EX-99.2 3 d387360dex992.htm EX-99.2 EX-99.2

Exhibit 99.2

 

LOGO

INVESTOR FINANCIAL SUPPLEMENT

June 30, 2012


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

Address:

One Hartford Plaza

Hartford, CT 06155

Internet address:

http://www.thehartford.com

Contacts:

Sabra Purtill

Senior Vice President

Investor Relations

Phone (860) 547-8691

Margaret Mann

Program Assistant

Investor Relations

Phone (860) 547-3800

As of July 26, 2012

 

     A.M. Best    Fitch    Standard & Poor’s    Moody’s

Insurance Financial Strength Ratings:

           

Hartford Fire Insurance Company

   A    A+    A    A2

Hartford Life Insurance Company

   A    A-    A-    A3

Hartford Life and Accident Insurance Company

   A    A-    A-    A3

Hartford Life and Annuity Insurance Company

   A    A-    BBB+    A3

Other Ratings:

           

The Hartford Financial Services Group, Inc.:

           

Senior debt

   bbb+    BBB    BBB    Baa3

Commercial paper

   AMB-2    F2    A-2    P-3

TRANSFER AGENT

The Bank of New York Mellon

BNY Mellon Shareowner Services

480 Washington Boulevard

Jersey City, NJ 07310

1 (877) 272-7740

COMMON STOCK

Common stock of The Hartford Financial Services Group, Inc. is traded on the New York Stock Exchange under the symbol “HIG”.

This report is for information purposes only. It should be read in conjunction with documents filed by The Hartford Financial Services Group, Inc. with the U.S. Securities and Exchange Commission, including the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

INVESTOR FINANCIAL SUPPLEMENT

TABLE OF CONTENTS

 

Basis of Presentation

     i, ii, iii   

CONSOLIDATED

  

Consolidated Financial Results

     1   

Operating Results by Segment

     2   

Consolidated Statements of Operations

     3   

Consolidating Balance Sheets

     4   

Capital Structure

     5   

Statutory Surplus to GAAP Stockholders’ Equity Reconciliation

     6   

Accumulated Other Comprehensive Loss

     7   

Computation of Basic and Diluted Earnings (Losses) Per Common Share

     8   

Analysis of Net Realized Capital Gains (Losses) After-tax and DAC

     9   

Computation of Return-on-Equity Measures

     10   

COMMERCIAL MARKETS

  

Income Statements

     11   

Property & Casualty Commercial

  

Operating Results

     12   

Underwriting Results

     13   

Supplemental Data

     14   

Group Benefits

  

Income Statements

     15   

Supplemental Data

     16   

CONSUMER MARKETS 

  

Income Statements

     17   

Operating Results

     18   

Underwriting Results

     19   

Written and Earned Premiums

     20   

WEALTH MANAGEMENT

  

Operating Results

     21   

Financial Highlights Excluding Impact of Unlock

     22   

Deferred Policy Acquisition Costs and Present Value of Future Profits

     23   

Individual Life

  

Income Statements

     24   

Supplemental Data

     25   

Account Value Rollforward

     26   

Retirement Plans

  

Income Statements

     27   

Supplemental Data

  

Assets Under Management

     28   

Account Value and Asset Rollforward

     29   

Mutual Funds

  

Income Statements

     30   

Supplemental Data

  

Deposits and Assets Under Management

     31   

Asset Rollforward

     32   

RUNOFF OPERATIONS

  

Financial Highlights

     33   

Life Other Operations

  

Supplemental Data

     34   

U.S. Annuity - Account Value Rollforward

     35   

International Annuity - Account Value Rollforward

     36   

Deferred Policy Acquisition Costs and Present Value of Future Profits

     37   

Annuity Death and Income Benefits

     38   

CORPORATE

  

Income Statements

     39   

INVESTMENTS

  

Investment Earnings Before-tax

  

Consolidated

     40   

Life

     41   

Property & Casualty

     42   

Composition of Invested Assets

  

Consolidated

     43   

Life

     44   

Property & Casualty

     45   

Unrealized Loss Aging

     46   

Invested Asset Exposures

  

As of June 30, 2012

     47   


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

BASIS OF PRESENTATION

DEFINITIONS AND PRESENTATION

 

All amounts are in millions, except for per share and ratio information unless otherwise stated.

