||||||||||||
Total cash-flow, fair-value and net investment hedges | $ | 9,987 | $ | 9,293 | $ | (272 | ) | $ | (467 | ) | $ | (5 | ) | $ | (11 | ) | ||||||||
F-32
Table of Contents
Derivative | ||||||||||||||||||||||||
Change in Value, | ||||||||||||||||||||||||
Notional Amount | Fair Value | After-tax | ||||||||||||||||||||||
Hedging Strategy | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||
Other Investment and Risk Management Activities | ||||||||||||||||||||||||
Interest rate caps and swaption contracts | ||||||||||||||||||||||||
The Company is exposed to policyholder surrenders during a rising interest rate environment. Interest rate cap and swaption contracts are used to mitigate the Company’s loss in a rising interest rate environment. The increase in yield from the cap and swaption contract in a rising interest rate environment may be used to raise credited rates, thereby increasing the Company’s competitiveness and reducing the policyholder’s incentive to surrender. These derivatives are also used to reduce the duration risk in certain investment portfolios. These derivative instruments are structured to hedge the durations of fixed maturity investments to match certain life products in accordance with the Company’s asset and liability management policy. | ||||||||||||||||||||||||
The Company also uses an interest rate cap as an economic hedge of the interest rate risk related to Company issued debt. In a rising interest rate environment, the cap will limit the net interest expense on the hedged fixed rate debt. | $ | 1,616 | $ | 1,966 | $ | 3 | $ | 5 | $ | (1 | ) | $ | (9 | ) | ||||||||||
Interest rate swaps and floors | ||||||||||||||||||||||||
The Company uses interest rate swaps and floors to manage duration risk between assets and liabilities. In addition, the Company enters into interest rate swaps to terminate existing swaps in hedging relationships, thereby offsetting the changes in value of the original swap. | 2,227 | 2,206 | (4 | ) | (13 | ) | 1 | 3 | ||||||||||||||||
Foreign currency swaps and forwards | ||||||||||||||||||||||||
The Company enters into foreign currency swaps and forwards and purchases foreign put options and writes foreign call options to hedge the foreign currency exposures in certain of its foreign fixed maturity investments. | 766 | 371 | (9 | ) | (74 | ) | 20 | (23 | ) | |||||||||||||||
Credit default and total return swaps | ||||||||||||||||||||||||
The Company enters into swap agreements in which the Company assumes credit exposure of an individual entity, referenced index or asset pool. The Company assumes credit exposure to individual entities through credit default swaps. These contracts entitle the company to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty should a credit event occur on the part of the referenced security issuer. Credit events typically include failure on the part of the referenced security issuer to make a fixed dollar amount of contractual interest or principal payments or bankruptcy. The maximum potential future exposure to the Company is the notional value of the swap contracts, $455 and $291, after-tax, as of December 31, 2005 and 2004, respectively. | ||||||||||||||||||||||||
The Company also assumes exposure to the change in value of indices or asset pools through total return swaps and credit spreadlocks. As of December 31, 2005 and 2004, the maximum potential future exposure to the Company from such contracts is $899 and $809, after-tax, respectively. | ||||||||||||||||||||||||
The Company enters into credit default swap agreements, in which the Company pays a derivative counterparty a periodic fee in exchange for compensation from the counterparty should a credit event occur on the part of the referenced security issuer. The Company entered into these agreements as an efficient means to reduce credit exposure to specified issuers or sectors. In addition, the Company enters into option contracts to receive protection should a credit event occur on the part of the referenced security issuer. | 2,839 | 2,158 | 3 | 8 | 13 | 29 | ||||||||||||||||||
F-33
Table of Contents
Derivative | ||||||||||||||||||||||||
Change in Value, | ||||||||||||||||||||||||
Notional Amount | Fair Value | After-tax | ||||||||||||||||||||||
Hedging Strategy | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||
Options | ||||||||||||||||||||||||
The Company writes option contracts for a premium to monetize the bifurcated option embedded in certain of its fixed maturity investments. The written option grants the holder the ability to call the bond at a predetermined strike value. The maximum potential future economic exposure is represented by the then fair value of the bond in excess of the strike value, which is expected to be entirely offset by the appreciation in the value of the embedded long option. | $ | 12 | $ | 95 | $ | — | $ | 1 | $ | (1 | ) | $ | (1 | ) | ||||||||||
Yen fixed annuity hedging instruments | ||||||||||||||||||||||||
The Company enters into currency rate swaps and forwards to mitigate the foreign currency exchange rate and yen interest rate exposures associated with the yen denominated individual fixed annuity compound rate contract product. For further discussion, see below. Additionally, forward settling fixed maturity investments are traded to manage duration and foreign currency risk associated with this product. | 1,675 | 611 | (179 | ) | 10 | (143 | ) | 4 | ||||||||||||||||
Product derivatives | ||||||||||||||||||||||||
The Company offers certain variable annuity products with a GMWB rider. The GMWB is a bifurcated embedded derivative that provides the policyholder with a GRB if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. The policyholder also has the option, after a specified time period, to reset the GRB to the then-current account value, if greater. For a further discussion, see the Derivative Instruments section of Note 1. The notional value of the embedded derivative is the GRB balance. | 31,803 | 25,433 | 8 | 129 | (42 | ) | 35 | |||||||||||||||||
Reinsurance contracts | ||||||||||||||||||||||||
Reinsurance arrangements are used to offset the Company’s exposure to the GMWB embedded derivative for the lives of the host variable annuity contracts. The notional amount of the reinsurance contracts is the GRB amount. | 8,575 | 9,107 | (17 | ) | (67 | ) | 19 | 1 | ||||||||||||||||
GMWB hedging instruments | ||||||||||||||||||||||||
The Company enters into interest rate futures, S&P 500 and NASDAQ index futures contracts and put and call options, as well as interest rate and EAFE index swap contracts to economically hedge exposure to the volatility associated with the portion of the GMWB liabilities which are not reinsured. | ||||||||||||||||||||||||
In addition, the Company periodically enters into forward starting S&P 500 put options as well as S&P index futures and interest rate swap contracts to economically hedge the equity volatility risk exposure associated with anticipated future sales of the GMWB rider. [1] | 5,086 | 3,117 | 175 | 108 | 1 | (31 | ) | |||||||||||||||||
Statutory reserve hedging instruments | ||||||||||||||||||||||||
The Company purchased one and two year S&P 500 put option contracts to economically hedge the statutory reserve impact of equity exposure arising primarily from GMDB obligations against a decline in the equity markets. | 1,142 | 1,921 | 14 | 32 | (20 | ) | (2 | ) | ||||||||||||||||
Total other investment and risk management activities | 55,741 | 46,985 | (6 | ) | 139 | (153 | ) | 6 | ||||||||||||||||
Total derivatives [2] | $ | 65,728 | $ | 56,278 | $ | (278 | ) | $ | (328 | ) | $ | (158 | ) | $ | (5 | ) | ||||||||
[1] | The after-tax net gain related to derivatives purchased to hedge the anticipatory sales of the GMWB rider is $8 for the year ended December 31, 2005. | |
[2] | Derivative change in value includes hedge ineffectiveness for cash-flow, fair-value and net investment hedges and total change in value of other investment and risk management activities. |
F-34
Table of Contents
F-35
Table of Contents
Loaned Securities and Collateral Pledged | 2005 | 2004 | ||||||
ABS | $ | 29 | $ | 46 | ||||
CMOs | — | 1 | ||||||
CMBS | 188 | 223 | ||||||
Corporate | 889 | 1,001 | ||||||
MBS | 125 | — | ||||||
Government/Government Agencies | ||||||||
Foreign | 63 | 42 | ||||||
United States | 244 | 570 | ||||||
Total | $ | 1,538 | $ | 1,883 | ||||
F-36
Table of Contents
2005 | 2004 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Assets | Amount | Value | Amount | Value | ||||||||||||
Fixed maturities | $ | 76,440 | $ | 76,440 | $ | 75,100 | $ | 75,100 | ||||||||
Equity securities | 25,495 | 25,495 | 14,466 | 14,466 | ||||||||||||
Policy loans | 2,016 | 2,016 | 2,662 | 2,662 | ||||||||||||
Limited partnerships [1] | 668 | 668 | 433 | 433 | ||||||||||||
Mortgage loans on real estate | 1,731 | 1,718 | 1,174 | 1,194 | ||||||||||||
Other investments [2] | 583 | 583 | 573 | 573 | ||||||||||||
Liabilities | ||||||||||||||||
Other policyholder funds and benefits payable [3] | $ | 11,691 | $ | 11,278 | $ | 9,249 | $ | 9,081 | ||||||||
Commercial paper [4] | 471 | 471 | 372 | 372 | ||||||||||||
Long-term debt [5] | 4,296 | 5,073 | 4,557 | 5,141 | ||||||||||||
Derivative related liabilities [6] | 450 | 450 | 590 | 590 | ||||||||||||
[1] | Included in other investments in the consolidated balance sheets. | |
