.
.
.
EXHIBIT 99.1
NEWS RELEASE [THE HARTFORD LOGO]
Date: August 4, 2004
For Release: Upon Receipt
Contact(s): Media Investors
----- ---------
Cynthia Michener Hans Miller
860/547-5624 860/547-2751
cynthia.michener@thehartford.com hmiller@thehartford.com
-------------------------------- -----------------------
Joshua King Kim Johnson
860/547-2293 860/547-6781
joshua.king@thehartford.com kimberly.johnson@thehartford.com
--------------------------- --------------------------------
THE HARTFORD REPORTS SECOND QUARTER 2004 NET INCOME OF $433 MILLION, OR $1.46
PER DILUTED SHARE
Leadership strategy in service, technology and distribution drives growth in key
areas; assets under management reach an all-time high
HARTFORD, CONN. - The Hartford Financial Services Group, Inc. (NYSE: HIG), one
of the nation's largest financial services and insurance companies, today
reported second quarter 2004 net income of $433 million or $1.46 per diluted
share. Net income includes net realized capital gains of $31 million (after-tax)
or $.11 per share and a $118 million charge (after-tax) or ($.40) per share
resulting from results of a review of casualty reinsurance recoverables. In the
second quarter of 2003, net income was $507 million or $1.88 per diluted share,
which includes net realized capital gains of $176 million (after-tax) or $.65
per share.
The Hartford's operating income(1) rose to $403 million in the second quarter of
2004 from $340 million in the second quarter of 2003, up 19 percent. Even in a
quarter with an adjustment to the reinsurance recoverable asset, the company has
achieved a return on equity over the last 12 months in excess of 15 percent.
"We're very proud of The Hartford's results this quarter. Anyone who has
followed The Hartford in recent years knows that we are building a company that
will compete vigorously over the long term, on our terms, both in the United
States and internationally," said The Hartford's
- -------------
1 Operating income is not calculated based on generally accepted accounting
principles ("non-GAAP"). Information regarding non-GAAP financial measures used
in this release is provided in the Discussion of Non-GAAP Measures section
below.
- more -
The Hartford - Second Quarter 2004 Earnings /2
Chairman and CEO Ramani Ayer. "The Hartford is also committed to increasing
shareholder value as demonstrated by a 17-percent rise in book value per share
to $40.26, excluding accumulated other comprehensive income, over the second
quarter of 2003. Operating return on equity at 15.6 percent exceeded the
company's target range of 13 to 15 percent over the last 12 months.
"Today's results provide further evidence that our strategy is working across
all fronts - commercial lines, personal lines, life and investment products.
"The Hartford is proving through its performance that to win in our business you
need more than a competitive cost structure; you have to provide your
distribution partners with sophisticated product and pricing strategies,
outstanding service and leading-edge technology that allow customers to protect
their businesses and property, and grow their investments.
"In our property and casualty operations, the results we share today show an
impressive record of product innovation and performance. Our small and middle
market businesses have long been seen as leaders in the commercial insurance
industry. Our future is even brighter as our Dimensions auto and homeowners
products are taking hold in the market and our Xpand product is gaining traction
with independent agents who serve small businesses.
"In our life operations, The Hartford's market-leading variable annuities are
also providing great value for customers. The variable annuity platform was the
basis for another generation of products in long-term growth markets. Our retail
mutual funds, 401(k) and 529 plans are helping to serve the needs of retirees
and Baby Boomers nearing retirement and individuals and families just beginning
to grow their savings.
"When a business model succeeds in the United States, it makes sense to export
it to other economies. The global demographic trends that are playing out today,
combined with the distribution, service and technology for which we have long
been known, explain why observers of The Hartford are seeing such impressive
results from our business in Japan. As Japanese consumers focus on their future,
we think this is just the beginning.
"Even as we continue to profitably grow and expand our product lines, we have
remained attentive to our exposure to legacy issues. In the first quarter, we
confirmed that our gross asbestos reserves were appropriate. In the second
quarter, we reviewed our casualty reinsurance arrangements, and made a change in
the amounts that we expect to recover from our reinsurers.