 

On March 21, 2012, the Company announced the completion of an evaluation of its businesses and strategy. As a result of this review, which was conducted by the Company’s management and Board of Directors over the past several quarters, the Company announced that it will focus on its Property and Casualty, Group Benefits and Mutual Fund businesses, place its Individual Annuity business into runoff and pursue sales or other strategic alternatives for the Individual Life, Woodbury Financial Services and Retirement Plans businesses. Starting in the second quarter of 2012, financial results for the Individual Annuity segment, which consists of U.S. variable, fixed and fixed indexed annuities, will be reported in the Life Other Operations segment. The Company is organized into four divisions: Commercial Markets, Consumer Markets, Wealth Management and Runoff Operations and currently conducts business principally in nine reporting segments, as well as the Corporate category

 

The Commercial Markets division consists of the reporting segments of Property & Casualty Commercial and Group Benefits. Property & Casualty Commercial provides workers’ compensation, property, automobile, marine, livestock, liability and umbrella coverages, primarily throughout the United States (“U.S.”), along with a variety of customized insurance products and risk management services including professional liability, fidelity, surety, and specialty casualty coverages. Group Benefits provides employers, associations, affinity groups and financial institutions with group life, accident and disability coverage, along with other products and services, including voluntary benefits and group retiree health.

 

Consumer Markets provides standard automobile, homeowners and home-based business coverages to individuals across the U.S., including a special program designed exclusively for members of AARP. Consumer Markets also operates a member contact center for health insurance products offered through the AARP Health program.

 

The Wealth Management division includes the reporting segments of Individual Life, Retirement Plans and Mutual Funds. Individual Life sells a variety of life insurance products, including variable universal life, universal life, and term life. Retirement Plans provides products and services to corporations pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”) and products and services to municipalities and not-for-profit organizations under Sections 457 and 403(b) of the Code, collectively referred to as government plans. Mutual Funds offers retail mutual funds, investment-only mutual funds and college savings plans under Section 529 of the Code (collectively referred to as non-proprietary) and proprietary mutual funds supporting insurance products issued by The Hartford.

 

The Runoff Operations division includes the reporting segments of Life Other Operations and Property & Casualty Other Operations. Life Other Operations includes U.S. Annuity, International Annuity, Institutional Annuity, and Private Placement Life Insurance, previously reported in Wealth Management.

 

The Hartford includes in Corporate the Company’s debt financing and related interest expense, as well as other capital raising activities; banking operations; certain fee inome and commissions expenses associated with sales of non-proprietary products by broker-dealer subsidiaries; and certain purchase accounting adjustments and other charges not allocated to the segments.

 

The balance sheet and certain balance sheet measures incorporated herein are presented in the statutory legal entity views for Life and Property & Casualty. Life consists of the Wealth Management division, Life Other Operations, Group Benefits and an Other category. Property & Casualty consists of the of Property & Casualty Commercial, Property & Casualty Other Operations and the Consumer Markets Division. Corporate primarily includes the Company’s debt financing and related interest expense, as well as other capital raising, banking operations and certain purchase accounting adjustment activities.

 

Certain operating and statistical measures have been incorporated herein to provide supplemental data that indicate current trends in The Hartford’s business. These measures include sales, deposits, net flows, account value, insurance in-force and premium retention. Premium retention is defined as renewal premium written in the current period divided by total premium written in the prior period.

 

The Hartford, along with others in the property and casualty insurance industry, uses underwriting ratios as measures of performance. The loss and loss adjustment expense ratio is the ratio of losses and loss adjustment expenses to earned premiums. The expense ratio is the ratio of underwriting expenses (amortization of deferred policy acquisition costs, as well as other underwriting expenses) to earned premiums. The policyholder dividend ratio is the ratio of policyholder dividends to earned premiums. The combined ratio is the sum of the loss and loss adjustment expense ratio, the expense ratio and the policyholder dividend ratio. These ratios are relative measurements that describe the related cost of losses and expenses for every $100 of earned premiums. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting losses. The catastrophe ratio (a component of the loss ratio) represents the ratio of catastrophe losses to earned premiums.

 

The Hartford, along with others in the life insurance industry, uses underwriting ratios as measures of the Group Benefits segment’s performance. The loss ratio is the ratio of total benefits, losses and loss adjustment expenses, excluding buyouts, to total premiums and other considerations excluding buyout premiums. The expense ratio is the ratio of insurance operating costs and other expenses to total premiums and other considerations excluding buyout premiums.

 

Accumulated other comprehensive income (“AOCI”) represents net of tax unrealized gain (loss) on available-for-sale securities, other than temporary impairment losses recognized in AOCI, net gain (loss) on cash-flow hedging instruments, foreign currency translation adjustments and pension and other postretirement adjustments.