[2] | 2005 and 2004 include $181 and $196 of derivative related assets, respectively. | |
[3] | Excludes group accident and health and universal life insurance contracts, including corporate owned life insurance. | |
[4] | Included in short-term debt in the consolidated balance sheets. | |
[5] | Includes current maturities of long-term debt. | |
[6] | Included in other liabilities in the consolidated balance sheets. |
For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Gross fee income, earned premiums and other | $ | 8,194 | $ | 7,223 | $ | 6,247 | ||||||
Reinsurance assumed | 464 | 811 | 195 | |||||||||
Reinsurance ceded | (455 | ) | (498 | ) | (465 | ) | ||||||
Net fee income, earned premiums and other | $ | 8,203 | $ | 7,536 | $ | 5,977 | ||||||
F-37
Table of Contents
For the years ended December 31, | ||||||||||||
Premiums Written | 2005 | 2004 | 2003 | |||||||||
Direct | $ | 11,653 | $ | 11,181 | $ | 10,333 | ||||||
Assumed | 233 | 231 | 688 | |||||||||
Ceded | (1,399 | ) | (1,450 | ) | (1,877 | ) | ||||||
Net | $ | 10,487 | $ | 9,962 | $ | 9,144 | ||||||
Premiums Earned | ||||||||||||
Direct | $ | 11,356 | $ | 10,811 | $ | 9,812 | ||||||
Assumed | 218 | 218 | 731 | |||||||||
Ceded | (1,418 | ) | (1,535 | ) | (1,738 | ) | ||||||
Net | $ | 10,156 | $ | 9,494 | $ | 8,805 | ||||||
2005 | 2004 | 2003 | ||||||||||
Balance, January 1 | $ | 7,438 | $ | 6,624 | $ | 5,759 | ||||||
Capitalization | 2,071 | 1,968 | 1,626 | |||||||||
Amortization — Deferred Policy Acquisitions Costs and Present Value of Future Profits | (1,172 | ) | (993 | ) | (755 | ) | ||||||
Adjustments to unrealized gains and losses on securities available-for-sale and other | 380 | (75 | ) | (59 | ) | |||||||
Cumulative effect of accounting change (SOP 03-1) | — | (105 | ) | — | ||||||||
Effect of currency translation | (149 | ) | 72 | — | ||||||||
Acquisition of Hartford Life Group Insurance Company [1] | — | (53 | ) | 53 | ||||||||
Balance, December 31 | $ | 8,568 | $ | 7,438 | $ | 6,624 | ||||||
[1] | For the year ended December 31, 2004, reflects the purchase price adjustment related to the acquisition of CNA Group Life Assurance Company. |
F-38
Table of Contents
For the years ended December 31, | ||||||||
2006 | $ | 85 | ||||||
2007 | 74 | |||||||
2008 | 65 | |||||||
2009 | 58 | |||||||
2010 | 52 | |||||||
2005 | 2004 | 2003 | ||||||||||
Balance, January 1 | $ | 1,071 | $ | 975 | $ | 930 | ||||||
Capitalization | 2,060 | 1,946 | 1,687 | |||||||||
Amortization – Deferred Policy Acquisition Costs | (1,997 | ) | (1,850 | ) | (1,642 | ) | ||||||
Balance, December 31 | $ | 1,134 | $ | 1,071 | $ | 975 | ||||||
2005 | 2004 | |||||||
Life | ||||||||
Retail | $ | 572 | $ | 356 | ||||
Individual Life | 224 | 440 | ||||||
Total Life | 796 | 796 | ||||||
Property & Casualty | ||||||||
Personal Lines | 122 | 122 | ||||||
Specialty Commercial | 30 | 30 | ||||||
Total Property & Casualty | 152 | 152 | ||||||
Corporate | 772 | 772 | ||||||
Total Goodwill | $ | 1,720 | $ | 1,720 | ||||
2005 | 2004 | |||||||||||||||
Gross Carrying | Accumulated Net | Gross Carrying | Accumulated Net | |||||||||||||
Acquired Intangible Assets | Amount | Amortization | Amount | Amortization | ||||||||||||
Renewal rights | $ | 22 | $ | 17 | $ | 22 | $ | 13 | ||||||||
Other | 14 | 7 | 13 | 4 | ||||||||||||
Total Acquired Intangible Assets | $ | 36 | $ | 24 | $ | 35 | $ | 17 | ||||||||
F-39
Table of Contents
Renewal Rights | Other | Total | ||||||||||
For the year ended December 31, 2005 | ||||||||||||
Balance, beginning of period | $ | 9 | $ | 9 | $ | 18 | ||||||
Acquisition of business | — | 1 | 1 | |||||||||
Amortization, net of the accretion of interest | (4 | ) | (3 | ) | (7 | ) | ||||||
Balance, ending of period | $ | 5 | $ | 7 | $ | 12 | ||||||
For the year ended December 31, 2004 | ||||||||||||
Balance, beginning of period | $ | 13 | $ | 10 | $ | 23 | ||||||
Acquisition of business | — | 2 | 2 | |||||||||
Amortization, net of the accretion of interest | (4 | ) | (3 | ) | (7 | ) | ||||||
Balance, ending of period | $ | 9 | $ | 9 | $ | 18 | ||||||
For the year ended December 31, 2003 | ||||||||||||
Balance, beginning of period | $ | 15 | $ | — | $ | 15 | ||||||
Acquisition of business | 4 | 11 | 15 | |||||||||
Amortization, net of the accretion of interest | (6 | ) | (1 | ) | (7 | ) | ||||||
Balance, ending of period | $ | 13 | $ | 10 | $ | 23 | ||||||
For the years ended December 31, | ||||||||
2006 | $ | 5 | ||||||
2007 | 4 | |||||||
2008 | 2 | |||||||
2009 | 1 | |||||||
2010 | — | |||||||
F-40
Table of Contents
U.S. GMDB [1] | Japan GMDB/GMIB | |||||||
Liability balance as of January 1, 2005 | $ | 174 | $ | 28 | ||||
Incurred | 123 | 29 | ||||||
Paid | (139 | ) | (1 | ) | ||||
Currency translation adjustment | — | (6 | ) | |||||
Liability balance as of December 31, 2005 | $ | 158 | $ | 50 | ||||
[1] | The reinsurance recoverable asset related to the U.S. GMDB was $64 as of January 1, 2005 and $40 as of December 31, 2005. |
U.S. GMDB [1] | Japan GMDB/GMIB | |||||||
Liability balance upon adoption — as of January 1, 2004 | $ | 217 | $ | 8 | ||||
Incurred | 123 | 21 | ||||||
Paid | (166 | ) | (2 | ) | ||||
Currency translation adjustment | — | 1 | ||||||
Liability balance as of December 31, 2004 | $ | 174 | $ | 28 | ||||
[1] | The reinsurance recoverable asset related to the U.S. GMDB was $108 upon adoption of SOP 03-1 and $64 as of December 31, 2004. |
• | 1,000 stochastically generated investment performance scenarios for 2005 and 2004 issue years; 250 stochastically generated investment performance scenarios for issue year 2003 and prior. | |
• | Separate account returns, representing the Company’s long-term assumptions, varied by asset class with a low of 3% for cash, a high of 9.5% and 11% for aggressive equities, and a weighted average of 7.8% and 9% for December 31, 2005 and 2004, respectively. | |
• | Volatilities also varied by asset class with a low of 1% for cash, a high of 15% for aggressive equities, and a weighted average of 12%. | |
• | 80% of the 1983 GAM mortality table was used for mortality assumptions. | |
• | Lapse rates by calendar year vary from a low of 8% to a high of 14%, with an average of 12%. | |
• | Discount rate of 5.6% for 2005 issue year, 7% for issue years 2004 and 2003 and 7.5% for issue year 2002 and prior. |
• | 1,000 stochastically generated investment performance scenarios. | |
• | Separate account returns, representing the Company’s long-term assumptions, varied by asset class with a low of 2.6% for Japan bonds, a high of 8.8% for foreign equities and a weighted average of 4.9%. | |
• | Volatilities also varied by asset class with a low of 5.6% for Japan bonds, a high of 21.3% for foreign equities and a weighted average of 13.4%. | |
• | 70% of the 1996 Japan Standard Mortality Table was used for mortality assumptions. | |
• | Lapse rates by age vary from a low of 1% to a high of 6%, with an average of 4%. | |
• | Average discount rate of 2.6%. |
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Retained Net | Weighted Average | |||||||||||||||
Account | Net Amount | Amount | Attained Age of | |||||||||||||
Maximum anniversary value (MAV) [1] | Value | at Risk | at Risk | Annuitant | ||||||||||||
MAV only | $ | 57,445 | $ | 5,040 | $ | 507 | 64 | |||||||||
With 5% rollup [2] | 4,032 | 497 | 91 | 63 | ||||||||||||
With Earnings Protection Benefit Rider (EPB) [3] | 5,358 | 313 | 57 | 60 | ||||||||||||
With 5% rollup & EPB | 1,445 | 132 | 24 | 62 | ||||||||||||
Total MAV | 68,280 | 5,982 | 679 | |||||||||||||
Asset Protection Benefit (APB) [4] | 26,880 | 25 | 13 | 61 | ||||||||||||
Lifetime Income Benefit (LIB) [5] | 251 | — | — | 59 | ||||||||||||
Reset [6] (5-7 years) | 7,419 | 435 | 435 | 65 | ||||||||||||
Return of Premium [7] /Other | 9,235 | 37 | 35 | 49 | ||||||||||||
Subtotal U.S. Guaranteed Minimum Death Benefits | 112,065 | 6,479 | 1,162 | 62 | ||||||||||||
Japan Guaranteed Minimum Death and Income Benefit [8] | 24,641 | 9 | 9 | 66 | ||||||||||||
Total | $ | 136,706 | $ | 6,488 | $ | 1,171 | ||||||||||
[1] | MAV: the death benefit is the greatest of current account value, net premiums paid and the highest account value on any anniversary before age 80 (adjusted for withdrawals). | |
[2] | Rollup: the death benefit is the greatest of the MAV, current account value, net premium paid and premiums (adjusted for withdrawals) accumulated at generally 5% simple interest up to the earlier of age 80 or 100% of adjusted premiums. | |
[3] | EPB: The death benefit is the greatest of the MAV, current account value, or contract value plus a percentage of the contract’s growth. The contract’s growth is account value less premiums net of withdrawals, subject to a cap of 200% of premiums net of withdrawals. | |
[4] | APB: the death benefit is the greater of current account value or MAV, not to exceed current account value plus 25% times the greater of net premiums and MAV (each adjusted for premiums in the past 12 months). | |
[5] | LIB: The death benefit is the greatest of the current account value, net premiums paid, or a benefit amount that rachets over time, generally based on market performance. | |
[6] | Reset: the death benefit is the greatest of current account value, net premiums paid and the most recent five to seven year anniversary account value before age 80 (adjusted for withdrawals). | |
[7] | Return of premium: the death benefit is the greater of current account value and net premiums paid. | |
