August 5, 2010

The Hartford Beats Earnings Estimates, Lowers EPS Outlook

The Hartford says it now expects 2010 core earnings per diluted share to be between $2.10 and $2.30. The previous guidance was a range of $2.70 to $3.00.

The Hartford Financial Services Group (HIG) reported second-quarter 2010 net income of $76 million, or $0.14, vs. a year-ago net loss of $15 million, or $(0.06) per diluted share.

Core earnings for the second quarter of 2010 were $92 million, or $0.17 per share, compared with core earnings of $622 million, or $1.90 per diluted share, for the prior-year period.

Excluding the effects of a second quarter deferred-acquisition cost unlock charge, goodwill impairment, elevated P&C catastrophe losses, and P&C prior year reserve development, core earnings were $460 million, or $0.92 per share.

Analysts had expected earnings of $0.71.

"The Hartford performed well, reporting another quarter of profitability in spite of market volatility, higher than expected catastrophes and several one-time events," said Liam E. McGee, chairman, president and CEO in a statement.

"Book value per share grew 6% sequentially and net unrealized losses declined by more than 50%. The company showed good sales momentum in many segments. Small commercial written premium grew 3% over the prior year with strong profitability in a competitive market. Sales and deposits meaningfully increased from 2009 levels in the mutual funds, retirement plans and life insurance businesses," McGee explained in a statement.

The Life segment reported net income of $88 million for the second quarter of 2010, compared with net income of $176 million for the prior-year period. Second-quarter 2010 net income included a DAC unlock charge of $230 million after-tax, compared with a DAC unlock benefit of $360 million, after-tax, for the prior year period.

Core earnings for the unit in the second quarter of 2010 were $131 million, compared with core earnings of $493 million for the prior-year period.

Beginning with the first quarter of 2010, investment-only mutual funds, Canadian mutual funds and proprietary mutual funds assets and results were transferred to the Mutual Funds business for reporting purposes on a prospective basis.

The Hartford's total invested assets, excluding trading securities, were $97.9 billion as of June 30, 2010, compared with $90.5 billion as of June 30, 2009. Net investment income, excluding trading securities, was $1.15 billion, pre-tax, in the second quarter of 2010, a 13% increase over the prior-year period.

The net pre-tax unrealized loss on investments was $1.5 billion as of June 30, 2010, compared with $3.2 billion as of March 31, 2010. The improvement was primarily driven by improved security valuations due to declining interest rates which more than offset spreads that modestly widened across virtually all fixed maturity asset classes.

The Hartford says it continued to reduce investment-portfolio risk during the second quarter of 2010, reducing its net commercial real estate-related holdings by about $800 million, as market prices improved. During the quarter the company purchased $2.1 billion of investment-grade corporate debt with a focus on consumer non-cyclical, utility, industrial and financial companies.

The Hartford says it now expects 2010 core earnings per diluted share to be between $2.10 and $2.30. The previous guidance was a range of $2.70 to $3.00. This includes the impact of a pre-tax underwriting loss of $206 million from other operations in property and casualty.

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