"As we look back on the second quarter, we are very encouraged by what we've
seen. Our business is performing well at all levels, despite flat equity markets
and growing competition in the property-casualty side of the business. We are on
the right track to meet our goals," Ayer added.
- more -
The Hartford - Second Quarter 2004 Earnings /3
HIGHLIGHTS OF SECOND QUARTER 2004 RESULTS
- - The Hartford achieved record assets under management of $269 billion at
June 30, 2004. This includes record U.S. retail assets under management of
$133 billion, and $9 billion in the company's four-year-old Japanese
subsidiary.
- - Life operating income in the current quarter was $253 million, up 10
percent over the 2003 quarter. Before a $30 million tax benefit in the
second quarter of 2003, operating earnings were up 27 percent
year-over-year.
- Retail products net flows (sales less surrenders and other
withdrawals) were $2.5 billion, including mutual funds. Total retail
products sales and other deposits of $6.3 billion, up 6 percent from
the second quarter of 2003, include:
- Strong total individual annuity sales of $4.2 billion,
including sales of variable annuity products of $3.9 billion.
As expected, annuity sales were down slightly versus the
record-breaking 2003 second quarter;
- Retail mutual fund sales of $1.4 billion, up 22 percent over
the second quarter of 2003; and
- 401(k) sales of $383 million, up 39 percent from the second
quarter of 2003.
- Individual life sales were up 27 percent.
- Total premiums in group benefits increased 58 percent to $897
million and the integration with the acquired CNA businesses is on
track.
- In Japan, where annuity sales were a record $1.6 billion, the
company continued to rapidly expand distribution.
- - Property-casualty operating income in the current quarter was $188
million, up 18 percent over the 2003 quarter.
- The impressive rise in property-casualty operating income was
realized despite a $118 million (after-tax) charge for reinsurance
recoverables, discussed in greater detail below. The corresponding
2003 quarter included a $27 million (after-tax) charge for severance
costs. Before these items, operating income increased to $306
million, a 64-percent increase over the prior-year period.
- more -
The Hartford - Second Quarter 2004 Earnings /4
- "Ongoing operations" (business insurance, specialty commercial and
personal lines) achieved 15 percent growth in both net written and
earned premium over the same 2003 quarter. In the current quarter,
net written premium for business insurance and personal lines
combined surpassed $2 billion for the first time, including more
than $400 million of new business.
- Business insurance net written premium of $1.13 billion and
earned premium of $1.06 billion were up 16 percent and 18
percent, respectively, from the second quarter of 2003.
- Total personal lines net written premium grew 11 percent to
$945 million and earned premium grew 10 percent to $861
million, supported by strong growth in agency business, over
last year's second quarter.
- The combined ratio, including catastrophes, was 91.4 percent in
"ongoing operations," an improvement of 4.6 points from the same
quarter of 2003. Before catastrophe losses, the combined ratio was
89 percent in the current quarter, a 2.3-point improvement versus
the 2003 second quarter.
REVIEW OF BUSINESS UNIT RESULTS
RETAIL PRODUCTS GROUP (Includes individual annuities, retail mutual funds,
401(k), 529 college savings plans and specialty products)
Moderate equity markets, strong sales and positive net flows, contributed to
operating income of $126 million in the second quarter of 2004. Before the 2003
tax benefit, this is a 25 percent increase over the second quarter of 2003. In
line with expectations, variable annuity sales slowed in the quarter, down 6
percent to $3.9 billion compared to the same quarter last year. Variable annuity
surrenders, on an annualized basis, were flat compared to the second quarter of
2003 at 8.5 percent of average assets. The annuity expense ratio declined from
24.7 to 18.3 basis points as the company leverages its scale in the market.
Despite an industry-wide decline in mutual fund sales, The Hartford reported
sales of $1.4 billion. 401(k) sales continued to be very strong, with a 39
percent increase to $383 million.