 

Mutual fund assets are an internal measure of assets under management used by the Company because a portion of revenues are based upon asset levels. Mutual funds assets are not included on the balance sheet.

 

Return on assets (“ROA”) is calculated using annualized earnings divided by a two-point average of assets under management.

 

Assets under management (“AUM”) include account values and mutual funds assets. AUM is a measure used by the Company because a significant portion of the Company's revenues are based upon asset values. These revenues increase or decrease with a rise or fall in the amount of account value whether caused by changes in capital markets or through net flows.

 

Assets under administration (“AUA”) represents the client asset base of the Company’s recordkeeping business for which revenues are predominately based on the number of plan participants. Unlike assets under management, increases or decreases in assets under administration do not have a direct corresponding increase or decrease to the Company's revenues.

 

Yields are calculated using annualized net investment income (excluding income related to equity securities, trading) divided by the monthly average invested assets at cost, amortized cost, or adjusted carrying value, as applicable, excluding equity securities, trading, and consolidated variable interest entity non-controlling interests.

 

NM—Not meaningful means increases or decreases greater than or equal to 200%, or changes from a net gain to a net loss position, or vice versa.

 

i


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

BASIS OF PRESENTATION (CONTINUED)

DISCUSSION OF NON-GAAP AND OTHER FINANCIAL MEASURES

 

The Hartford uses non-GAAP and other financial measures in this Investor Financial Supplement to assist investors in analyzing the Company’s operating performance for the periods presented herein. Because The Hartford’s calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing The Hartford’s non-GAAP and other financial measures to those of other companies.

 

The Hartford uses the non-GAAP financial measure core earnings as an important measure of the Company’s operating performance. The Hartford believes that the measure core earnings provides investors with a valuable measure of the performance of the Company’s ongoing businesses because it reveals trends in our insurance and financial services businesses that may be obscured by including the net effect of certain realized capital gains and losses, discontinued operations and loss on extinguishment of debt. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of our business. Accordingly, core earnings excludes the effect of all realized gains and losses (net of tax and the effects of deferred policy acquisition costs (“DAC”)) that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so core earnings includes net realized gains and losses such as net periodic settlements on credit derivatives and net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the income statement such as net investment income. Core earnings is also used by management to assess our operating performance and is one of the measures considered in determining incentive compensation for the Company’s managers. Net income is the most directly comparable GAAP measure. Core earnings should not be considered as a substitute for net income and does not reflect the overall profitability of the Company's business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income and core earnings when reviewing the Company’s performance. A reconciliation of net income to core earnings for the periods presented herein is set forth on page 2.

 

Core earnings per share is calculated based on the non-GAAP financial measure core earnings. The Hartford believes that the measure core earnings per share provides investors with a valuable measure of the Company's operating performance for many of the same reasons applicable to its underlying measure, core earnings. Net income per share is the most directly comparable GAAP measure. Core earnings per share should not be considered as a substitute for net income per share and does not reflect the overall profitability of the Company's business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income per share and core earnings per share when reviewing our performance. A reconciliation of net income per share to core earnings per share for the periods presented herein is set forth on page 8.

 

Written premiums is a statutory accounting financial measure used by The Hartford as an important indicator of the operating performance of the Company’s Property & Casualty Commercial and Consumer Markets operations. Because written premiums represents the amount of premium charged for policies issued, net of reinsurance, during a fiscal period, The Hartford believes it is useful to investors because it reflects current trends in The Hartford's sale of property and casualty insurance products. Earned premiums, the most directly comparable GAAP measure, represents all premiums that are recognized as revenues during a fiscal period. The difference between written premiums and earned premiums is attributable to the change in unearned premium reserves. A reconciliation of written premiums to earned premiums for Property & Casualty Commercial and Consumer Markets is set forth at pages 12 and 18, respectively.

 

The Hartford’s management evaluates profitability of the Property & Casualty Commercial and Consumer Markets segments primarily on the basis of underwriting results. Underwriting results is a before-tax measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Net income is the most directly comparable GAAP measure Underwriting results are influenced significantly by earned premium growth and the adequacy of The Hartford’s pricing. Underwriting profitability over time is also greatly influenced by The Hartford's underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance and its ability to manage its expense ratio, which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. The Hartford believes that underwriting results provides investors with a valuable measure of before-tax profitability derived from underwriting activities, which are managed separately from the Company's investing activities. A reconciliation of underwriting results to net income for Property & Casualty Commercial and Consumer Markets is set forth at pages 12 and 18, respectively.