[8] | Death benefits include a Return of Premium and MAV (before age 75) as described above and income benefits include a guarantee to return initial investment, adjusted for earnings liquidity, through a fixed annuity, after a minimum deferral period of 10, 15, or 20 years. The guaranteed remaining balance related to the Japan GMIB was $15.2 billion and $7.3 billion as of December 31, 2005 and 2004, respectively. |
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Asset type | As of December 31, 2005 | |||
Equity securities (including mutual funds) | $ | 94,419 | ||
Cash and cash equivalents | 8,609 | |||
Total | $ | 103,028 | ||
2005 | 2004 | |||||||
Balance, beginning of period | $ | 309 | $ | 198 | ||||
Sales inducements deferred | 85 | 141 | ||||||
Amortization charged to income | (39 | ) | (30 | ) | ||||
Balance, end of period | $ | 355 | $ | 309 | ||||
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For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Beginning claim reserves-gross | $ | 4,714 | $ | 4,480 | $ | 2,914 | ||||||
Purchase of CNA Group Life Assurance Company | — | 20 | — | |||||||||
Reinsurance recoverables | 297 | 250 | 275 | |||||||||
Beginning claim reserves-net | 4,417 | 4,210 | 2,639 | |||||||||
Incurred expenses related to | ||||||||||||
Current year | 1,994 | 1,864 | 1,149 | |||||||||
Prior years | (112 | ) | (73 | ) | (10 | ) | ||||||
Total incurred expenses | 1,882 | 1,791 | 1,139 | |||||||||
Paid expenses related to | ||||||||||||
Current year | 645 | 564 | 376 | |||||||||
Prior years | 1,060 | 1,020 | 669 | |||||||||
Total paid expenses | 1,705 | 1,584 | 1,045 | |||||||||
Ending claim reserves-net | 4,594 | 4,417 | 2,733 | |||||||||
Acquisition of claim reserves | — | — | 1,497 | |||||||||
Reinsurance recoverable, December 31 | 238 | 297 | 250 | |||||||||
Ending claim reserves-gross | $ | 4,832 | $ | 4,714 | $ | 4,480 | ||||||
2005 | 2004 | |||||||
Group Disability and Accident and Other unpaid claims and claim adjustment expenses | $ | 4,832 | $ | 4,714 | ||||
Group Life unpaid claims and claim adjustment expenses | 910 | 885 | ||||||
Individual Life unpaid claims and claim adjustment expenses | 84 | 88 | ||||||
Future Policy Benefits | 7,161 | 6,559 | ||||||
Future Policy Benefits and Unpaid Claim and Claim Adjustment Expenses | $ | 12,987 | $ | 12,246 | ||||
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2005 | 2004 | |||||||
Life | ||||||||
Retail | ||||||||
Individual annuity — variable | $ | 171 | $ | 173 | ||||
Individual annuity — fixed | 575 | 529 | ||||||
Other | 1 | 5 | ||||||
Total Retail | 747 | 707 | ||||||
Retirement Plans | ||||||||
401(k) | 56 | 54 | ||||||
Governmental | 310 | 333 | ||||||
Total Retirement Plans | 366 | 387 | ||||||
Institutional | ||||||||
Structured settlements | 3,028 | 2,502 | ||||||
Institutional annuities | 2,167 | 2,025 | ||||||
PPLI | 120 | 149 | ||||||
Total Institutional | 5,315 | 4,676 | ||||||
Individual Life | ||||||||
Variable universal life | 15 | 21 | ||||||
Universal life/other interest sensitive | 81 | 87 | ||||||
Term insurance and other | 490 | 536 | ||||||
Total Individual Life | 586 | 644 | ||||||
Group Benefits | ||||||||
Group disability | 4,544 | 4,162 | ||||||
Group life and accident | 1,058 | 1,334 | ||||||
Other | 226 | 188 | ||||||
Total Group Benefits | 5,828 | 5,684 | ||||||
International | ||||||||
Variable | 51 | 28 | ||||||
Total International | 51 | 28 | ||||||
Other | 94 | 124 | ||||||
Total Life | 12,987 | 12,250 | ||||||
Corporate | — | (4 | ) | |||||
Total | $ | 12,987 | $ | 12,246 | ||||
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2005 | 2004 | |||||||
Life | ||||||||
Retail | ||||||||
Individual annuity — variable | $ | 6,861 | $ | 7,452 | ||||
Individual annuity — fixed | 9,539 | 10,952 | ||||||
Other | 10 | 20 | ||||||
Total Retail | 16,410 | 18,424 | ||||||
Retirement Plans | ||||||||
401(k) | 1,181 | 1,075 | ||||||
Governmental | 4,013 | 3,715 | ||||||
Total Retirement Plans | 5,194 | 4,790 | ||||||
Institutional | ||||||||
Structured settlements | 1,731 | 1,501 | ||||||
Stable value/Funding agreements | 4,142 | 2,115 | ||||||
GICs | 3,117 | 3,180 | ||||||
PPLI | 232 | 489 | ||||||
Institutional annuities | 11 | 9 | ||||||
Total Institutional | 9,233 | 7,294 | ||||||
Individual Life | ||||||||
Variable universal life | 474 | 425 | ||||||
Universal life/other interest sensitive | 4,284 | 4,059 | ||||||
Other | 232 | 192 | ||||||
Total Individual Life | 4,990 | 4,676 | ||||||
Group Benefits | ||||||||
Group life and accident | 535 | 558 | ||||||
Total Group Benefits | 535 | 558 | ||||||
International | ||||||||
Variable | 24,641 | 14,129 | ||||||
Fixed | 1,461 | 521 | ||||||
Total International | 26,102 | 14,650 | ||||||
Other | 1,988 | 2,441 | ||||||
Total Life | $ | 64,452 | $ | 52,833 | ||||
For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Beginning liabilities for property and casualty unpaid claims and claim adjustment expenses-gross | $ | 21,329 | $ | 21,715 | $ | 17,091 | ||||||
Reinsurance and other recoverables | 5,138 | 5,497 | 3,950 | |||||||||
Beginning liabilities for property and casualty unpaid claims and claim adjustment expenses-net | 16,191 | 16,218 | 13,141 | |||||||||
Add provision for property & casualty unpaid claims and claim adjustment expenses | ||||||||||||
Current year | 6,715 | 6,590 | 6,102 | |||||||||
Prior years | 248 | 414 | 2,824 | |||||||||
Total provision for property and casualty unpaid claims and claim adjustment expenses | 6,963 | 7,004 | 8,926 | |||||||||
Less payments | ||||||||||||
Current year | 3,593 | 2,616 | 2,369 | |||||||||
Prior years | 2,698 | 4,415 | 3,480 | |||||||||
Total payments | 6,291 | 7,031 | 5,849 | |||||||||
Ending liabilities for property and casualty unpaid claims and claim adjustment expenses-net | 16,863 | 16,191 | 16,218 | |||||||||
Reinsurance and other recoverables | 5,403 | 5,138 | 5,497 | |||||||||
Ending liabilities for property and casualty unpaid claims and claim adjustment expenses-gross | $ | 22,266 | $ | 21,329 | $ | 21,715 | ||||||
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F-48
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F-50
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F-51
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2006 | $ | 187 | ||
2007 | 157 | |||
2008 | 112 | |||
2009 | 87 | |||
2010 | 73 | |||
Thereafter | 52 | |||
Total | $ | 668 | ||
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For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Income Tax Expense (Benefit) | ||||||||||||
Current — U.S. Federal | $ | 301 | $ | (24 | ) | $ | (120 | ) | ||||
International | 4 | 5 | 5 | |||||||||
Total current | $ | 305 | $ | (19 | ) | $ | (115 | ) | ||||
Deferred — U.S. Federal | $ | 377 | $ | 383 | $ | (350 | ) | |||||
International | 29 | 21 | 6 | |||||||||
Total deferred | $ | 406 | $ | 404 | $ | (344 | ) | |||||
Total income tax expense (benefit) | $ | 711 | $ | 385 | $ | (459 | ) | |||||
Deferred Tax Assets | 2005 | 2004 | ||||||||||
Tax discount on loss reserves | $ | 730 | $ | 678 | ||||||||
Tax basis deferred policy acquisition costs and reserves | 622 | 648 | ||||||||||
Unearned premium reserve and other underwriting related reserves | 455 | 440 | ||||||||||
Employee benefits | 303 | 294 | ||||||||||
Minimum tax credit | 598 | 342 | ||||||||||
Net operating loss carryover | 444 | 807 | ||||||||||
Other | 136 | 128 | ||||||||||
Total Deferred Tax Assets | 3,288 | 3,337 | ||||||||||
Valuation Allowance | (28 | ) | (16 | ) | ||||||||
Net Deferred Tax Assets | 3,260 | 3,321 | ||||||||||
Deferred Tax Liabilities | ||||||||||||
Financial statement deferred policy acquisition costs and reserves | (1,741 | ) | (1,409 | ) | ||||||||
Investment-related items | (73 | ) | (114 | ) | ||||||||
Net unrealized gain on investments | (588 | ) | (1,207 | ) | ||||||||
Other depreciable & amortizable assets | (132 | ) | (115 | ) | ||||||||
Other | (51 | ) | (57 | ) | ||||||||
Total Deferred Tax Liabilities | (2,585 | ) | (2,902 | ) | ||||||||
Total | $ | 675 | $ | 419 | ||||||||
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For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Tax provision at U.S. Federal statutory rate | $ | 1,045 | $ | 883 | $ | (193 | ) | |||||
Tax-exempt interest | (149 | ) | (145 | ) | (151 | ) | ||||||
Dividends received deduction | (188 | ) | (136 | ) | (92 | ) | ||||||
Internal Revenue Service audit settlement (see Note 12) | — | (216 | ) | — | ||||||||
Tax adjustment | — | — | (30 | ) | ||||||||
Other | 3 | (1 | ) | 7 | ||||||||
Provision (benefit) for income tax | $ | 711 | $ | 385 | $ | (459 | ) | |||||
Short-Term Debt | 2005 | 2004 | ||||||||||
Commercial paper | $ | 471 | $ | 372 | ||||||||
Current maturities of long-term debt | 248 | 249 | ||||||||||
Total Short-Term Debt | $ | 719 | $ | 621 | ||||||||
Long –Term Debt | ||||||||||||
Senior Notes and Debentures | ||||||||||||
2.375% Notes, due 2006 | — | 248 | ||||||||||
7.1% Notes, due 2007 | 200 | 198 | ||||||||||
4.7% Notes, due 2007 | 300 | 300 | ||||||||||
6.375% Notes, due 2008 | 200 | 200 | ||||||||||
4.1% Equity Units Notes, due 2008 | 330 | 330 | ||||||||||
2.56% Equity Units Notes, due 2008 | 690 | 690 | ||||||||||
7.9% Notes, due 2010 | 274 | 275 | ||||||||||
4.625% Notes, due 2013 | 319 | 319 | ||||||||||
4.75% Notes, due 2014 | 199 | 199 | ||||||||||