INSTITUTIONAL SOLUTIONS GROUP (Includes institutional and governmental
investment products and private placement life insurance products, formerly
called COLI)
Sales increased 12 percent to $1.5 billion, primarily due to a large funding
agreement recorded in the quarter. Before the 2003 tax benefit, operating income
of $28 million was even with the second quarter of 2003. The segment reported
record assets under management of $48.2 billion in the quarter.
- more -
The Hartford - Second Quarter 2004 Earnings /5
INDIVIDUAL LIFE
Individual life reported solid operating income and top-line growth in the
second quarter. Operating income rose to $37 million. Before the 2003 tax
benefit, this is a 9-percent increase over the second quarter of 2003. Sales
increased 27 percent over the second quarter of 2003, with strength in all
distribution channels. Sales of both variable and universal were up year over
year, as the company's strategy of offering a broader mix of life products takes
hold.
GROUP BENEFITS
Operating income growth was strong in the second quarter, up 37 percent from the
prior year to $48 million, driven by the 2003 acquisition of CNA's group
benefits businesses and strong organic growth. The integration of the CNA
business is on track and the field integration is complete.
JAPAN
With wider public awareness and expanding distribution, assets under management
at The Hartford's Japan-based subsidiary reached $9.3 billion at June 30, 2004,
nearly triple the level of assets a year ago. Sales reached a new high of $1.6
billion in the quarter. During the quarter, three new distributors were added,
bringing to 47 the number of distribution partners for The Hartford in Japan.
BUSINESS INSURANCE
Continued growth in the business insurance segment resulted in a 16 percent
increase in net written premium and 18 percent growth in earned premium. Driven
by improvements in loss ratio and a one-point reduction in expense ratio, the
combined ratio improved to 90.8 percent. Before catastrophes, the combined ratio
this quarter was 89.1 percent, a 2.8-point improvement over the prior year.
Catastrophes were 1.7 points in the second quarter of 2004. These strong top-
and bottom-line results demonstrate the effects of The Hartford's
industry-leading technology, service, product innovation and disciplined
underwriting.
PERSONAL LINES
The continued roll-out of The Hartford's new class plan, Dimensions, for auto
and homeowners is on schedule and is driving growth in agency personal lines.
Written premium in the agency business rose 21 percent in the quarter and earned
premium rose 14 percent. The Hartford's program with AARP continued steady
growth, with written premium up 10 percent year over year. Before catastrophes,
the combined ratio was 87.6 percent, a 3.2 point improvement over the second
quarter of 2003. Catastrophes were 3.7 points in the second quarter of 2004.
- more -
The Hartford - Second Quarter 2004 Earnings /6
SPECIALTY COMMERCIAL
Specialty commercial reported solid results, with a combined ratio of 91.5
percent before catastrophes. Catastrophes were 1.6 points in the second quarter
of 2004. The Hartford continues to exercise underwriting discipline in these
product lines amid changing market conditions.
REINSURANCE RECOVERABLES REVIEW
In the second quarter of this year, The Hartford completed a study of its
reinsurance recoverables associated with older, long-term casualty liabilities
reported in the "other operations" segment, including asbestos liabilities. The
study resulted in two key findings. First, due to the change in the various
components of The Hartford's gross liabilities, the company concluded there was
$126 million less reinsurance available. Second, the study resulted in an
increase in the company's allowance for uncollectible reinsurance to reflect
management's current estimate of reinsurance that may not be collectible due to
reinsurers' unwillingness or inability to pay in the future. The Hartford
estimated that an additional allowance for potentially uncollectible reinsurance
of $55 million was needed. Together, the findings from the company's study bring
to $181 million the total pre-tax charge for reinsurance-related issues in the
current quarter.
FIRST HALF OF 2004 RESULTS
The Hartford reported net income for the first six months of 2004 of $1 billion
or $3.38 per diluted share versus a net loss of $888 million or ($3.39) per
diluted share in the first six months of 2003, which included a $1.7 billion
(after-tax) increase in asbestos reserves in the first quarter.