 

A catastrophe is a severe loss, resulting from natural or manmade events, including risks such as fire, earthquake, windstorm, explosion, terrorist attack and similar events. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or loss amount in advance, and therefore their effects are not included in earnings or losses and loss adjustment expense reserves prior to occurrence. The Hartford believes that a discussion of the effect of catastrophes is meaningful for investors to understand the variability of periodic earnings.

 

ROA, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings,excluding discontinued operations and the impact of the DAC unlock, is a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, segment operating performance. ROA is the most directly comparable U.S. GAAP measure. The Hartford believes that the measure ROA, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings, excluding discontinued operations and the impact of the DAC unlock, provides investors with a valuable measure of the performance of the Company’s on-going businesses because it reveals trends in our businesses that may be obscured by the effect of including net realized gains (losses), net of tax and DAC, excluded from core earnings,the effect of including discontinued operations and the effect of including the DAC unlock. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to insurance aspects of our businesses. Accordingly, these non-GAAP measures exclude the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so ROA, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings,excluding discontinued operations, and the impact of the DAC unlock should include net realized gains and losses on net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income. ROA, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings,excluding discontinued operations, and the impact of the DAC unlock should not be considered as a substitute for ROA and does not reflect the overall profitability of our businesses. Therefore, the Company believes it is important for investors to evaluate both ROA, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings,excluding discontinued operations, and excluding the impact of the DAC unlock and ROA when reviewing the Company’s performance.

 

 

ii


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

BASIS OF PRESENTATION (CONTINUED)

DISCUSSION OF NON-GAAP AND OTHER FINANCIAL MEASURES

 

After-tax margin, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings, is a non-GAAP financial measure that the Company uses to evaluate, and believes is an important measure of, segment operating performance. After-tax margin is the most directly comparable U.S. GAAP measure. The Hartford believes that the measure after-tax margin, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings, provides investors with a valuable measure of the performance of the Company’s on-going businesses because it reveals trends in our businesses that may be obscured by the effect of including certain realized gains (losses). Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to insurance aspects of our businesses. Accordingly, these non-GAAP measures exclude the effect of all realized gains and losses that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to our insurance operations, so after-tax margin, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings, should include net realized gains and losses on net periodic settlements on credit derivatives. These net realized gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income. After-tax margin, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings, should not be considered as a substitute for after-tax margin and does not reflect the overall profitability of our businesses. Therefore, the Company believes it is important for investors to evaluate both after-tax margin, excluding net realized gains (losses), net of tax and DAC, excluded from core earnings, and after-tax margin when reviewing the Company’s performance.

 

Book value per common share excluding AOCI is calculated based upon a non-GAAP financial measure. It is calculated by dividing (a) common stockholders' equity, excluding AOCI, net of tax, by (b) common shares outstanding. The Hartford provides book value per common share excluding AOCI to enable investors to analyze the amount of the Company’s net worth that is primarily attributable to the Company’s business operations. The Hartford believes book value per common share, excluding AOCI, is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per common share is the most directly comparable GAAP measure. A reconciliation of book value per common share to book value per common share, excluding AOCI, for the periods presented herein is set forth at page 1.

 

Book value per diluted share, excluding AOCI, is calculated based upon a non-GAAP financial measure. It is calculated by dividing (a) total stockholders’ equity, excluding AOCI, net of tax, by (b) common shares outstanding and dilutive potential common shares. The Hartford provides book value per diluted share excluding AOCI to enable investors to analyze the amount of the Company’s net worth that is primarily attributable to the Company’s business operations. The Hartford believes book value per diluted share, excluding AOCI, is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per diluted share is the most directly comparable GAAP measure. A reconciliation of book value per diluted share to book value per diluted share, excluding AOCI, for the periods presented herein is set forth at page 1.

 

The Hartford provides different measures of the return on common equity (“ROE”) of the Company. ROE (core earnings last twelve months to common equity, excluding AOCI), is calculated based on non-GAAP financial measures. ROE (core earnings last twelve months to common equity, excluding AOCI) is calculated by dividing (a) core earnings for the prior four fiscal quarters by (b) average common stockholders’ equity, excluding AOCI. When calculating ROE, the Mandatory Convertible preferred stock (“MCP”) is included in average common stockholders’ equity and MCP dividends are added back to net income (loss) available to common shareholders and core earnings (losses) available to common shareholders. The Hartford provides to investors return-on-equity measures based on its non-GAAP core earnings financial measures for the reasons set forth in the related discussion above. The Hartford excludes AOCI in the calculation of these return-on-equity measures to provide investors with a measure of how effectively the Company is investing the portion of the Company’s net worth that is primarily attributable to the Company’s business operations. ROE (net income last twelve months to common equity, including AOCI) is the most directly comparable GAAP measure. A reconciliation of the non-GAAP return-on-equity measures for the periods presented herein to ROE (net income last twelve months to common equity, including AOCI) is set forth at page 10.