7.3% Notes, due 2015 | 200 | 200 | ||||||||||
7.65% Notes, due 2027 | 247 | 248 | ||||||||||
7.375% Notes, due 2031 | 398 | 397 | ||||||||||
Total Senior Notes and Debentures | $ | 3,357 | $ | 3,604 | ||||||||
Junior Subordinated Debentures | ||||||||||||
7.625% Notes, due 2050 | 200 | 200 | ||||||||||
7.45% Notes, due 2050 | 491 | 504 | ||||||||||
Total Junior Subordinated Debentures | 691 | 704 | ||||||||||
Total Long-Term Debt | $ | 4,048 | $ | 4,308 | ||||||||
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2006 | $ | 250 | ||
2007 | 500 | |||
2008 | 1,220 | |||
2009 | — | |||
2010 | 275 | |||
Thereafter | 2,070 |
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F-56
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Maximum Available As of | Outstanding As of | |||||||||||||||||||||||
Effective | Expiration | December 31, | December 31, | December 31, | December 31, | |||||||||||||||||||
Description | Date | Date | 2005 | 2004 | 2005 | 2004 | ||||||||||||||||||
Commercial Paper | ||||||||||||||||||||||||
The Hartford | 11/10/86 | N/A | $ | 2,000 | $ | 2,000 | $ | 471 | $ | 372 | ||||||||||||||
HLI | 2/7/97 | N/A | 250 | 250 | — | — | ||||||||||||||||||
Total commercial paper | $ | 2,250 | 2,250 | $ | 471 | $ | 372 | |||||||||||||||||
Revolving Credit Facility | ||||||||||||||||||||||||
5-year revolving credit facility | 9/7/05 | 9/7/10 | $ | 1,600 | $ | — | $ | — | $ | — | ||||||||||||||
5-year revolving credit facility [1] | 6/20/01 | 6/20/06 | — | 1,000 | — | — | ||||||||||||||||||
3-year revolving credit facility [1] | 12/31/02 | 12/31/05 | — | 490 | — | — | ||||||||||||||||||
Total revolving credit facility | $ | 1,600 | $ | 1,490 | $ | — | $ | — | ||||||||||||||||
Total Outstanding Commercial Paper and Revolving Credit Facility | $ | 3,850 | $ | 3,740 | $ | 471 | $ | 372 | ||||||||||||||||
[1] | Replaced by $1.6 billion Five-Year Competitive Advance and Revolving Credit Facility Agreement on September 7, 2005. For further information, see below. |
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($ in millions except for per security data) | Hartford Capital III | Hartford Life Capital II | ||||||
Junior Subordinated Debentures [1] [2] | ||||||||
Principal amount owed | $ | 500 | $ | 200 | ||||
Balance December 31, 2005 | $ | 491 | $ | 200 | ||||
Balance December 31, 2004 | $ | 504 | $ | 200 | ||||
Coupon rate | 7.45 | % | 7.625 | % | ||||
Interest payable | Quarterly | Quarterly | ||||||
Maturity date | Oct. 26, 2050 | Feb. 15, 2050 | ||||||
Redeemable by issuer on or after | Oct. 26, 2006 | Mar. 6, 2006 | ||||||
Trust Preferred Securities | ||||||||
Issuance date | Oct. 26, 2001 | Mar. 6, 2001 | ||||||
Securities issued | 20,000,000 | 8,000,000 | ||||||
Liquidation preference per security (in dollars) | $ | 25 | $ | 25 | ||||
Liquidation value | $ | 500 | $ | 200 | ||||
Coupon rate | 7.45 | % | 7.625 | % | ||||
Distribution payable | Quarterly | Quarterly | ||||||
Distribution guaranteed by [3] | The Hartford | HLI | ||||||
[1] | For each of the respective debentures, The Hartford or HLI, has the right at any time, and from time to time, to defer payments of interest on the Junior Subordinated Debentures for a period not exceeding 20 consecutive quarters up to the debentures’ maturity date. During any such period, interest will continue to accrue and The Hartford or HLI may not declare or pay any cash dividends or distributions on, or purchase, The Hartford’s or HLI’s capital stock nor make any principal, interest or premium payments on or repurchase any debt securities that rank equally with or junior to the Junior Subordinated Debentures. The Hartford or HLI will have the right at any time to dissolve the Trust and cause the Junior Subordinated Debentures to be distributed to the holders of the Preferred Securities. | |
[2] | The Hartford Junior Subordinated Debentures are unsecured and rank junior and subordinate in right of payment to all senior debt of The Hartford and are effectively subordinated to all existing and future liabilities of its subsidiaries. | |
[3] | The Hartford has guaranteed, on a subordinated basis, all of the Hartford Capital III obligations under the Hartford Series C Preferred Securities, including to pay the redemption price and any accumulated and unpaid distributions to the extent of available funds and upon dissolution, winding up or liquidation, but only to the extent that Hartford Capital III has funds to make such payments. |
For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Short-term debt | $ | 13 | $ | 6 | $ | 5 | ||||||
Long-term debt [1] | 239 | 245 | 266 | |||||||||
Total interest expense | $ | 252 | $ | 251 | $ | 271 | ||||||
[1] | Includes junior subordinated debentures. |
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For the years ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Statutory Net Income (Loss) | ||||||||||||
Life operations | $ | 821 | $ | 1,048 | $ | 1,026 | ||||||
Property & Casualty operations | 1,382 | 356 | (163 | ) | ||||||||
Total | $ | 2,203 | $ | 1,404 | $ | 863 | ||||||
As of December 31, | ||||||||
2005 | 2004 | |||||||
Statutory Surplus | ||||||||
Life operations | $ | 4,364 | $ | 5,119 | ||||
Japan life operations [1] | 1,017 | — | ||||||
Property & Casualty operations | 6,981 | 6,337 | ||||||
Total | $ | 12,362 | $ | 11,456 | ||||
[1] | Japan Life Operation was valued in accordance with prescribed statutory accounting practices. Prior to September 1, 2005, Japan Life Operations was included in Life Operations. |
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Net Gain (Loss) | Foreign | Minimum | Accumulated | |||||||||||||||||
Unrealized | on Cash-Flow | Currency | Pension | Other | ||||||||||||||||
Gain (Loss) | Hedging | Translation | Liability | Comprehensive | ||||||||||||||||
on Securities | Instruments | Adjustments | Adjustment | Income (Loss) | ||||||||||||||||
For the year ended December 31, 2005 | ||||||||||||||||||||
Balance, beginning of year | $ | 2,162 | $ | (215 | ) | $ | (42 | ) | $ | (480 | ) | $ | 1,425 | |||||||
Change in unrealized gain on securities [1] [2] | (1,193 | ) | — | — | — | (1,193 | ) | |||||||||||||
Change in foreign currency translation adjustments [1] | — | — | (107 | ) | — | (107 | ) | |||||||||||||
Net gain on cash-flow hedging instruments [1] [3] | — | 105 | — | — | 105 | |||||||||||||||
Change in minimum pension liability adjustment [1] | — | — | — | (140 | ) | (140 | ) | |||||||||||||
Balance, end of year | $ | 969 | $ | (110 | ) | $ | (149 | ) | $ | (620 | ) | $ | 90 | |||||||
For the year ended December 31, 2004 | ||||||||||||||||||||
Balance, beginning of year | $ | 1,764 | $ | (42 | ) | $ | (101 | ) | $ | (375 | ) | $ | 1,246 | |||||||
Unrealized gain on securities [1] [2] | 106 | — | — | — | 106 | |||||||||||||||
Change in foreign currency translation adjustments [1] | — | — | 59 | — | 59 | |||||||||||||||
Net loss on cash-flow hedging instruments [1] [3] | — | (173 | ) | — | — | (173 | ) | |||||||||||||
Change in minimum pension liability adjustment [1] | — | — | — | (105 | ) | (105 | ) | |||||||||||||
Cumulative effect of accounting change [4] | 292 | — | — | — | 292 | |||||||||||||||
Balance, end of year | $ | 2,162 | $ | (215 | ) | $ | (42 | ) | $ | (480 | ) | $ | 1,425 | |||||||
For the year ended December 31, 2003 | ||||||||||||||||||||
Balance, beginning of year | $ | 1,444 | $ | 128 | $ | (95 | ) | $ | (383 | ) | $ | 1,094 | ||||||||
Unrealized gain on securities [1] [2] | 320 | — | — | — | 320 | |||||||||||||||
Change in foreign currency translation adjustments [1] | — | — | (6 | ) | — | (6 | ) | |||||||||||||
Net loss on cash-flow hedging instruments [1] [3] | — | (170 | ) | — | — | (170 | ) | |||||||||||||
Change in minimum pension liability adjustment [1] | — | — | — | 8 | 8 | |||||||||||||||
Balance, end of year | $ | 1,764 | $ | (42 | ) | $ | (101 | ) | $ | (375 | ) | $ | 1,246 | |||||||
[1] | Unrealized gain on securities is net of tax and Life deferred acquisition costs of $(644), $234, and $136 for the years ended December 31, 2005, 2004 and 2003, respectively. Net gain (loss) on cash-flow hedging instruments is net of tax of $57, $(93), and $(92) for the years ended December 31, 2005, 2004 and 2003, respectively. Change in foreign currency translation adjustments are net of tax of $(58), $32 and $(3) for the years ended December 31, 2005, 2004 and 2003, respectively. Change in minimum pension liability adjustment is net of tax of $(75), $(57) and $4 for the years ended December 31, 2005, 2004 and 2003, respectively. | |
[2] | Net of reclassification adjustment for gains realized in net income of $45, $170 and $162 for the years ended December 31, 2005, 2004 and 2003, respectively. | |
[3] | Net of amortization adjustment of $5, $20 and $20 to net investment income for the years ended December 31, 2005, 2004 and 2003, respectively. | |
[4] | Cumulative effect of accounting change related to the Company’s adoption of SOP 03-1 is net of tax of $157 for the year ended December 31, 2004. |
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Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Change in Benefit Obligation | ||||||||||||||||
Benefit obligation – beginning of year | $ | 3,162 | $ | 2,734 | $ | 500 | $ | 477 | ||||||||
Service cost (excluding expenses) | 113 | 96 | 12 | 12 | ||||||||||||
Interest cost | 182 | 170 | 27 | 28 | ||||||||||||
