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The Hartford Takes a Big Loss

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The Hartford suffered a second-quarter net loss of $101 million to extinguish high-cost debt it took on during the 2008 financial crisis. Analysts said core results were better than expected and more importantly, statutory capital levels held up well.

Indeed, said analysts at Sterne Agee in an investor’s note Thursday afternoon, its life company statutory capital increased three percent compared to the prior quarter despite market pressures, i.e., low interest rates and its resultant impact on profits.

Company officials also said they are “on track” to sell its individual life and retirement plan businesses, but Sterne Agee analysts said they do not expect further comments from the company about details until  divestitures are made.

Liam E. McGee, chairman, president and chief executive officer, said during a conference call that plans to sell the company’s life and retirement plans are “proceeding as expected.”

“These are attractive businesses,” he says. “It’s a competitive process.”

Confirming earlier reports, Sterne Agee analysts said the Hartford expects to generate $115 million from its sale of its Woodbury advisor distribution to American International Group, a deal expected to close before the end of the year.

The Hartford is expected to generate $90 million from the sale of Woodbury Financial, plus $25 million in dividends taken from the company before closing.

Sterne Agee analysts John Nadel and his associates said this compares favorably with Sterne Agee’s estimated $75 million sale price, “though of course this is the smallest of the three businesses for sale.”

Nadel and associates at Sterne Agee added that, “With the stock trading at 70 percent of estimated liquidation value with clear signs of improvement from core businesses as well as progress on non-core business divestitures, we reiterate our buy rating.”

Keefe Bruyette & Woods analysts, however, did say that results from the variable annuity business, which is being run off, were lower than expected.

Keefe Bruyette & Woods analysts said wealth management results were two cents below expectations due to higher amortization and expenses. Life sales declined 9% and non-proprietary mutual fund flows remained under pressure, dropping $1.2 billion.

Group insurance earnings were up 13% year-to-year to $34 million and “up significantly” from the very weak $5 million in the first quarter, Keefe Bruyette & Woods analysts said . The loss ratio of 78.6% was higher than 78.0% year-ago, but improved from 83.0% 1Q. Disability losses remain elevated but appeared to stabilize, while life and AD&D losses were favorable.

“It’s too early to call a dramatic turn, but we take encouragement from the first year-to-year earnings improvement in several years,” Keefe Bruyette & Woods analysts said.

Adjusted earnings in the runoff segment were $0.06 light on lower annuity earnings, which appeared to be driven by higher amortization, Keefe Bruyette & Woods analysts said.

The huge write-off was required to repay early a debt owed to Allianz SE.

The Hartford said it paid $587 million to extinguish the debt by repurchasing $1.75 billion in securities it sold to Allianz during the height of the financial crisis.

Without this payment, net income would have been $486 million, as Hartford reports price increases in the low- to mid-single digits. The insurer booked a $33 million profit after the second quarter a year ago.

The P&C business continues to get rate increases at renewals. P&C operations reported a second-quarter profit of $112 million, beating an estimate of $94 million projected by Keefe Bruyette & Woods analysts.


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