Summary
The Hartford Financial Services Group, Inc. (HIG) filed this 8-K on October 16, 2001, to disclose significant "Recent Developments" impacting its third-quarter 2001 results. The primary driver of these developments was the September 11th terrorist attack, which is expected to result in a significant net loss of $440 million, or $1.85 per diluted share, primarily impacting property and casualty operations. This event led to credit rating agencies like Standard & Poor's and Fitch placing HIG's ratings under review, though both subsequently affirmed their ratings. In addition to the terrorist attack's impact, the company also recognized a $130 million tax benefit ($0.55 per diluted share) related to prior tax years. Excluding these extraordinary items, the company provided expected operating income ranges for its life operations ($171-$173 million) and property-casualty operations ($99-$103 million), noting a favorable pricing environment in Business Insurance offset by lower equity markets impacting life operations and increasing loss costs in other segments. Due to the expected net loss for the quarter, HIG will use a different share count for EPS calculations, a standard accounting requirement. Looking ahead, HIG announced plans to raise equity capital to offset the shareholder equity reduction from the September 11th losses, potentially through a stock issuance. Investors should note the ongoing reviews by rating agencies, particularly Moody's, and the company's proactive approach to capital management in light of these significant events.
Key Highlights
- 1The September 11th terrorist attacks are estimated to cause a net loss of $440 million ($1.85 per diluted share), with $420 million impacting property and casualty operations and $20 million affecting Hartford Life.
- 2A $130 million tax benefit ($0.55 per diluted share) was recorded in August 2001 related to favorable treatment of certain tax matters from 1996-2000.
- 3Excluding these significant items, the company expects third-quarter 2001 operating income for life operations to be between $171-$173 million and for property-casualty operations to be between $99-$103 million.
- 4The company anticipates reporting an overall third-quarter 2001 operating loss of $0.21 to $0.23 per diluted share due to the combined impact of the terrorist attack and the tax benefit.
- 5Due to the expected net loss for the quarter, HIG will use basic weighted-average shares outstanding for diluted EPS calculation, as required by GAAP, which differs from the potential share count used in profitable quarters.
- 6HIG plans to raise equity capital to address the $440 million reduction in shareholders' equity from the September 11th losses, which may involve issuing common stock.
- 7Major rating agencies (Standard & Poor's and Fitch) initially placed HIG's ratings under review due to the September 11th event but subsequently affirmed their ratings. Moody's has placed its debt rating under review for possible downgrade.