Plan participants’ contributions | — | — | 10 | 8 | ||||||||||||
Amendments | 6 | — | — | — | ||||||||||||
Actuarial (gain) loss | 76 | 68 | (24 | ) | (28 | ) | ||||||||||
Acquisition | — | — | — | 6 | ||||||||||||
Change in assumption: | ||||||||||||||||
Discount rate | 128 | 219 | 25 | 32 | ||||||||||||
Benefits paid | (134 | ) | (130 | ) | (29 | ) | (35 | ) | ||||||||
Other / Foreign exchange adjustment | 1 | 5 | — | — | ||||||||||||
Benefit obligation – end of year | $ | 3,534 | $ | 3,162 | $ | 521 | $ | 500 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Change in Plan Assets | ||||||||||||||||
Fair value of plan assets – beginning of year | $ | 2,496 | $ | 2,015 | $ | 106 | $ | 100 | ||||||||
Actual return on plan assets | 176 | 289 | 3 | 6 | ||||||||||||
Employer contribution | 504 | 317 | — | — | ||||||||||||
Benefits paid | (126 | ) | (124 | ) | — | — | ||||||||||
Expenses paid | (4 | ) | (4 | ) | — | — | ||||||||||
Other / Foreign exchange adjustment | 1 | 3 | — | — | ||||||||||||
Fair value of plan assets – end of year | $ | 3,047 | $ | 2,496 | $ | 109 | $ | 106 | ||||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Funded status | $ | (487 | ) | $ | (666 | ) | $ | (412 | ) | $ | (394 | ) | ||||
Unrecognized transition obligation | — | — | 2 | 2 | ||||||||||||
Unrecognized net actuarial loss | 1,241 | 1,065 | 126 | 125 | ||||||||||||
Unrecognized prior service cost | (114 | ) | (134 | ) | (33 | ) | (56 | ) | ||||||||
Net amount recognized | $ | 640 | $ | 265 | $ | (317 | ) | $ | (323 | ) | ||||||
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Accrued benefit liability | $ | (313 | ) | $ | (473 | ) | $ | (317 | ) | $ | (323 | ) | ||||
Accumulated other comprehensive income | 953 | 738 | — | — | ||||||||||||
Net amount recognized | $ | 640 | $ | 265 | $ | (317 | ) | $ | (323 | ) | ||||||
Pension Benefits | ||||||||
2005 | 2004 | |||||||
Accumulated benefit obligation | $ | 3,360 | $ | 2,969 | ||||
Fair value of plan assets | 3,047 | 2,496 | ||||||
Unfunded accumulated benefit obligation | 313 | 473 | ||||||
Net amount recognized | 640 | 265 | ||||||
Minimum pension liability, end of year | 953 | 738 | ||||||
Minimum pension liability, beginning of year | 738 | 577 | ||||||
Increase / (decrease) in minimum pension liability included in other comprehensive income, before-tax | $ | 215 | $ | 161 | ||||
Increase / (decrease) in minimum pension liability included in other comprehensive income, after-tax | $ | 140 | $ | 105 | ||||
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Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
Service cost | $ | 116 | $ | 101 | $ | 105 | $ | 12 | $ | 12 | $ | 12 | ||||||||||||
Interest cost | 182 | 171 | 167 | 27 | 28 | 27 | ||||||||||||||||||
Expected return on plan assets | (221 | ) | (201 | ) | (184 | ) | (9 | ) | (8 | ) | (8 | ) | ||||||||||||
Amortization of prior service cost | (13 | ) | (13 | ) | 6 | (23 | ) | (23 | ) | (24 | ) | |||||||||||||
Amortization of unrecognized net losses | 73 | 46 | 26 | 5 | 4 | 4 | ||||||||||||||||||
Net periodic benefit cost | $ | 137 | $ | 104 | $ | 120 | $ | 12 | $ | 13 | $ | 11 | ||||||||||||
As of December 31, | ||||||||
2005 | 2004 | |||||||
Discount rate | 5.50 | % | 5.75 | % | ||||
Rate of increase in compensation levels | 4.00 | % | 4.00 | % | ||||
Twelve Months Ended | ||||||||||||
December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Discount rate | 5.75 | % | 6.25 | % | 6.50 | % | ||||||
Expected long-term rate of return on plan assets | 8.50 | % | 8.50 | % | 9.00 | % | ||||||
Rate of increase in compensation levels | 4.00 | % | 4.00 | % | 4.00 | % | ||||||
As of December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Health care cost trend rate | 10.00 | % | 10.00 | % | 9.00 | % | ||||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.50 | % | 4.50 | % | 5.00 | % | ||||||
Year that the rate reaches the ultimate trend rate | 2012 | 2011 | 2008 | |||||||||
Percentage of Pension Plan Assets Fair Value at | Target | |||||||||||
December 31, | Allocation | |||||||||||
2005 | 2004 | 2006 | ||||||||||
Equity securities | 66 | % | 67 | % | 50% - 70 | % | ||||||
Debt securities | 32 | % | 31 | % | 30% - 50 | % | ||||||
Real estate | — | — | 2% maximum | |||||||||
Other | 2 | % | 2 | % | 5% maximum | |||||||
Total | 100 | % | 100 | % | ||||||||
Percentage of Other Postretirement Benefit Plan | Target | |||||||||||
Assets Fair Value at December 31, | Allocation | |||||||||||
2005 | 2004 | 2006 | ||||||||||
Equity securities | 24 | % | 24 | % | 20% - 45 | % | ||||||
Debt securities | 76 | % | 76 | % | 55% - 80 | % | ||||||
Total | 100 | % | 100 | % | ||||||||
F-62
Table of Contents
Employer Contributions | Pension Benefits | Other Postretirement Benefits | ||||||
2004 | $ | 317 | $ | — | ||||
2005 | 504 | — | ||||||
2006 (best estimate) | 200 | — | ||||||
Pension Benefits | Other Postretirement Benefits | |||||||
2006 | $ | 138 | $ | 31 | ||||
2007 | 148 | 32 | ||||||
2008 | 160 | 34 | ||||||
2009 | 192 | 35 | ||||||
2010 | 209 | 37 | ||||||
2011-2015 | 1,331 | 203 | ||||||
Total | $ | 2,178 | $ | 372 | ||||
2006 | $ | — | ||
2007 | 3 | |||
2008 | 3 | |||
2009 | 4 | |||
2010 | 4 | |||
2011-2015 | 13 | |||
Total | $ | 27 | ||
F-63
Table of Contents
2005 | 2004 | 2003 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average Exercise | Average | Average | ||||||||||||||||||||||
(Shares in thousands) | Shares | Price | Shares | Exercise Price | Shares | Exercise Price | ||||||||||||||||||
Outstanding at beg. of year | 18,855 | $ | 51.72 | 21,218 | $ | 48.69 | 20,172 | $ | 49.66 | |||||||||||||||
Granted | 317 | 71.27 | 1,730 | 65.88 | 2,904 | 37.54 | ||||||||||||||||||
Exercised | (7,519 | ) | 48.80 | (3,577 | ) | 39.78 | (1,225 | ) | 33.89 | |||||||||||||||
Forfeited | (157 | ) | 53.20 | (418 | ) | 56.63 | (514 | ) | 56.76 | |||||||||||||||
Expired | (25 | ) | 53.82 | (98 | ) | 56.60 | (119 | ) | 57.24 | |||||||||||||||
Outstanding at end of year | 11,471 | 54.16 | 18,855 | 51.73 | 21,218 | 48.69 | ||||||||||||||||||
Exercisable at end of year | 9,510 | 53.34 | 13,727 | 49.47 | 14,661 | 46.02 | ||||||||||||||||||
Weighted average fair value of options granted | $ | 22.89 | $ | 20.74 | $ | 15.46 | ||||||||||||||||||
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted | Number | |||||||||||||||||||
Weighted Average | Average | Exercisable at | Weighted | |||||||||||||||||
Range of | Number Outstanding | Remaining Contractual | Exercise | December 31, | Average | |||||||||||||||
Exercise Prices | at December 31, 2005 | Life (Years) | Price | 2005 | Exercise Price | |||||||||||||||
$22.97-30.62 | 34 | 0.2 | $ | 26.29 | 34 | $ | 26.29 | |||||||||||||
30.63-38.28 | 2,772 | 5.6 | 35.98 | 2,194 | 35.61 | |||||||||||||||
38.29-45.93 | 1,084 | 2.9 | 43.88 | 1,077 | 43.90 | |||||||||||||||
45.94-53.59 | 951 | 2.6 | 48.54 | 939 | 48.53 | |||||||||||||||
53.60-61.25 | 533 | 3.8 | 57.48 | 519 | 57.52 | |||||||||||||||
61.26-68.90 | 5,757 | 6.1 | 64.63 | 4,724 | 64.33 | |||||||||||||||
68.91-76.56 | 340 | 8.9 | 71.34 | 23 | 72.31 | |||||||||||||||
11,471 | 5.3 | $ | 54.16 | 9,510 | $ | 53.34 | ||||||||||||||
F-64
Table of Contents
Three Months Ended | ||||||||||||||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||||||||||||
2005 | 2004 | 2005 | 2004 | 2005 | 2004 | 2005 | 2004 | |||||||||||||||||||||||||
Revenues | $ | 6,002 | $ | 5,736 | $ | 6,064 | $ | 5,453 | $ | 7,307 | $ | 5,414 | $ | 7,710 | $ | 6,105 | ||||||||||||||||
Benefits, claims and expenses | $ | 5,088 | $ | 4,918 | $ | 5,237 | $ | 4,876 | $ | 6,611 | $ | 5,107 | $ | 7,162 | $ | 5,284 | ||||||||||||||||
Net income [1] | $ | 666 | $ | 568 | $ | 602 | $ | 433 | $ | 539 | $ | 494 | $ | 467 | $ | 620 | ||||||||||||||||
Basic earnings per share [1] | $ | 2.26 | $ | 1.96 | $ | 2.03 | $ | 1.48 | $ | 1.80 | $ | 1.68 | $ | 1.55 | $ | 2.11 | ||||||||||||||||
Diluted earnings per share [1] | $ | 2.21 | $ | 1.93 | $ | 1.98 | $ | 1.46 | $ | 1.76 | $ | 1.66 | $ | 1.51 | $ | 2.08 | ||||||||||||||||
Weighted average common shares outstanding | 294.8 | 289.9 | 297.1 | 292.3 | 299.2 | 293.2 | 300.7 | 293.8 | ||||||||||||||||||||||||
Weighted average common shares outstanding and dilutive potential common shares | 301.3 | 294.9 | 303.9 | 297.5 | 307.0 | 297.5 | 310.0 | 298.1 | ||||||||||||||||||||||||
[1] | Included in the quarter ended September 30, 2004 are tax benefits of $190 in Life and $26 in Property and Casualty related to tax years prior to 2004. |
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(In millions) | As of December 31, 2005 | |||||||||||
Amount at which | ||||||||||||
shown on Balance | ||||||||||||
Type of Investment | Cost | Fair Value | Sheet | |||||||||
Fixed Maturities | ||||||||||||
Bonds and Notes | ||||||||||||
U.S. Government and Government agencies and authorities (guaranteed and sponsored) | $ | 877 | $ | 898 | $ | 898 | ||||||
U.S. Government and Government agencies and authorities (guaranteed and sponsored) – asset-backed | 4,844 | 4,789 | 4,789 | |||||||||
States, municipalities and political subdivisions | 11,641 | 12,218 | 12,218 | |||||||||
International governments | 1,378 | 1,467 | 1,467 | |||||||||
Public utilities | 4,043 | 4,181 | 4,181 | |||||||||
All other corporate including international | 28,976 | 29,837 | 29,837 | |||||||||
All other corporate – asset-backed | 20,900 | 20,942 | 20,942 | |||||||||
Short-term investments | 2,063 | 2,063 | 2,063 | |||||||||
