View this article online: https://www.claimsjournal.com/news/national/2008/10/30/95130.htm
Hartford Financial Services Group Inc. joined other insurers in reporting a loss in the third quarter due to large investment losses and catastrophe claims.
The Hartford reported a third quarter 2008 net loss of $2.6 billion. Its net income in the third quarter of 2007 was $851 million.
“This was an extremely difficult quarter for the company. Volatile credit and equity markets and the largest catastrophe in the past three years significantly affected our results,” said Ramani Ayer, The Hartford’s chairman and CEO.
The insurer has already acted to bolster its capital by securing a $2.5 billion investment from Allianz, which closed on Oct. 17.
Ayer said The Hartford is “financially strong with the liquidity and capital” to meet its commitments to its customers.
He cited relative success in the third quarter in the property and casualty operations, which reported a net loss of $666 million, compared to the life insurance operations that reported a net loss of $1.8 billion.
The property/casualty operations reported a 91.8 accident year combined ratio before catastrophe losses, which added another 12.7 points.
Written premiums for property and casualty operations in the quarter were $2.6 billion, down 1 percent from the prior year.
Property/casualty operations’ current accident year combined ratio for third quarter, excluding catastrophes, was 91.8 percent, compared to 90.6 percent in the prior year. Current accident year catastrophe losses were an additional 12.7 percent of earned premiums, or $325 million pre-tax, in the third quarter of 2008, compared with 1.2 percent, or $32 million, pre-tax, in the prior year.
The company said the increase in 2008 catastrophe losses was largely attributable to Hurricane Ike. In addition, the third quarter of 2008 benefited from 2.8 points, or $70 million, pre-tax, of prior year net reserve releases from ongoing operations, primarily related to small commercial and middle market workers’ compensation business.
The Hartford completed its annual environmental reserve evaluation in the third quarter of 2008. This resulted in the addition of $53 million, pre-tax, to the company’s environmental reserves.
Personal lines written premiums for the quarter were $1.0 billion, down 1 percent from the prior year, due in part to planned non-renewals of agency property exposure in Florida, according to the company. Written premiums in the company’s AARP business increased 2 percent in the third quarter.
Personal lines reported a current accident year combined ratio of 88.3 percent, excluding catastrophes, for the third quarter of 2008, compared to 88.7 percent for the third quarter of 2007. The third quarter of 2008 included 17.2 points of current accident year catastrophe losses and 0.9 points of net favorable prior year development.
Written premiums for small commercial came in at $652 million for the third quarter, down 2 percent from the prior year. Small commercial delivered a current accident year combined ratio of 87.7 percent, excluding catastrophes, for the third quarter of 2008, compared with 88.5 percent for the third quarter of 2007. The third quarter of 2008 included 7.0 points of current accident year catastrophe losses and 6.8 points of net favorable prior year development.
Written premiums for middle market were $555 million for the third quarter of 2008, a decline of 3 percent from the prior year. The middle market current accident year combined ratio was 98.5 percent, excluding catastrophes, for the third quarter of 2008, compared with 94.5 percent for the third quarter of 2007. The third quarter of 2008 included 11.5 points of current accident year catastrophe losses and net favorable prior year development of 3.2 points.
In specialty commercial, written premiums for the quarter were $361 million, an increase of 1 percent over the prior year. Specialty commercial reported a current accident year combined ratio of 98.8 percent, excluding catastrophes, for the third quarter of 2008, compared with 93.5 percent for the third quarter of 2007. The third quarter of 2008 included 12.6 points of current accident year catastrophe losses and net unfavorable prior year development of 0.5 points.
Life Operations
Life operations assets under management at the end of September 2008 were $333 billion, down 9 percent over the last 12 months, largely driven by equity market declines. Life reported a net loss of $1.8 billion, versus net income of $525 million in the prior year.
Investments
Investment income suffered in the third quarter. Net investment income, excluding trading securities, was down 15 percent from the prior year. The company said this was due to lower yields on fixed maturity investments and $101 million of pre-tax losses on limited partnerships and other alternative investments. Limited partnerships and other alternative investments contributed $42 million of pre-tax net investment income in the third quarter of 2007.
The net realized capital losses totaled $2.2 billion for the quarter. Other-than-temporary impairments made up $2.0 billion of the realized capital losses in the quarter. The majority of these impairments were related to the company’s investments in the financial services sector, which was negatively affected by recent market turmoil, according to the company.
The Hartford’s total investments, excluding trading securities, were $89.8 billion as of Sept. 30, 2008, compared to $94.2 billion in the year ago period. Depressed valuations from widening credit spreads drove the majority of the decline in asset values.
“Our holdings in the financial sector weighed heavily on our investment performance in the quarter,” said Ayer.
Greg McGreevey was recently named the new chief investment officer for the company. Ayer said McGreevey and and his team “are taking a series of actions to stabilize the portfolio and improve its performance over time.”