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Hartford swings back to profit in second quarter

Hartford swings back to profit in second quarter

Hartford Financial Services Group Inc. rebounded to significantly higher profit in the second quarter of 2018 compared with an underwriting loss during the same period last year despite experiencing higher natural catastrophe losses.

The insurer reported net income of $582 million compared with a $40 million loss in second quarter of 2017, amid higher profit in its commercial lines segment, according to its earnings report released Thursday.

Net income in the commercial lines segment rose 44.2% to $372 million over the same period last year, primarily due to an $80 million improvement in underwriting gain before tax and lower income taxes because of U.S. corporate tax reform. Net favorable prior year development for the segment was $73 million before tax because of favorable workers compensation loss cost trends in recent years and favorable development on estimates of the 2017 catastrophes, particularly the hurricanes.

“As a result of lowering these estimates, we no longer expect to receive a recovery against our aggregate catastrophe reinsurance treaty for the 2017 accident year,” President Doug Elliot said during the insurer’s earnings conference call on Friday.

Gross catastrophe loss estimates for accident year 2017 no longer exceed the $850 million attachment point for the 2017 property catastrophe aggregate treaty as of June 30, which reversed the previously recorded reinsurance recoverable, according to the earnings report. The 2018 property catastrophe aggregate treaty net retention is $825 million compared with $850 million in 2017, according to the report.

But the company experienced $188 million of catastrophe losses in the second quarter of 2018, $33 million higher than the same period in 2017, “driven by significant wind and hailstorms in various regions across the country,” Mr. Elliott said.

The commercial segment’s combined ratio was 90.1% in the second quarter, 94.6% in the same period in 2017, according to the report.

But Hartford officials are continuing to closely watch the “headwinds on the pricing side” in the workers compensation business as frequency and rates are heading in opposite directions and the favorable loss cost trends are pressuring pricing, he said.

“In both small commercial and middle market, our (comp claim) frequency has been trending slightly higher during 2018,” Mr. Elliott said. “We see this as a broad-based economic trend across many states and industry classes. Keep in mind that absolute frequency remains at historical low levels and margins remain attractive. However, expanding participation in the labor market often means less experienced workers are on the job — a driver of frequency.”

“We continue to closely watch inflation trends for upward trends on both wages and medical costs — drivers of severity,” he continued. “Although accident year 2018 data is immature at this point in the year, severity remains within our expectations.”

“Loss costs in workers compensation have been quite benign for several years, and as a result the (National Council on Compensation Insurance) and other bureaus have been filing negative cost changes in many jurisdictions,” Mr. Elliott added. “Industry rate filings are based on these loss costs trends and have put downward pressure on rates in 2018 and will likely do so in 2019. Combining these three factors, we continue to expect some margin compression in our small and middle market books of business.”

Meanwhile, the insurer closed its sale of Talcott Resolution, its runoff life and annuity businesses, to an investor group for cash considerations of about $1.5 billion on May 31, but retained a 9.7% equity stake, Christopher Swift, chairman and CEO, said during the call.

In 2017, Hartford acquired Aetna Inc.’s U.S. group life and disability business for cash consideration of $1.45 billion, with the integration “proceeding well,” he said. “Given the complexity of the numerous activities involved, I am very pleased and impressed with the pace and overall progress. We are optimistic that we can reduce expenses by more than our original $100 million target.”




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