Redeemable preferred stock | 44 | 45 | 45 | |||||||||
Total fixed maturities | 74,766 | 76,440 | 76,440 | |||||||||
Equity Securities | ||||||||||||
Common stocks | ||||||||||||
Banks, trusts & insurance companies | — | 1 | 1 | |||||||||
Industrial, miscellaneous and all other | 19,872 | 24,444 | 24,444 | |||||||||
Non-redeemable preferred stocks | 1,028 | 1,050 | 1,050 | |||||||||
Total equity securities | 20,900 | 25,495 | 25,495 | |||||||||
Total fixed maturities and equity securities | 95,666 | 101,935 | 101,935 | |||||||||
Real Estate | 2 | 2 | 2 | |||||||||
Other Investments | ||||||||||||
Mortgage loans on real estate | 1,731 | 1,718 | 1,731 | |||||||||
Policy loans | 2,016 | 2,016 | 2,016 | |||||||||
Investments in partnerships and trusts | 665 | 668 | 668 | |||||||||
Futures, options and miscellaneous | 629 | 583 | 583 | |||||||||
Total other investments | 5,041 | 4,985 | 4,998 | |||||||||
Total investments | $ | 100,709 | $ | 106,922 | $ | 106,935 | ||||||
S-1
Table of Contents
(Registrant)
(In millions) | As of December 31, | |||||||
Balance Sheets | 2005 | 2004 | ||||||
Assets | ||||||||
Other assets | $ | 411 | $ | 448 | ||||
Investment in affiliates | 19,235 | 18,493 | ||||||
Total assets | 19,646 | 18,941 | ||||||
Liabilities and Stockholders’ Equity | ||||||||
Net Payable to affiliate | 278 | 280 | ||||||
Short-term debt (includes current maturities of long-term debt) | 719 | 621 | ||||||
Long-term debt | 3,003 | 3,265 | ||||||
Other liabilities | 321 | 537 | ||||||
Total liabilities | 4,321 | 4,703 | ||||||
Total stockholders’ equity | 15,325 | 14,238 | ||||||
Total liabilities and stockholders’ equity | $ | 19,646 | $ | 18,941 | ||||
(In millions) | ||||||||||||
Statement of Operations | For the years ended December 31, | |||||||||||
2005 | 2004 | 2003 | ||||||||||
Interest expense (net of interest income) | $ | 169 | $ | 161 | $ | 155 | ||||||
Other expenses | 14 | 19 | 17 | |||||||||
Loss before income taxes and earnings of subsidiaries | (183 | ) | (180 | ) | (172 | ) | ||||||
Income tax benefit | (63 | ) | (62 | ) | (60 | ) | ||||||
Loss before earnings of subsidiaries | (120 | ) | (118 | ) | (112 | ) | ||||||
Earnings of subsidiaries | 2,394 | 2,233 | 21 | |||||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
S-2
Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC. (continued)
(Registrant)
(In millions) | For the years ended December 31, | |||||||||||
Condensed Statements of Cash Flows | 2005 | 2004 | 2003 | |||||||||
Operating Activities | ||||||||||||
Net income (loss) | $ | 2,274 | $ | 2,115 | $ | (91 | ) | |||||
Undistributed earnings of subsidiaries | (1,904 | ) | (1,506 | ) | 197 | |||||||
Change in operating assets and liabilities | (304 | ) | 183 | (231 | ) | |||||||
Cash provided by (used for) operating activities | 66 | 792 | (125 | ) | ||||||||
Investing Activities | ||||||||||||
Net sale (purchase) of short-term investments | 63 | (111 | ) | 60 | ||||||||
Capital contributions to subsidiaries | (22 | ) | (646 | ) | (2,135 | ) | ||||||
Cash provided by (used for) investing activities | 41 | (757 | ) | (2,075 | ) | |||||||
Financing Activities | ||||||||||||
Net increase (decrease) in debt | (150 | ) | (280 | ) | 1,270 | |||||||
Issuance of common stock in underwritten offering | — | 411 | 1,161 | |||||||||
Dividends paid | (345 | ) | (325 | ) | (291 | ) | ||||||
Return of shares to treasury stock under incentive and stock compensation plans | (2 | ) | (2 | ) | (1 | ) | ||||||
Proceeds from issuances of shares under incentive and stock compensation plans | 390 | 161 | 60 | |||||||||
Cash provided by (used for) financing activities | (107 | ) | (35 | ) | 2,199 | |||||||
Net change in cash | — | — | (1 | ) | ||||||||
Cash – beginning of year | — | — | 1 | |||||||||
Cash-end of year | $ | — | $ | — | $ | — | ||||||
Supplemental Disclosure of Cash Flow Information | ||||||||||||
Interest Paid | $ | 170 | $ | 154 | $ | 123 | ||||||
Dividends Received from Subsidiaries | $ | 454 | $ | 667 | $ | 198 |
S-3
Table of Contents
Future Policy | ||||||||||||||||
Benefits, | Other | |||||||||||||||
Unpaid Claims | Policyholder | |||||||||||||||
Deferred Policy | and | Funds and | ||||||||||||||
Acquisition | Claim Adjustment | Unearned | Benefits | |||||||||||||
Segment [1] | Costs [2] | Expenses | Premiums | Payable | ||||||||||||
As of December 31, 2005 | ||||||||||||||||
Life | ||||||||||||||||
Retail Products Group | $ | 4,714 | $ | 747 | $ | $ | 16,410 | |||||||||
Retirement Plans | 405 | 366 | 5,194 | |||||||||||||
Institutional Solutions Group | 81 | 5,315 | 9,233 | |||||||||||||
Individual Life | 1,975 | 586 | 4,990 | |||||||||||||
Group Benefits | 95 | 5,828 | 535 | |||||||||||||
International | 1,281 | 51 | 26,102 | |||||||||||||
Other | 16 | 94 | 1,988 | |||||||||||||
Total Life | 8,567 | 12,987 | 69 | 64,452 | ||||||||||||
Property & Casualty | ||||||||||||||||
Ongoing Operations | ||||||||||||||||
Business Insurance | 531 | 7,066 | 2,566 | — | ||||||||||||
Personal Lines | 468 | 2,152 | 1,809 | — | ||||||||||||
Specialty Commercial | 135 | 6,202 | 1,076 | — | ||||||||||||
Total Ongoing Operations | 1,134 | 15,420 | 5,451 | — | ||||||||||||
Other Operations | — | 6,846 | 51 | — | ||||||||||||
Total Property & Casualty | 1,134 | 22,266 | 5,502 | — | ||||||||||||
Corporate | 1 | — | (5) | — | ||||||||||||
Consolidated | $ | 9,702 | $ | 35,253 | $ | 5,566 | $ | 64,452 | ||||||||
As of December 31, 2004 | ||||||||||||||||
Life | ||||||||||||||||
Retail Products Group | $ | 4,401 | $ | 707 | $ | $ | 18,424 | |||||||||
Retirement Plans | 264 | 387 | 4,790 | |||||||||||||
Institutional Solutions Group | 57 | 4,676 | 7,294 | |||||||||||||
Individual Life | 1,807 | 644 | 4,676 | |||||||||||||
Group Benefits | 70 | 5,684 | 558 | |||||||||||||
International | 821 | 28 | 14,650 | |||||||||||||
Other | 17 | 124 | 2,441 | |||||||||||||
Total Life | 7,437 | 12,250 | 50 | 52,833 | ||||||||||||
Property & Casualty | ||||||||||||||||
Ongoing Operations | ||||||||||||||||
Business Insurance | 512 | 6,057 | 2,180 | — | ||||||||||||
Personal Lines | 433 | 2,000 | 1,748 | — | ||||||||||||
Specialty Commercial | 128 | 5,519 | 773 | — | ||||||||||||
Total Ongoing Operations | 1,073 | 13,576 | 4,701 | — | ||||||||||||
Other Operations | (2 | ) | 7,753 | 62 | — | |||||||||||
Total Property & Casualty | 1,071 | 21,329 | 4,763 | — | ||||||||||||
Corporate | 1 | (4 | ) | (6 | ) | — | ||||||||||
Consolidated | $ | 8,509 | $ | 33,575 | $ | 4,807 | $ | 52,833 | ||||||||
S-4
Table of Contents
Earned | Benefits, Claims | Amortization of | ||||||||||||||||||||||
Premiums, | Net | and Claim | Deferred Policy | |||||||||||||||||||||
Fee Income | Investment | Adjustment | Acquisition | Other | Net Written | |||||||||||||||||||
Segment [1] | and Other | Income | Expenses | Costs | Expenses [3] | Premiums | ||||||||||||||||||
For the year ended December 31, 2005 | ||||||||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail Products Group | $ | 2,273 | $ | 933 | $ | 895 | $ | 744 | $ | 869 | $ | |||||||||||||
Retirement Plans | 162 | 311 | 231 | 26 | 115 | |||||||||||||||||||
Institutional Solutions Group | 623 | 802 | 1,212 | 32 | 56 | |||||||||||||||||||
Individual Life | 769 | 305 | 469 | 205 | 167 | |||||||||||||||||||
Group Benefits | 3,810 | 398 | 2,794 | 31 | 1,022 | |||||||||||||||||||
International | 483 | 75 | 42 | 133 | 188 | |||||||||||||||||||
Other | 83 | 4,021 | 4,166 | 1 | 105 | |||||||||||||||||||
Total Life | 8,203 | 6,845 | 9,809 | 1,172 | 2,522 | N/A | ||||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Ongoing Operations | ||||||||||||||||||||||||
Business Insurance | 4,785 | 2,971 | 1,138 | 5,001 | ||||||||||||||||||||
Personal Lines | 3,731 | 2,294 | 581 | 3,676 | ||||||||||||||||||||
Specialty Commercial | 2,099 | 1,486 | 281 | 1,806 | ||||||||||||||||||||
Total Ongoing Operations | 10,615 | 1,082 | 6,751 | 2,000 | 1,326 | 10,483 | ||||||||||||||||||
Other Operations | 4 | 283 | 212 | (3 | ) | 22 | 4 | |||||||||||||||||
Total Property & Casualty | 10,619 | 1,365 | 6,963 | 1,997 | 1,348 | 10,487 | ||||||||||||||||||
Corporate | 13 | 21 | 4 | — | 283 | N/A | ||||||||||||||||||
Consolidated | $ | 18,835 | $ | 8,231 | $ | 16,776 | $ | 3,169 | $ | 4,153 | $ | 10,487 | ||||||||||||
For the year ended December 31, 2004 | ||||||||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail Products Group | $ | 2,024 | $ | 1,011 | $ | 1,074 | $ | 647 | $ | 687 | $ | |||||||||||||
Retirement Plans | 131 | 306 | 220 | 29 | 96 | |||||||||||||||||||
Institutional Solutions Group | 624 | 664 | 1,116 | 26 | 55 | |||||||||||||||||||
Individual Life | 746 | 303 | 480 | 185 | 164 | |||||||||||||||||||
Group Benefits | 3,652 | 373 | 2,703 | 23 | 989 | |||||||||||||||||||
International | 240 | 11 | 20 | 77 | 98 | |||||||||||||||||||
Other | 119 | 1,007 | 1,017 | 6 | 56 | |||||||||||||||||||
Total Life | 7,536 | 3,675 | 6,630 | 993 | 2,145 | N/A | ||||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Ongoing Operations | ||||||||||||||||||||||||
Business Insurance | 4,298 | 2,633 | 1,058 | 4,575 | ||||||||||||||||||||
Personal Lines | 3,568 | 2,512 | 530 | 3,557 | ||||||||||||||||||||
Specialty Commercial | 2,040 | 1,414 | 257 | 1,840 | ||||||||||||||||||||
Total Ongoing Operations | 9,906 | 903 | 6,559 | 1,845 | 1,213 | 9,972 | ||||||||||||||||||
Other Operations | 24 | 345 | 445 | 5 | 59 | (10 | ) | |||||||||||||||||
