01—Abstract
Summary
Summary of the 10-K filed February 24, 2023. Cited figures are marked; the original filing is the authoritative source.
The Hartford Financial Services Group (HIG) reported a weaker 2022 as net income available to common stockholders fell 23% to $1.79 billiona ($5.44 diluted EPS, down 18%), driven mainly by a $1.1 billion swing to net realized losses from equity market depreciation and fixed income sales, along with lower net investment income from limited partnerships.
Book value per diluted share fell 19% to reflect a $3.9 billionb increase in after-tax AOCI losses from higher interest rates and wider credit spreads. Stockholders' equity dropped to $13.6 billion from $17.8 billion, while total assets were $73.0 billion. Operating performance was more constructive.
Commercial Lines underwriting gain rose to $1.03 billionc on 11% earned premium growth, a favorable swing in prior-year reserve development, and a combined ratio improving to 90.2 from 95.8. Group Benefits net income rose 30% to $324 million on lower excess mortality claims ($160 million versus $583 million in 2021). Personal Lines was the weak spot, swinging to an underwriting loss of $9 million with a 100.3 combined ratio as auto loss costs rose, and management guides to double-digit auto and homeowners rate increases in 2023.
Capital returns remained substantial: the company repurchased $1.6 billiond of stock in 2022, retired $600 million of 7.875% junior subordinated debentures, and holds $2.75 billion of remaining repurchase authorization through 2024. Ongoing risks include the Boy Scouts sexual abuse settlement ($787 million pending court approval), COVID-related business interruption litigation, and A&E reserves, which are partly protected by the NICO adverse development cover with $256 million of remaining limit.
02—Key points
Key Highlights
- Net income available to common stockholders fell 23% to $1,794 million; diluted EPS $5.44 vs. $6.62 in 2021, mainly due to a $1.1 billion pre-tax swing to net realized losses
- Commercial Lines underwriting gain rose to $1,032 million with the combined ratio improving to 90.2 from 95.8 on earned premium growth and favorable prior-year reserve development
- Personal Lines swung to an underwriting loss of $9 million (combined ratio 100.3) as automobile loss cost severity and frequency increased
- Group Benefits net income rose 30% to $324 million as excess mortality claims fell to $160 million from $583 million
- Book value per diluted share declined 19% to reflect a $3.9 billion increase in after-tax AOCI losses, with total stockholders' equity at $13.6 billion
- Returned capital through $1.6 billion of 2022 share repurchases and $510 million of common dividends, with $2.75 billion of repurchase authorization remaining
- Carries contingent exposures including the $787 million Boy Scouts settlement pending court approval, COVID business interruption suits, and run-off asbestos and environmental reserves protected by a $1.5 billion NICO adverse development cover
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 24, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $22.36B$22.39B | −0.1% |
| SG&A Expenses | $4.84B$4.79B | +1.0% |
| Interest Expense | $213.00M$234.00M | −9.0% |
| Net Income | $1.82B$2.37B | −23.3% |
| EPS (Basic) | $5.54$6.73 | −17.7% |
| EPS (Diluted) | $5.46$6.64 | −17.8% |
| Shares Outstanding (Basic) | 324.80M349.10M | −7.0% |
| Shares Outstanding (Diluted) | 329.50M354.10M | −6.9% |
05—Questions
Frequently Asked Questions
Why did net income fall in 2022 if underwriting results improved?
The decline was driven mainly by investment results rather than underwriting. Net realized losses were $627 million in 2022 versus gains of $509 million in 2021, primarily from equity securities depreciation and losses on fixed maturity sales. Net investment income also fell 6% to $2.18 billion as returns on limited partnerships declined. Underwriting improved, with P&C underwriting results up $267 million pre-tax.
What is driving the weakness in Personal Lines and what is management doing about it?
Personal automobile loss costs rose on higher claim frequency and severity, driven by inflation in parts and repairs, while prior-year reserve releases shrank. Management expects a Personal Lines combined ratio of 100.5 to 102.5 in 2023 and plans double-digit written price increases in both automobile and homeowners, along with continued rollout of the Prevail product.
How exposed is the company to asbestos and environmental claims and the Boy Scouts settlement?
Run-off A&E net reserves were $390 million after the NICO adverse development cover, and the company recorded a $594 million deferred gain on that cover. Management increased A&E reserves by $229 million in Q4 2022, with $256 million of cover remaining. The Boy Scouts settlement of $787 million is pending final court approval from the civil district court, and the filing notes uncertainty about whether all conditions will be met.
Is the dividend and buyback capacity intact despite the lower earnings?
Management expects roughly $1.5 billion of net P&C dividends to the holding company in 2023, plus about $400 million from Group Benefits and $125 million from Hartford Funds, against about $540 million of common dividends and $21 million of preferred dividends. The company has $2.75 billion of repurchase authorization remaining through 2024, and it had $1.0 billion of holding-company liquidity at year-end 2022.
06—Continue