Summary
The Hartford Financial Services Group, Inc. (HIG) filed an 8-K on February 5, 2009, to report its fourth quarter and full-year 2008 financial results. A significant event disclosed was a pre-tax goodwill impairment charge of $745 million. This impairment was primarily driven by the sharp decline in equity markets and The Hartford's share price during the fourth quarter of 2008, triggering an interim goodwill impairment test. The impairment charge was largely allocated to the Individual Annuity segment ($422 million) and Corporate ($323 million).
Key Highlights
- 1The Hartford recorded a substantial pre-tax goodwill impairment charge of $745 million for the fourth quarter of 2008.
- 2The goodwill impairment was triggered by adverse market conditions, including declining equity markets and a decrease in The Hartford's stock price.
- 3The impairment charge was primarily concentrated in the Individual Annuity ($422 million) and Corporate ($323 million) reporting units.
- 4The company reported favorable prior accident year reserve development for property and casualty lines totaling $192 million in the fourth quarter of 2008.
- 5Key areas contributing to reserve releases included general liability, workers' compensation, personal auto liability, and commercial auto liability.
- 6The Hartford provided updated details on its capital position, noting a preliminary year-end 2008 risk-based-capital (RBC) ratio of 385% for Hartford Life and Accident Insurance Company (HLA).
- 7The company discussed factors that led to a lower-than-initially-estimated HLA RBC ratio, including cash-flow testing requirements, credit-related impacts, and currency fluctuations.
Frequently Asked Questions
The goodwill impairment charge of $745 million was primarily due to the severe downturn in equity markets and a sharp decline in The Hartford's stock price during the fourth quarter of 2008. These conditions triggered an interim goodwill impairment test, which determined that the fair value of certain reporting units, specifically Individual Annuity and International, had fallen below their carrying value.
Yes, the company reported favorable prior accident year reserve development for its property and casualty lines, totaling $192 million in the fourth quarter of 2008. This was driven by favorable trends in general liability, workers' compensation, and various auto liability lines, indicating better-than-expected claims experience in these areas.
The Hartford reported a preliminary year-end 2008 risk-based-capital (RBC) ratio of 385% for its subsidiary, Hartford Life and Accident Insurance Company (HLA). The company also maintained $1.9 billion in capital resources at the holding company and property and casualty subsidiaries, comprising $1.5 billion in cash and short-term investments and $400 million in excess capital.
The preliminary HLA RBC ratio of 385% was lower than an earlier estimate of 535% (which would have been 465% excluding a portion of an investment) due to several factors. These include a $600 million reduction from cash-flow testing requirements (AG39), $450 million in higher credit-related impacts primarily from commercial real estate investments, and a $150 million reduction due to Yen strengthening. These factors reduced statutory capital compared to the initial assumptions.