Total Property & Casualty | 9,930 | 1,248 | 7,004 | 1,850 | 1,272 | 9,962 | ||||||||||||||||||
Corporate | 8 | 20 | 6 | — | 285 | N/A | ||||||||||||||||||
Consolidated | $ | 17,474 | $ | 4,943 | $ | 13,640 | $ | 2,843 | $ | 3,702 | $ | 9,962 | ||||||||||||
For the year ended December 31, 2003 | ||||||||||||||||||||||||
Life | ||||||||||||||||||||||||
Retail Products Group | $ | 1,620 | $ | 432 | $ | 519 | $ | 498 | $ | 560 | $ | |||||||||||||
Retirement Plans | 98 | 281 | 226 | 17 | 79 | |||||||||||||||||||
Institutional Solutions Group | 937 | 581 | 1,344 | 28 | 109 | |||||||||||||||||||
Individual Life | 727 | 263 | 436 | 177 | 161 | |||||||||||||||||||
Group Benefits | 2,362 | 262 | 1,862 | 18 | 553 | |||||||||||||||||||
International | 90 | 2 | 1 | 32 | 42 | |||||||||||||||||||
Other | 143 | 220 | 228 | (15 | ) | 103 | ||||||||||||||||||
Total Life | 5,977 | 2,041 | 4,616 | 755 | 1,607 | N/A | ||||||||||||||||||
Property & Casualty | ||||||||||||||||||||||||
Ongoing Operations | ||||||||||||||||||||||||
Business Insurance | 3,695 | 2,340 | 913 | 3,957 | ||||||||||||||||||||
Personal Lines | 3,304 | 2,318 | 386 | 3,272 | ||||||||||||||||||||
Specialty Commercial | 1,864 | 1,182 | 254 | 1,691 | ||||||||||||||||||||
Total Ongoing Operations | 8,863 | 836 | 5,840 | 1,553 | 1,424 | 8,920 | ||||||||||||||||||
Other Operations | 370 | 336 | 3,086 | 89 | (11 | ) | 224 | |||||||||||||||||
Total Property & Casualty | 9,233 | 1,172 | 8,926 | 1,642 | 1,413 | 9,144 | ||||||||||||||||||
Corporate | (3 | ) | 20 | 6 | — | 304 | N/A | |||||||||||||||||
Consolidated | $ | 15,207 | $ | 3,233 | $ | 13,548 | $ | 2,397 | $ | 3,324 | $ | 9,144 | ||||||||||||
[1] | Segment information is presented in a manner by which The Hartford’s chief operating decision maker views and manages the business. | |
[2] | Also includes present value of future profits. | |
[3] | Includes insurance operating costs, interest and other expenses. | |
Note: Certain reclassifications have been made to prior year financial information to conform to current year presentation. | ||
N/A – Not applicable to life insurance pursuant to Regulation S-X. |
S-5
Table of Contents
Percentage | ||||||||||||||||||||
Assumed | of Amount | |||||||||||||||||||
Gross | Ceded to Other | From Other | Net | Assumed | ||||||||||||||||
(In millions) | Amount | Companies | Companies | Amount | to Net | |||||||||||||||
For the year ended December 31, 2005 | ||||||||||||||||||||
Life insurance in force | $ | 764,293 | $ | 251,853 | $ | 51,274 | $ | 563,714 | 9 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 11,356 | 1,418 | 218 | 10,156 | 2 | % | |||||||||||||
Life insurance and annuities | 6,072 | 403 | 348 | 6,017 | 6 | % | ||||||||||||||
Accident and health insurance | 2,122 | 52 | 116 | 2,186 | 5 | % | ||||||||||||||
Total insurance revenues | $ | 19,550 | $ | 1,873 | $ | 682 | $ | 18,359 | 4 | % | ||||||||||
For the year ended December 31, 2004 | ||||||||||||||||||||
Life insurance in force | $ | 778,134 | $ | 300,627 | $ | 75,050 | $ | 552,557 | 14 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 10,811 | $ | 1,535 | $ | 218 | $ | 9,494 | 2 | % | ||||||||||
Life insurance and annuities | 5,392 | 415 | 542 | 5,519 | 10 | % | ||||||||||||||
Accident and health insurance | 1,831 | 83 | 269 | 2,017 | 13 | % | ||||||||||||||
Total insurance revenues | $ | 18,034 | $ | 2,033 | $ | 1,029 | $ | 17,030 | 6 | % | ||||||||||
For the year ended December 31, 2003 | ||||||||||||||||||||
Life insurance in force | $ | 737,837 | $ | 288,758 | $ | 28,800 | $ | 477,879 | 6 | % | ||||||||||
Insurance revenues | ||||||||||||||||||||
Property and casualty insurance | $ | 9,812 | $ | 1,738 | $ | 731 | $ | 8,805 | 8 | % | ||||||||||
Life insurance and annuities | 4,762 | 364 | 122 | 4,520 | 3 | % | ||||||||||||||
Accident and health insurance | 1,485 | 101 | 73 | 1,457 | 5 | % | ||||||||||||||
Total insurance revenues | $ | 16,059 | $ | 2,203 | $ | 926 | $ | 14,782 | 6 | % | ||||||||||
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Balance | Charged to Costs | Translation | Write-offs/ | Balance | ||||||||||||||||
(In millions) | January 1, | and Expenses | Adjustment | Payments/Other | December 31, | |||||||||||||||
2005 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 175 | $ | 28 | $ | — | $ | (83 | ) | $ | 120 | |||||||||
Allowance for uncollectible reinsurance | 374 | 38 | — | 1 | 413 | |||||||||||||||
Accumulated depreciation of plant, property and equipment | 1,051 | 206 | — | (107 | ) | 1,150 | ||||||||||||||
Valuation allowance for deferred taxes | 16 | 12 | — | — | 28 | |||||||||||||||
2004 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 150 | $ | 71 | $ | — | $ | (46 | ) | $ | 175 | |||||||||
Allowance for uncollectible reinsurance | 381 | 40 | — | (47 | ) | 374 | ||||||||||||||
Accumulated depreciation of plant, property and equipment | 958 | 156 | — | (63 | ) | 1,051 | ||||||||||||||
Valuation allowance for deferred taxes | 15 | 2 | — | (1 | ) | 16 | ||||||||||||||
2003 | ||||||||||||||||||||
Allowance for doubtful accounts and other | $ | 121 | $ | 110 | $ | — | $ | (81 | ) | $ | 150 | |||||||||
Allowance for uncollectible reinsurance | 211 | 263 | — | (93 | ) | 381 | ||||||||||||||
Accumulated depreciation of plant, property and equipment | 1,037 | 167 | — | (246 | ) | 958 | ||||||||||||||
Valuation allowance for deferred taxes | 8 | 7 | — | — | 15 |
AND CASUALTY INSURANCE OPERATIONS
Paid Claims and | ||||||||||||||||
Discount | Claims and Claim Adjustment | Claim | ||||||||||||||
Deducted From | Expenses Incurred Related to: | Adjustment | ||||||||||||||
(In millions) | Liabilities [1] | Current Year | Prior Year | Expenses | ||||||||||||
Years ended December 31, | ||||||||||||||||
2005 | $ | 608 | $ | 6,715 | $ | 248 | $ | 6,291 | ||||||||
2004 | $ | 556 | $ | 6,590 | $ | 414 | $ | 7,031 | ||||||||
2003 | $ | 556 | $ | 6,102 | $ | 2,824 | $ | 5,849 | ||||||||
[1] | Reserves for permanently disabled claimants and certain structured settlement contracts that fund loss run-offs have been discounted using the weighted average interest rates of 4.8%, 4.8% and 4.9% for 2005, 2004 and 2003, respectively. |
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THE HARTFORD FINANCIAL SERVICES GROUP, INC. | ||||||
By: | /s/ Robert J. Price | |||||
Robert J. Price | ||||||
Senior Vice President and Controller |
Signature | Title | Date | ||||
/s/ Ramani Ayer | Chairman, President, Chief Executive Officer and Director | February 24, 2006 | ||||
Ramani Ayer | (Principal Executive Officer) | |||||
* | Executive Vice President and Director | February 24, 2006 | ||||
Thomas M. Marra | ||||||
* | Executive Vice President and Director | February 24, 2006 | ||||
David K. Zwiener | ||||||
/s/ David M. Johnson | Executive Vice President and Chief Financial Officer | February 24, 2006 | ||||
David M. Johnson | (Principal Financial Officer) | |||||
/s/ Robert J. Price | Senior Vice President and Controller | February 24, 2006 | ||||
Robert J. Price | (Principal Accounting Officer) | |||||
* | Director | February 24, 2006 | ||||
Ramon de Oliveira | ||||||
* | Director | February 24, 2006 | ||||
Edward J. Kelly, III | ||||||
* | Director | February 24, 2006 | ||||
Paul G. Kirk, Jr. | ||||||
* | Director | February 24, 2006 | ||||
Gail J. McGovern | ||||||
* | Director | February 24, 2006 | ||||
Michael G. Morris | ||||||
* | Director | February 24, 2006 | ||||
Robert W. Selander | ||||||
* | Director | February 24, 2006 | ||||
Charles B. Strauss | ||||||
* | Director | February 24, 2006 | ||||
H. Patrick Swygert | ||||||
*By: | /s/ Neal S. Wolin | |||||
As Attorney-in-Fact |
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
FORM 10-K
Exhibit No. | Description | |
3.01 | Corrected Amended and Restated Certificate of Incorporation of The Hartford Financial Services Group, Inc. (“The Hartford”), effective May 21, 1998, as amended by Amendment No. 1, effective May 1, 2002 (incorporated herein by reference to Exhibit 3.01 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2004). | |
3.02 | Amended and Restated By-Laws of The Hartford, amended effective May 19, 2005 (incorporated herein by reference to Exhibit 3.1 to The Hartford’s Report on Form 8-K, filed May 24, 2005). | |
4.01 | Corrected Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws of The Hartford (incorporated herein by reference as indicated in Exhibits 3.01 and 3.02 hereto, respectively). | |
4.02 | Senior Indenture, dated as of October 20, 1995, between The Hartford and The Chase Manhattan Bank (National Association) as Trustee (incorporated herein by reference to Exhibit 4.03 to the Registration Statement on Form S-3 (Registration No. 333-103915) of The Hartford, Hartford Capital IV, Hartford Capital V and Hartford Capital VI). | |
4.03 | Junior Subordinated Indenture, dated as of October 20, 1996, between The Hartford and Wilmington Trust Company, as Trustee (incorporated herein by reference to Exhibit 4.05 to the Registration Statement on Form S-3 (Registration No. 333-103915) of The Hartford, Hartford Capital IV, Hartford Capital V and Hartford Capital VI). | |
4.04 | Supplemental Indenture, dated as of October 26, 2001, between The Hartford and Wilmington Trust Company, as Trustee, to the Junior Subordinated Indenture filed as Exhibit 4.03 hereto between The Hartford and Wilmington Trust Company, as Trustee (incorporated herein by reference to Exhibit 4.27 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2001). | |