- more -
The Hartford - Second Quarter 2004 Earnings /7
OPERATING RESULTS BY SEGMENT* SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
($ IN MILLIONS) 2004 2003 CHANGE 2004 2003 CHANGE
- --------------- ---- ---- ------ ---- ---- ------
LIFE [1]
Individual Annuity [2] $ 112 $ 112 -- $ 224 $ 183 22%
Other Retail [2] 14 9 56% 29 15 93%
------- ------- ------ ------- ------- ------
Total Retail Products Group 126 121 4% 253 198 28%
Institutional Solutions Group [2] 28 29 (3%) 57 60 (5%)
Individual Life [2] 37 36 3% 71 68 4%
Group Benefits 48 35 37% 95 69 38%
Other [2] 14 9 56% 33 11 200%
------- ------- ------ ------- ------- ------
TOTAL LIFE OPERATING INCOME [2] [3] 253 230 10% 509 406 25%
------- ------- ------ ------- ------- ------
PROPERTY & CASUALTY
Ongoing Operations underwriting results
Business Insurance 97 50 94% 322 57 NM
Personal Lines 75 8 NM 181 64 183%
Specialty Commercial 29 25 16% (81) 30 NM
------- ------- ------ ------- ------- ------
Total Ongoing Operations underwriting results 201 83 142% 422 151 179%
Other Operations underwriting results (214) (89) (140%) (279) (2,740) 90%
------- ------- ------ ------- ------- ------
Total Property & Casualty underwriting results (13) (6) (117%) 143 (2,589) NM
Net investment income 295 286 3% 606 567 7%
Periodic net coupon settlements on non-qualifying derivatives,
before-tax
3 5 (40%) 7 9 (22%)
Net servicing and other income 21 3 NM 30 6 NM
Other expenses [4] (60) (93) 35% (128) (134) 4%
Income tax (expense) benefit [4] (58) (35) (66%) (173) 809 NM
------- ------- ------ ------- ------- ------
TOTAL PROPERTY & CASUALTY OPERATING INCOME (LOSS) [3] [4] 188 160 18% 485 (1,332) NM
------- ------- ------ ------- ------- ------
2004 change in reinsurance ceded, net (118) -- -- (118) -- --
------- ------- ------ ------- ------- ------
2003 asbestos reserve addition -- -- -- -- (1,701) 100%
------- ------- ------ ------- ------- ------
Property & Casualty operating income, before 2004 change in
reinsurance ceded, net and 2003 asbestos reserve addition [3] [4] 306 160 91% 603 369 63%
------- ------- ------ ------- ------- ------
INTEREST AND OTHER CORPORATE (38) (50) 24% (90) (95) 5%
------- ------- ------ ------- ------- ------
Operating income, before 2004 change in reinsurance ceded, net
and 2003 asbestos reserve addition [2] [3] [4] [5] 521 340 53% 1,022 680 50%
2004 change in reinsurance ceded, net (118) -- -- (118) -- --
2003 asbestos reserve addition -- -- -- -- (1,701) 100%
------- ------- ------ ------- ------- ------
Operating income (loss) [2] [3] [4] [5] 403 340 19% 904 (1,021) NM
Add: Net realized capital gains, after-tax [3] 31 176 (82%) 126 147 (14%)
Less: Periodic net coupon settlements on non-qualifying
derivatives, after-tax [3] 1 9 (89%) 6 14 (57%)
Add: Cumulative effect of accounting change, after-tax -- -- -- (23) -- --
------- ------- ------ ------- ------- ------
NET INCOME (LOSS) $ 433 $ 507 (15%) $ 1,001 $ (888) NM
======= ======= ====== ======= ======= ======
PER SHARE DATA
Diluted earnings (loss) per share
Operating income, before 2004 change in reinsurance ceded, net $ 1.75 $ 1.26 39% $ 3.45 $ 2.58 34%
and 2003 asbestos reserve addition [5]
Operating income (loss) [5] $ 1.35 $ 1.26 7% $ 3.05 $ (3.90) NM
NET INCOME (LOSS) $ 1.46 $ 1.88 (22%) $ 3.38 $ (3.39) NM
======= ======= ====== ======= ======= ======
[1] Life allocates the net realized gains and losses from periodic net coupon
settlements on non-qualifying derivatives to its segments.
