Hartford Reports $557 Million Profit on Investments (Update2)
February 08, 2010, 6:15 PM EST(Adds analyst’s comment in the fourth paragraph, life insurance results in the fifth, book value in the 11th.)
By Andrew Frye
Feb. 8 (Bloomberg) -- Hartford Financial Services Group Inc., the bailed-out insurer that replaced its chief executive officer in October, reported its first profit in six quarters on improved investment results.
Fourth-quarter net income of $557 million, or $1.19 a share, compares with a loss of $806 million, or $2.71, in the same period a year earlier, Hartford said today in a statement. Excluding some investment results, the company earned $1.51 a share, within the estimated range the company announced last month.
CEO Liam McGee, a former Bank of America Corp. executive, has promised to reduce risk at Hartford after bets by his predecessor, Ramani Ayer, pushed the insurer into five straight losses and a $3.4 billion U.S. rescue. McGee, 55, is preparing his strategy for the insurer as the firm enters its third century of business. The company said today he would make a presentation to investors April 1.
“It’s all about what the business will look like going forward,” said Drew Woodbury, an analyst with Morningstar Inc. The results “were good. It was good to see a net profit from the life segment.”
Realized capital losses after taxes and an accounting charge narrowed by 78 percent to $132 million from $598 million in the same period a year earlier. Fourth-quarter net investment income rose 29 percent to $1 billion, the company said. The life insurance business reported profit of $118 million, compared with a loss of $807 million in the last three months of 2008.
Profit Estimate
Hartford, based in the Connecticut city of the same name, said it expects 2010 operating earnings between $3.70 a share and $4 a share. That compares with the $3.97 a share average estimate of 18 analysts surveyed by Bloomberg.
The insurer said last month that fourth-quarter operating earnings were $1.45 a share to $1.60 a share, an increase from the company’s previous projection of a range of 65 cents a share to 80 cents a share.
“Although the company posted strong earnings in the fourth quarter, the economy and market conditions remain uncertain,” McGee said in today’s statement.
Rising stock and bond markets helped return Hartford to profit. The insurer’s investment portfolio and sales suffered in 2008 and into 2009 as the U.S. economy slumped and companies and homeowners struggled to repay mortgages and refinance debt. Hartford lost $2.75 billion in 2008 and $887 million for all of 2009.
“Strong Brand’
“It’s a company with a strong brand, and it still has a strong market presence,” said Randy Binner, an analyst with FBR Capital Markets, before results were released. “But the question is, can they still earn the way that they used to, or at some lower level.”
Net unrealized losses, which aren’t subtracted from earnings, narrowed 14 percent in the three months ended Dec. 31 to $5 billion. That helped increase book value by 2.7 percent from the end of the third quarter to $38.92 a share. The measure of assets and liabilities was $28.53 at the end of 2008.
Hartford has advanced about 59 percent on the New York Stock Exchange in the nine months since its bailout request was accepted by the U.S. Treasury on May 14. In the 12 months prior to the U.S. rescue, Hartford fell about 80 percent.
Hartford offers property-casualty coverage, including homeowners’ and car policies, as well as savings and retirement products such as whole life insurance and variable annuities.
Under Review
McGee is reviewing Hartford’s portfolio of businesses. In November, he announced the discontinuation of some life insurance products sold to companies. McGee will discuss “the company’s business, capital and financial outlook” at the April investor day, the statement said today.
It was the retirement and life insurance businesses that suffered most during the downturn, and analysts including Suneet Kamath of Sanford C. Bernstein & Co. have said Hartford is hampered by its wide array of businesses. Bigger rival Prudential Financial Inc. has exited auto insurance to focus on life and retirement sales. MetLife Inc., the biggest U.S. life insurer, gets less than 10 percent of its earnings from home and auto policies, according to Bloomberg data.
“We tend to think that Hartford’s combination of life and P&C is something of a ‘forced marriage’ at this point,” Kamath said in a December research note. Hartford’s property-casualty and life businesses each contributed about half of the firm’s earnings from 2005 to 2007, according to Bloomberg data. In 2008, the life insurance business lost money, while the property casualty unit had a profit.
Policy sales in the property-casualty business fell 4 percent to $2.4 billion as prices declined and the economic slump prompted insurance buyers to scale back coverage. The division reported net income of $508 million as it spent 85.1 cents on claims and expenses for every dollar it collected in premiums.
--With assistance from Hugh Son in New York. Editors: Erik Holm, Dan Kraut
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.