4.05 | Amended and Restated Trust Agreement, dated as of October 26, 2001, of Hartford Capital III, relating to the 7.45% Trust Originated Preferred Securities, Series C (the “Series C Preferred Securities”) (incorporated herein by reference to Exhibit 4.28 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2001). | |
4.06 | Agreement as to Expenses and Liabilities, dated as of October 26, 2001, between The Hartford and Hartford Capital III (incorporated herein by reference to Exhibit 4.29 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2001). | |
4.07 | Preferred Security Certificate for Hartford Capital III (incorporated herein by reference to Exhibit 4.30 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2001). | |
4.08 | Guarantee Agreement, dated as of October 26, 2001, between The Hartford and Wilmington Trust Company, relating to The Hartford’s guarantee of the Series C Preferred Securities (incorporated herein by reference to Exhibit 4.31 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2001). | |
4.09 | Supplemental Indenture No. 1, dated as of December 27, 2000, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and The Chase Manhattan Bank, as Trustee. † | |
4.10 | Supplemental Indenture No. 2, dated as of September 13, 2002, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Report on Form 8-K, filed September 17, 2002). | |
4.11 | Form of Global Security (included in Exhibit 4.10). | |
4.12 | Purchase Contract Agreement, dated as of September 13, 2002, between The Hartford and JPMorgan Chase Bank, as Purchase Contract Agent (incorporated herein by reference to Exhibit 4.2 to The Hartford’s Report on Form 8-K, filed September 17, 2002). | |
4.13 | Form of Corporate Unit Certificate (included in Exhibit 4.12). |
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Exhibit No. | Description | |
4.14 | Pledge Agreement, dated as of September 13, 2002, among The Hartford and JPMorgan Chase Bank, as Collateral Agent, Custodial Agent, Securities Intermediary and JPMorgan Chase Bank as Purchase Contract Agent (incorporated herein by reference to Exhibit 4.3 to The Hartford’s Report on Form 8-K, filed September 17, 2002). | |
4.15 | Remarketing Agreement, dated as of September 13, 2002, between The Hartford and Morgan Stanley & Co. Incorporated, as Remarketing Agent, and JPMorgan Chase Bank, as Purchase Contract Agent (incorporated herein by reference to Exhibit 4.4 to The Hartford’s Report on Form 8-K, filed September 17, 2002). | |
4.16 | Supplemental Indenture No. 3, dated as of May 23, 2003, to the Senior Indenture filed as Exhibit 4.02 hereto, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 of The Hartford’s Report on Form 8-K, filed May 30, 2003). | |
4.17 | Purchase Contract Agreement, dated as of May 23, 2003, between The Hartford and JPMorgan Chase Bank as Purchase Contract Agent (incorporated herein by reference to Exhibit 4.2 of The Hartford’s Report on Form 8-K, filed May 30, 2003). | |
4.18 | Pledge Agreement, dated as of May 23, 2003, between The Hartford and JPMorgan Chase Bank, as Collateral Agent, Custodial Agent, Securities Intermediary and Purchase Contract Agent (incorporated herein by reference to Exhibit 4.3 of The Hartford’s Report on Form 8-K, filed May 30, 2003). | |
4.19 | Remarketing Agreement, dated as of May 23, 2003, between The Hartford, Goldman, Sachs & Co., as the Remarketing Agent and JPMorgan Chase Bank, as Purchase Contract Agent (incorporated herein by reference to Exhibit 4.4 of The Hartford’s Report on Form 8-K, filed May 30, 2003). | |
4.20 | Senior Indenture, dated as of March 9, 2004, between The Hartford and JPMorgan Chase Bank, as Trustee (incorporated herein by reference to Exhibit 4.1 to The Hartford’s Report on Form 8-K, filed March 12, 2004). | |
*10.01 | Employment Agreement, dated as of July 1, 1997, and amended as of February 6, 2004, between The Hartford and Ramani Ayer (incorporated herein by reference to Exhibit 10.01 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.02 | Employment Agreement, dated as of July 1, 1997, and amended as of February 17, 2004, between The Hartford and David K. Zwiener (incorporated herein by reference to Exhibit 10.02 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.03 | Employment Agreement, dated as of July 1, 2000, and amended as of January 29, 2004, between The Hartford and Thomas M. Marra (incorporated herein by reference to Exhibit 10.03 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.04 | Employment Agreement, dated as of March 20, 2001, and amended as of February 18, 2004, between The Hartford and Neal S. Wolin (incorporated herein by reference to Exhibit 10.04 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.05 | Employment Agreement, dated as of April 26, 2001, and amended as of February 10, 2004, between The Hartford and David M. Johnson (incorporated herein by reference to Exhibit 10.05 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.06 | Employment Agreement, dated as of November 5, 2001, and amended as of February 25, 2004, between The Hartford and David M. Znamierowski (incorporated herein by reference to Exhibit 10.06 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.07 | Form of Key Executive Employment Protection Agreement between The Hartford and certain executive officers of The Hartford (incorporated herein by reference to Exhibit 10.07 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.08 | The Hartford Restricted Stock Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10.05 to The Hartford’s Form 10-Q for the quarterly period ended September 30, 2004). | |
*10.09 | The Hartford 1995 Incentive Stock Plan, as amended. † | |
*10.10 | The Hartford Incentive Stock Plan, as amended. † | |
*10.11 | The Hartford 2005 Incentive Stock Plan, as amended. † |
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Exhibit No. | Description | |
*10.12 | The Hartford Deferred Restricted Stock Unit Plan, as amended. † | |
*10.13 | The Hartford Deferred Compensation Plan, as amended (incorporated herein by reference to Exhibit 10.03 to The Hartford’s Form 10-Q for the quarterly period ended September 30, 2004). | |
*10.14 | The Hartford Senior Executive Severance Pay Plan, as amended (incorporated herein by reference to Exhibit 10.08 to The Hartford’s Form 10-Q for the quarterly period ended March 31, 2004). | |
*10.15 | The Hartford Executive Severance Pay Plan I, as amended (incorporated herein by reference to Exhibit 10.18 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2002). | |
*10.16 | The Hartford Planco Non-Employee Option Plan, as amended (incorporated herein by reference to Exhibit 10.19 to The Hartford’s Form 10-K for the fiscal year ended December 31, 2002). | |
*10.17 | The Hartford Employee Stock Purchase Plan, as amended. † | |
*10.18 | The Hartford Investment and Savings Plan, as amended. † | |
*10.19 | The Hartford 2005 Incentive Stock Plan Forms of Individual Award Agreements (incorporated herein by reference to Exhibit 10.2 to The Hartford’s Report on Form 8-K, filed May 24, 2005). | |
*10.20 | Summary of Annual Executive Bonus Program (incorporated herein by reference to Exhibit 10.3 to The Hartford’s Report on Form 8-K, filed May 24, 2005). | |
*10.21 | Summary of Certain 2005-2006 Compensation for Named Executive Officers (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Report on Form 8-K, filed February 17, 2006). | |
*10.22 | Summary of 2005-2006 Compensation for Non-Employee Directors (incorporated herein by reference to Exhibit 10.4 to The Hartford’s Report on Form 8-K, filed May 24, 2005). | |
*10.23 | Summary of 2006-2007 Compensation for Non-Employee Directors (incorporated herein by reference to Exhibit 10.2 to The Hartford’s Report on Form 8-K, filed February 17, 2006). | |
10.24 | Five-Year Competitive Advance and Revolving Credit Facility Agreement among The Hartford, Hartford Life, Inc., the Lenders named therein, Bank of America, N.A., as Administrative Agent, JPMorgan Chase Bank, N.A. and Citibank, N.A. as Syndication Agents, and Wachovia Bank, National Association, as Documentation Agent (incorporated herein by reference to Exhibit 10.1 to The Hartford’s Report on Form 8-K, filed September 13, 2005). | |
12.01 | Statement Re: Computation of Ratio of Earnings to Fixed Charges. † | |
21.01 | Subsidiaries of The Hartford Financial Services Group, Inc. † | |
23.01 | Consent of Deloitte & Touche LLP to the incorporation by reference into The Hartford’s Registration Statements on Forms S-8 and Forms S-3 of the report of Deloitte & Touche LLP contained in this Form 10-K regarding the audited financial statements is filed herewith. † | |
24.01 | Power of Attorney. † | |
31.01 | Certification of Ramani Ayer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. † | |
31.02 | Certification of David M. Johnson pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. † | |
32.01 | Certification of Ramani Ayer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. † | |
32.02 | Certification of David M. Johnson pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. † |
* | Management contract, compensatory plan or arrangement. | |
† | Filed with the Securities and Exchange Commission as an exhibit to this report. |
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