Hartford Financial Services Group Inc. (HIG:US), the insurer divesting life operations to focus on property-casualty coverage, said third-quarter profit rose as claims from storms fell.
Net income rose to $401 million, or 83 cents a share, from $60 million, or 11 cents, a year earlier, the Hartford, Connecticut-based company said today in a statement. Excluding some investment results, profit was 78 cents a share, missing the 83-cent average estimate (HIG:US) of 14 analysts surveyed by Bloomberg.
Chief Executive Officer Liam McGee reached deals (HIG:US) this year to sell Hartford’s broker-dealer, retirement-plans business, a life operation and individual-annuities distribution unit after pressure from John Paulson to simplify the company. Paulson, whose hedge fund is among Hartford’s largest shareholder (HIG:US)s, urged McGee in February to split property-casualty operations, such as auto and commercial coverage, from life insurance.
“The company really is making progress towards property and casualty,” Randy Binner, an analyst at FBR Capital Markets, said in an interview before results were announced. He rates Hartford outperform.
The insurer joined rivals Travelers Cos. and Chubb Corp. in benefiting from reduced storm costs in the third quarter from a year earlier, when Hurricane Irene lashed the U.S. East Coast. Catastrophes cost Hartford half a cent for every premium dollar at Hartford’s commercial property-casualty business, compared with 6.1 cents per premium dollar a year earlier.
Claims from Sandy, the Atlantic superstorm that battered the East Coast this week, will affect results in the current period.
Property-casualty insurers have been lifting prices for coverage as low interest rates put pressure on income from bond portfolios and natural disasters add to claims costs. Hartford raised standard commercial rates 8 percent in the quarter for renewing customers and 4 percent and 6 percent for personal auto and home policies, respectively.
“We had lower catastrophes in the third quarter of 2012 than in the third quarter of 2011, which contributed to some of our more normal performance,” McGee said in an interview after results were announced. “But, in addition, we benefited from strong pricing trends.”
Earnings also reflected lower accounting costs in the company’s wealth-management division. Life insurers guarantee minimum returns for some clients, and adjust profit assumptions when investment returns don’t meet the company’s targets.
McGee, 58, said in September that the divestitures and narrower focus will give the insurer more flexibility in returning capital to shareholders. The firm’s book value, a measure of assets minus liabilities, may make share buybacks among the best uses of capital, he said in a Sept. 27 interview in New York.
“The businesses that we’re staying in have generated a substantial amount of capital,” McGee said. “The businesses that we’re getting out of consume virtually all of that capital. By selling and shutting down the businesses, we’re eliminating that consumption of capital.”
Hartford’s book value rose to $48.13 a share from $45.59 at the end of June. Hartford advanced (HIG:US) 1 percent to $21.92 at 4:03 p.m. in New York before the earnings announcement.
Costs related to the insurer’s decision to stop selling new individual annuities and the divestitures led to $34 million in expenses in the quarter.
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