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Hartford profit down on Navigators buy

Posted On: Aug. 2, 2019 11:41 AM CST

Hartford insurance

Hartford Financial Services Group Inc. reported lower profit in the second quarter of 2019 amid costs associated with the company’s acquisition of the Navigators Group Inc.

The Hartford, Connecticut-based insurer reported net income in the second quarter of 2019 of $372 million, a decrease of 36% from the same period last year, reflecting $148 million of income in the second quarter of 2018 related to discontinued operations from the company’s former runoff annuity business sold in May 2018 and $149 million in reinsurance and reserve charges related to the acquisition in the latest quarter, according to its earnings report released Thursday.

Revenue totaled $5.1 billion in the second quarter of 2019, a 6.3% increase from the same quarter last year, according to the company’s 10-Q filing published on Thursday.

Hartford’s $2.1 billion all-cash deal to acquire Navigators was announced in August 2018. Upon closing the deal, the Hartford realigned its commercial lines segment business among small commercial, middle and large commercial, and global specialty to reflect the new management reporting structure, according to the report. The realignment included moving a portion of excess and surplus lines business from small commercial to global specialty, moving livestock business from middle market to global specialty, and moving national accounts and captive programs from specialty commercial to middle and large commercial. In addition, the financial products and bond business, previously included in specialty commercial, are now included in global specialty, according to the report.

“I remain highly confident of the strategic and financial benefits this acquisition will produce,” Chairman and CEO Christopher Swift said during the insurer’s earnings conference call Friday. “We expect a smooth integration and remain confident of the future benefits we will realize from expanded product and underwriting capabilities.”

Net income in the commercial lines segment declined 49% to $191 million in the second quarter of 2019, while its combined ratio was 100.3% compared with 90.1% in the same period of 2018, according to the earnings statement. But the company projected a combined ratio in the range of 95% to 97% for the commercial lines segment in the second half of the year.

Commercial lines written premiums rose 20% to $2.1 billion in the second quarter due to the acquired Navigators business as well as higher new business premiums and strong policy count retention in standard commercial lines, according to the insurer’s earnings presentation.

The commercial lines segment has “momentum,” Mr. Swift said.

“We are also encouraged by the recent firming in commercial lines pricing, particularly in commercial specialty, which is better than anticipated when we first announced the acquisition,” he said, adding that “loss trends in certain lines needed increased pricings in order to achieve acceptable returns.”

“The team is focused on capturing the benefit of improving pricing, terms and conditions, particularly in international where results in recent years have been poor,” Mr. Swift continued. “In addition to the trends in global specialty, we’re also seeing pricing and growth opportunities in middle and large commercial.”

But the underlying combined ratio for the middle and large commercial segment rose to 100.9% from 97.1%, primarily due to a higher number of large inland marine losses and an increase in commissions and technology spending in middle market, according to the earnings presentation. And higher property and workers compensation losses in small commercial contributed to the combined ratio deterioration for the quarter, according to the presentation.

“Margins in workers compensation were strong across our business units and consistent with our expectations,” President Doug Elliot said during the insurer’s earnings conference call. “Results to date indicate that we’re managing market forces effectively, and I remain pleased with our workers compensation pricing and underwriting strategy as we seek to balance margins and growth.”

Net income in the first half of 2019 was $1 billion, a decrease of 15% from the same period last year, while revenue grew 5.8% to $10 billion, according to the company’s 10-Q filing.