[2] Life includes $30 in 2003 of tax benefit related to the favorable
treatment of certain tax items arising during the 1996-2002 tax years. The
benefit was recorded in Life as follows: $19 in Individual Annuity, $1 in
Other Retail, $1 in Institutional Solutions Group, $2 in Individual Life
and $7 in Other.
[3] Operating income includes the effect of periodic net coupon settlements on
non-qualifying derivatives, after-tax. Such effects are included in net
realized capital gains and losses.
[4] Property & Casualty includes $27 in 2003 of after-tax severance charges.
The charges were recorded in Property & Casualty as follows: $41 in other
expenses and $14 in income tax benefit.
[5] Operating income and operating income before the 2004 change in
reinsurance ceded, net and 2003 asbestos reserve addition are not
calculated based on accounting principles generally accepted in the United
States of America (GAAP). Information regarding non-GAAP financial
measures used in this release is provided in the Discussion of Non-GAAP
Measures section of this release.
The Hartford defines "NM" as not meaningful for increases or decreases
greater than 200%, or changes from a net gain to a net loss position, or
vice versa.
* The table presents underwriting results for Ongoing Operations, which
includes the Business Insurance, Personal Lines and Specialty Commercial
segments; and the Other Operations segment. Operating income is presented
for life's segments, property-casualty and corporate.
- more -
The Hartford - Second Quarter 2004 Earnings /8
2004 GUIDANCE
Based on current information and, in particular, financial market performance
through mid-July, The Hartford now expects 2004 earnings per diluted share to be
between $6.50 and $6.80. This estimate reflects mid-July market levels but also
assumes that U.S. equity markets experience a mild recovery through the balance
of the year. The previous estimated 2004 range was $6.30 to $6.60 per diluted
share.
The Hartford's prior and revised 2004 guidance estimates exclude capital gains
or losses, the cumulative effect of accounting changes, and the company's
second-quarter, $118 million (after-tax) charge ($.40) per share for reinsurance
recoverables and any similar unusual or unpredictable benefits or charges that
might occur in the second half of the year.
Guidance with respect to 2004 is very likely to be adjusted in the future based
on changes in market conditions affecting life and property-casualty operations.
A large number of factors could cause these estimates to change, including
significant changes in estimated future earnings on investment products caused
by changes in the equity markets, changes in loss cost trends in the
property-casualty businesses, catastrophe losses at levels different from
expectations and adverse developments emerging as a result of changes in
estimates arising from the company's regular review of its prior-period loss
reserves for all lines of insurance.
CONFERENCE CALL
The Hartford will discuss the results of the second quarter and the 2004
guidance in the quarterly conference call on August 5, 2004, at 10:00 a.m. EDT.
The call, along with a slide presentation, can be simultaneously accessed
through the company's Web site at www.thehartford.com/ir/index.html.
DISCUSSION OF NON-GAAP MEASURES
The Hartford uses the following non-GAAP financial measures to analyze the
company's operating performance for the periods presented in this press release.
Because The Hartford's calculation of these measures may differ from similar
measures used by other companies, investors should be careful when comparing The
Hartford's non-GAAP financial measures to those of other companies.
The Hartford uses operating income as an important measure of the company's
operating performance. Operating income is net income, before the after-tax
effect of net realized capital gains and losses other than periodic net coupon
settlements on non-qualifying derivatives, and the cumulative effect of
accounting changes. The company believes operating income provides to investors
a valuable measure of the performance of the company's ongoing businesses
because it excludes the effect of those realized capital gains and losses that
tend to be highly
- more -
The Hartford - Second Quarter 2004 Earnings /9
variable from period to period. Net income is the most directly comparable GAAP
measure. A reconciliation of net income (loss) to operating income (loss) for
the quarters and six months ended June 30, 2004 and 2003 is set forth above.
