How much did September 11 affect The Hartford's 2001 results?

The company recorded an estimated pre-tax loss of $678 million net of reinsurance, about $440 million after tax, or $1.85 per basic share. Of that, $647 million related to property and casualty operations and $31 million to life operations. The loss included a $1.1 billion gross reserve addition with $569 million in reinsurance cessions.

Why did net income fall so sharply in 2001 if the core business grew?

Net income dropped to $507 million from $974 million mainly because of the September 11 losses and a weak Property & Casualty underwriting year. Life and Group Benefits grew steadily, but the P&C underwriting loss and realized capital losses of $236 million (including Enron-related impairments) weighed on results. A $130 million tax benefit at Hartford Life partly offset these charges.

What did the Fortis acquisition add to The Hartford?

On April 2, 2001, The Hartford acquired the U.S. individual life insurance, annuity and mutual fund businesses of Fortis for $1.12 billion in cash. It increased individual life insurance in force by about 60% to $120.3 billion, added a retail broker-dealer with about 2,300 representatives, and contributed to mutual fund assets under management, which rose 47% to $16.8 billion.

Is The Hartford's capital position still strong after the 2001 losses?

Stockholders' equity rose to $9.0 billion from $7.5 billion, because the company issued about $1.0 billion of common stock in 2001 for the Fortis acquisition and to replace capital lost to September 11. All insurance subsidiaries had more than sufficient risk-based capital, and debt to capitalization was about 32%. Investors should note that the company's ability to pay dividends from its insurance subsidiaries is limited to about $577 million without regulatory approval in 2002.

What risks should investors watch in the Property & Casualty business?

Key risks include continued adverse loss development in Reinsurance, higher personal automobile losses, and uncertainty around environmental and asbestos reserves of $1.27 billion net. The company also faces reinsurance pricing pressure and uncertain federal backing for terrorism coverage after September 11. Management expects firming commercial pricing to continue in 2002, though the personal lines industry remains under pressure.

HIG/HIG-PG 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 20, 2002. Cited figures are marked; the original filing is the authoritative source.

The Hartford Financial Services Group (HIG) reported a sharply weaker 2001 as the September 11 terrorist attack drove a $678^a pre-tax loss (about $440 after-tax, or $1.85 per basic share) and pushed Property & Casualty into an underwriting loss.

Net income fell 48% to $507 million^b ($2.10 diluted EPS) from $974 million ($4.34) in 2000, and operating income fell 25% to $724 million. Excluding September 11 and a one-time $130 tax benefit at Hartford Life, operating income actually grew about 7%, with growth concentrated in Life (Investment Products, Individual Life, Group Benefits) while North American P&C was the drag. Life operating income rose 27% to $800 million, helped by the April 2001 Fortis acquisition, which added scale in individual life and annuities.

The balance sheet grew substantially, with total assets of $181.2 billion^c and stockholders' equity of $9.0 billion (up from $7.5 billion), largely reflecting $1.0 billion of common stock issued in 2001 to fund Fortis and to replace capital lost to September 11. Total debt and trust preferred securities rose to about $4.0 billion, and the debt-to-capitalization ratio held at roughly 32%. Management reports that all insurance financial strength ratings were reaffirmed, though Moody's and S&P placed negative outlooks on certain debt and P&C ratings.

Investors should weigh the strong Life franchise and the variable annuity leadership against the P&C underwriting deterioration, elevated reserve and reinsurance uncertainty, and the reliance on a one-time tax benefit. The company's business mix is dominated by Life, which contributed $800 million^d of operating income versus a loss-making P&C segment (-$14 million).

Life's growth drivers include a 9% rise in total assets under management to $168.4 billion, individual variable annuity sales of $9.0 billion, and life insurance in force up 60% to $120.3 billion after Fortis. The P&C segment's North American combined ratio rose to 112.4 in 2001 (103.4 excluding September 11), and the company exited most international P&C operations and HartRe's international lines.

02—Key points

Key Highlights

Net income declined 48% to $507 million ($2.10 diluted EPS) from $974 million ($4.34) in 2000, reflecting $440 million of after-tax September 11 losses.
Operating income fell 25% to $724 million; excluding September 11 and a $130 million HLI tax benefit, operating income rose about 7%.
Life operations were the growth engine, with operating income up 27% to $800 million, driven by the Fortis acquisition and mutual fund growth.
Property & Casualty posted an operating loss of $14 million; the North American combined ratio reached 112.4 (103.4 excluding September 11).
Total assets reached $181.2 billion and stockholders' equity $9.0 billion, supported by a $1.0 billion common stock issuance in 2001.
The Fortis acquisition for $1.12 billion added individual life and annuity businesses, increasing life insurance in force 60% to $120.3 billion.
Management reported that insurance financial strength ratings were reaffirmed after September 11, though Moody's and S&P placed negative outlooks on some debt and P&C ratings.

03—Questions

Frequently Asked Questions

How much did September 11 affect The Hartford's 2001 results?
The company recorded an estimated pre-tax loss of $678 million net of reinsurance, about $440 million after tax, or $1.85 per basic share. Of that, $647 million related to property and casualty operations and $31 million to life operations. The loss included a $1.1 billion gross reserve addition with $569 million in reinsurance cessions.
Why did net income fall so sharply in 2001 if the core business grew?
Net income dropped to $507 million from $974 million mainly because of the September 11 losses and a weak Property & Casualty underwriting year. Life and Group Benefits grew steadily, but the P&C underwriting loss and realized capital losses of $236 million (including Enron-related impairments) weighed on results. A $130 million tax benefit at Hartford Life partly offset these charges.
What did the Fortis acquisition add to The Hartford?
On April 2, 2001, The Hartford acquired the U.S. individual life insurance, annuity and mutual fund businesses of Fortis for $1.12 billion in cash. It increased individual life insurance in force by about 60% to $120.3 billion, added a retail broker-dealer with about 2,300 representatives, and contributed to mutual fund assets under management, which rose 47% to $16.8 billion.
Is The Hartford's capital position still strong after the 2001 losses?
Stockholders' equity rose to $9.0 billion from $7.5 billion, because the company issued about $1.0 billion of common stock in 2001 for the Fortis acquisition and to replace capital lost to September 11. All insurance subsidiaries had more than sufficient risk-based capital, and debt to capitalization was about 32%. Investors should note that the company's ability to pay dividends from its insurance subsidiaries is limited to about $577 million without regulatory approval in 2002.
What risks should investors watch in the Property & Casualty business?
Key risks include continued adverse loss development in Reinsurance, higher personal automobile losses, and uncertainty around environmental and asbestos reserves of $1.27 billion net. The company also faces reinsurance pricing pressure and uncertain federal backing for terrorism coverage after September 11. Management expects firming commercial pricing to continue in 2002, though the personal lines industry remains under pressure.

04—Continue

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