01—Abstract
Summary
Summary of the 10-K filed March 23, 2001. Cited figures are marked; the original filing is the authoritative source.
The Hartford Financial Services Group (NYSE: HIG) closed 2000 with total assets of $171.5 billiona and stockholders' equity of $7.5 billion, up from $5.5 billion a year earlier.
Net income rose 13% to $974 millionb ($4.34 diluted EPS), and core earnings, which exclude realized capital gains, grew 15% to $962 million. Growth was driven by Worldwide Life, where core earnings rose 35% to $632 million on strong fee income from individual variable annuities (The Hartford was the number one U.S. variable annuity writer) and mutual funds. Worldwide Property & Casualty core earnings fell 6% to $429 million, pressured by personal auto loss costs, adverse reinsurance reserve development and a North American combined ratio of 102.4.
Underwriting remained unprofitable in Commercial and Reinsurance, though Personal was roughly breakeven. The year's major capital events were the June 2000 buyout of the roughly 19% minority interest in Hartford Life, Inc. for $1.4 billionc, and the December 2000 sale of Zwolsche for $547 million, which produced a $69 million after-tax gain. Equity was further strengthened by a $398 million treasury stock issuance and a $615 million common stock offering in February 2001.
Debt to capitalization was 32% including QUIPS and TruPS, or about 20% excluding them. Management also announced the $1.12 billiond cash acquisition of Fortis's U.S. individual life, annuity and mutual fund businesses, expected to close in the second quarter of 2001. Investors should watch the Fortis integration, Moody's negative outlook on debt ratings, and the weaker personal auto and reinsurance underwriting trends.
The filing also flags ongoing environmental and asbestos exposure, which management believes is adequately reserved, and the company's reliance on dividends from its insurance subsidiaries. Operating cash flow improved to $2.35 billion from $891 million in 1999. The 2000 dividend was raised 4% to $0.25 per quarter.
02—Key points
Key Highlights
- Net income of $974 million ($4.34 diluted EPS) in 2000, up 13% from $862 million, with core earnings up 15% to $962 million
- Worldwide Life core earnings rose 35% to $632 million, led by Investment Products (+28% to $424 million), with account values of $104.6 billion and total AUM of $116.0 billion
- Worldwide Property & Casualty core earnings fell 6% to $429 million, hurt by personal auto loss costs and reinsurance adverse development; North American combined ratio was 102.4
- Stockholders' equity rose to $7.5 billion from $5.5 billion, helped by a $695 million swing in unrealized gains as interest rates fell
- Pending $1.12 billion cash acquisition of Fortis's U.S. individual life, annuity and mutual fund businesses, expected to close in Q2 2001; funded by a $615 million equity offering and $600 million of HLI debt and trust preferred issuance
- Moody's revised the outlook on the Company's debt ratings to negative (not a downgrade) on concerns about higher leverage from the Fortis deal
- Quarterly dividend increased 4% to $0.25 per share; operating cash flow of $2.35 billion versus $891 million in 1999
03—Questions
Frequently Asked Questions
Why did the Company buy back the minority interest in Hartford Life, Inc.?
On June 27, 2000, The Hartford acquired the approximately 19% of Hartford Life, Inc. (HLI) it did not already own for about $1.4 billion, consisting of treasury stock, long-term notes, and commercial paper. HLI again became wholly owned, which removed minority interest from future earnings and consolidated the Worldwide Life business under one owner. The transaction created $862 million of goodwill amortized over 25 years and $801 million of present value of future profits (PVP).
How significant is the Fortis acquisition for The Hartford?
The $1.12 billion purchase is expected to increase the Company's mutual fund assets under management by more than 30% and to strengthen its number one position in variable annuities. It also moves HLI from fifth to third largest writer of variable life insurance by new premium sales and adds a retail broker-dealer with about 3,000 registered representatives. The deal is subject to insurance regulatory approval and is expected to close in the second quarter of 2001.
What are the main risks in the Property & Casualty business?
Personal auto loss costs rose, and reinsurance experienced adverse development on prior underwriting years. Commercial and Reinsurance both posted underwriting losses in 2000 (-$153 million and -$73 million), and the Personal segment's underwriting result fell to roughly breakeven ($2 million). The Company also continues to receive environmental and asbestos claims, with net reserves of $1.48 billion at year-end 2000. Management believes these reserves are reasonable, but future reviews could change them materially.
How strong is the balance sheet and how is it funded?
Total debt including trust preferred securities was $3.34 billion, giving a debt-to-capitalization ratio of 32% (20% excluding QUIPS and TruPS). Stockholders' equity of $7.5 billion benefited from the $398 million treasury stock issuance and a $615 million common stock offering in February 2001. Major insurance subsidiaries rated A+ by A.M. Best and AA-range by S&P and Fitch, and each subsidiary exceeded its NAIC risk-based capital requirement. As a holding company, The Hartford depends on dividends from its insurance subsidiaries, with up to $779 million payable in 2001 without prior regulatory approval.
04—Continue