In this release, The Hartford has included the financial measure operating
income, before 2004 change in reinsurance ceded, net and 2003 asbestos reserve
addition. The Hartford has provided this financial measure to enhance investor
understanding of the company's ongoing businesses by eliminating the effects of
the change in reinsurance ceded and asbestos reserve addition, which relate
solely to legacy businesses. Net income is the most directly comparable GAAP
measure. A reconciliation of net income (loss) to operating income, before 2004
change in reinsurance ceded, net and 2003 asbestos reserve addition for the
quarters and six months ended June 30, 2004 and 2003 is set forth above.
The 2004 earnings guidance presented in this release is based on the financial
measure operating income, before 2004 change in reinsurance ceded, net. Net
income is the most directly comparable GAAP measure. A quantitative
reconciliation of The Hartford's 2004 net income to operating income, before
2004 change in reinsurance ceded, net is not calculable on a forward-looking
basis because it is not possible to provide a reliable forecast of realized
capital gains and losses, which may vary substantially from period to period.
Written premiums is a financial measure used by The Hartford as an important
indicator of the operating performance of the company's property-casualty
operations. Because written premiums represents the amount of premium charged
for policies issued during a fiscal period, The Hartford believes it is useful
to investors because it reflects current trends in The Hartford's sale of
property-casualty insurance products. Earned premiums, the most directly
comparable GAAP measure, represents all premiums that are recognized as revenues
during a fiscal period. The difference between written premiums and earned
premiums is attributable to the change in unearned premium reserves.
More detailed financial information can be found in The Hartford's Investor
Financial Supplement for the second quarter of 2004, which is available on the
company's Web site, www.thehartford.com.
The Hartford is one of the nation's largest financial services and insurance
companies, with 2003 revenues of $18.7 billion. As of June 30, 2004, The
Hartford had total assets of $240.2 billion and stockholders' equity of $12.3
billion. The company is a leading provider of investment products, life
insurance and group benefits; automobile and homeowners products; and business
property-casualty insurance. The Hartford's Internet address is
www.thehartford.com.
Some of the statements in this release should be considered forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
These include statements about our future results of operations. We caution
investors that these forward-looking statements are not guarantees of future
performance, and actual results may differ materially. Investors should consider
the important risks and uncertainties that may cause actual results to differ.
- more -
The Hartford - Second Quarter 2004 Earnings /10
These important risks and uncertainties include the difficulty in predicting the
company's potential exposure for asbestos and environmental claims and related
litigation; the possible occurrence of terrorist attacks; the response of
reinsurance companies under reinsurance contracts and the availability, pricing
and adequacy of reinsurance to protect the company against losses; changes in
the stock markets, interest rates or other financial markets, including the
potential effect on the company's statutory capital levels; the inability to
effectively mitigate the impact of equity market volatility on the company's
financial position and results of operations arising from obligations under
annuity product guarantees; the uncertain effect on the company of the Jobs and
Growth Tax Relief
Reconciliation Act of 2003, in particular the reduction in tax rates on
long-term capital gains and most dividend distributions; the possibility of more
unfavorable loss experience than anticipated; the incidence and severity of
catastrophes, both natural and man-made; stronger than anticipated competitive
activity; unfavorable judicial or legislative developments, including the
possibility that the Terrorism Risk Insurance Act of 2002 is not extended beyond
2005; the potential effect of domestic and foreign regulatory developments,
including those which could increase the company's business costs and required
capital levels; the possibility of general economic and business conditions that
are less favorable than anticipated; the company's ability to distribute its
products through distribution channels, both current and future; the uncertain
effects of emerging claim and coverage issues; the effect of assessments and
other surcharges for guaranty funds and second-injury funds and other mandatory
pooling arrangements; a downgrade in the company's claims-paying, financial
strength or credit ratings; the ability of the company's subsidiaries to pay
dividends to the company; and others discussed in our Quarterly Reports on Form
10-Q, our 2003 Annual Report on Form 10-K and the other filings we make with the
Securities and Exchange Commission. We assume no obligation to update this
release, which speaks as of the date issued.
###