01—Abstract
Summary
Summary of the 10-K filed February 18, 2022. Cited figures are marked; the original filing is the authoritative source.
The Hartford Financial Services Group (HIG) closed 2021 with strong earnings recovery and a clear strategic agenda.
Net income rose 36% to $2,365 milliona ($2,344 million available to common, up 37%), driven by a $523 million swing from 2020 realized losses to 2021 realized gains, higher net investment income (up 25% to $2,313 million, helped by $732 million from limited partnerships), and a $103 million reduction in restructuring costs. Core earnings reached $2,178 million, up 4%, which is the cleaner measure of ongoing operations and excludes realized gains and one-time items. Underlying business quality was mixed.
Commercial Lines grew written premium 12% and improved its combined ratio to 95.8 from 100.4, while Personal Lines' combined ratio deteriorated to 90.7 from 75.5 on higher auto claim frequency and severity. Group Benefits net income margin fell to 3.9% from 6.4% because of $583 millionb in excess mortality losses in group life. Hartford Funds was a bright spot, with AUM up 13% to $157.9 billion and net inflows of $3.9 billion.
Management guided to a 2022 Commercial Lines combined ratio of 90-92 and a Personal Lines combined ratio of 97-99, implying margin pressure in personal auto. Balance sheet and capital remain solid.
Book value per diluted share rose 1.9% to roughly $53c (up $0.97), and the company repurchased $1.7 billion of stock in 2021 with $1.0 billion of authorization remaining as of February 17, 2022. Risk items for investors include $1,015 million of cumulative adverse A&E development ceded to NICO under a $1.5 billion adverse development cover (with $485 million of limit remaining), a $155 million 2021 A&E reserve charge, a $787 million Boy Scouts of America settlement agreement still subject to court approval, and more than 260 COVID-19 business interruption lawsuits.
02—Key points
Key Highlights
- Net income available to common stockholders rose 37% to $2,344 million ($6.62 diluted EPS, up from $4.76), driven mainly by a $523 million pre-tax swing from realized losses to realized gains.
- Core earnings increased 4% to $2,178 million, the company's preferred operating measure, which excludes realized gains and restructuring and M&A items.
- Net investment income rose 25% to $2,313 million, though the portfolio yield excluding alternatives fell to 3.1% from 3.3% as reinvestment rates stayed low.
- Commercial Lines written premium grew 12% to $10.0 billion and the combined ratio improved to 95.8 (underlying 89.1), while Personal Lines' combined ratio rose to 90.7 from 75.5 on auto claim inflation and frequency.
- Group Benefits net income fell 35% to $249 million as excess mortality claims in group life reached $583 million, versus $239 million in 2020.
- Hartford Funds AUM reached $157.9 billion (up 13%) with $3.9 billion of net mutual fund and ETP inflows, supporting segment net income up 28% to $217 million.
- Hartford Next cost program is on track for $540 million of annual savings by 2022 and $625 million by 2023 versus 2019, and $1.7 billion of share repurchases in 2021 reduced equity.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 18, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $22.39B$20.52B | +9.1% |
| SG&A Expenses | $4.79B$4.48B | +6.9% |
| Operating Income | $2.37B$1.74B | +36.2% |
| Interest Expense | $234.00M$236.00M | −0.8% |
| Net Income | $2.37B$1.74B | +36.5% |
| EPS (Basic) | $6.73$4.79 | +40.5% |
| EPS (Diluted) | $6.64$4.76 | +39.5% |
| Shares Outstanding (Basic) | 349.10M358.30M | −2.6% |
| Shares Outstanding (Diluted) | 354.10M360.60M | −1.8% |
05—Questions
Frequently Asked Questions
Why did net income rise 36% in 2021 if the core business grew only modestly?
Most of the increase reflects a swing in investment results rather than underwriting. Net realized gains were $509 million in 2021 versus losses of $14 million in 2020, including a $46 million gain on the sale of the Talcott Resolution stake. Core earnings, which exclude these items, rose a more modest 4% to $2,178 million.
What are the main risks to the 2022 outlook?
Key risks include auto claim severity and frequency pressure in Personal Lines (guided combined ratio of 97-99), elevated group life excess mortality (management assumes $100-200 million in 2022), continued low reinvestment yields, possible further adverse A&E development once the NICO cover's $485 million remaining limit is used, and the outcome of the Boy Scouts of America settlement and the COVID-19 business interruption litigation.
How strong is the balance sheet and capital position?
Total stockholders' equity was $17.8 billion, and book value per diluted share excluding AOCI rose to about $52 from $50. Holding company liquidity was $1.9 billion at year end, with a $750 million undrawn revolver and a $2.0 billion intercompany facility. Insurance subsidiaries had $14.3 billion of U.S. statutory capital, and the company expects $1.3-1.4 billion of P&C dividends in 2022. Debt to capitalization rose to 22% from 19% after the issuance of $600 million of 2.9% notes.
What did the company do with its capital in 2021 and what remains for 2022?
The company repurchased $1.7 billion of common stock (25.9 million shares) and paid $498 million in common dividends, with the quarterly dividend at $0.385 per share. About $274 million was repurchased from January 1 to February 17, 2022, leaving $1.0 billion of the $3.0 billion authorization. It also issued $600 million of 2.9% senior notes to refinance the $600 million 7.875% junior subordinated debentures, which are callable in April 2022 with an expected $9 million loss on extinguishment.
06—Continue