 

iii


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

CONSOLIDATED FINANCIAL RESULTS

 

                                   Year Over                          
     THREE MONTHS ENDED     Year     Sequential     SIX MONTHS ENDED  
     Jun. 30,     Sept. 30,     Dec. 31,     Mar. 31,     Jun. 30,     3 Month     3 Month     JUNE 30,  
     2011     2011     2011     2012     2012     Change     Change     2011     2012     Change  

HIGHLIGHTS

                    

Net income (loss) [1]

   $ 33      $ 60      $ 118      $ 96      $ (101     NM        NM      $ 534      $ (5     NM   

Core earnings

   $ 14      $ 50      $ 339      $ 612      $ 119        NM        (81 %)    $ 588      $ 731        24

Total revenues [2]

   $ 5,401      $ 4,520      $ 5,638      $ 7,661      $ 4,574        (15 %)      (40 %)    $ 11,701      $ 12,235        5

Total assets

   $ 315,957      $ 304,188      $ 302,609      $ 310,548      $ 304,142        (4 %)      (2 %)       

PER SHARE AND SHARES DATA [3]

                    

Basic earnings (losses) per common share

                    

Net income (loss) available to common shareholders

   $ 0.05      $ 0.11      $ 0.24      $ 0.20      $ (0.26     NM        NM      $ 1.15      $ (0.06     NM   

Core earnings available to common shareholders

   $ 0.01      $ 0.09      $ 0.74      $ 1.37      $ 0.25        NM        (82 %)    $ 1.27      $ 1.62        27

Diluted earnings (losses) per common share

                    

Net income (loss) available to common shareholders

   $ 0.05      $ 0.11      $ 0.23      $ 0.18      $ (0.26     NM        NM      $ 1.06      $ (0.06     NM   

Core earnings available to common shareholders

   $ 0.01      $ 0.08      $ 0.69      $ 1.25      $ 0.23        NM        (82 %)    $ 1.16      $ 1.50        29

Weighted average common shares outstanding (basic)

     445.1        445.3        445.1        440.7        438.2        (6.9 )  sh      (2.5 )  sh      444.9        439.4        (5.5 )  sh 

Weighted average common shares outstanding and dilutive potential common shares (diluted)

     482.4        473.4        489.6        489.9        464.8        (17.6 )  sh      (25.1 )  sh      505.6        487.9        (17.7 )  sh 

Common shares outstanding

     445.3        445.5        442.5        440.9        435.6        (9.7 )  sh      (5.3 )  sh      445.3        435.6        (9.7 )  sh 

Book value per common share

   $ 44.02      $ 46.70      $ 47.30      $ 46.99      $ 49.14        12     5      

Per common share impact of AOCI

   $ (0.06   $ 2.59      $ 2.83      $ 3.01      $ 5.18        NM        72      

Book value per common share (excluding AOCI)

   $ 44.08      $ 44.11      $ 44.47      $ 43.98      $ 43.96        —          —           

Book value per diluted share

   $ 40.09      $ 43.81      $ 44.31      $ 43.25      $ 45.59        14     5      

Per diluted share impact of AOCI

   $ (0.05   $ 2.37      $ 2.58      $ 2.70      $ 4.68        NM        73      

Book value per diluted share (excluding AOCI)

   $ 40.14      $ 41.44      $ 41.73      $ 40.55      $ 40.91        2     1      

Common shares outstanding and dilutive potential common shares

     502.8        487.6        484.9        491.9        481.7        (21.1 )  sh      (10.2 )  sh       

FINANCIAL RATIOS

                    

ROE (net income last 12 months to common stockholder equity including AOCI) [4]

     9.8     5.9     3.5     1.5     0.8     (9.0     (0.7      

ROE (core earnings last 12 months to common stockholder equity excluding AOCI) [4]

     9.6     6.0     4.9     5.1     5.6     (4.0     0.5         

Debt to capitalization, including AOCI

     24.7     23.6     22.4     22.6     24.5     (0.2     1.9         

Annualized investment yield, after-tax

     3.1     2.9     2.8     3.0     3.0     (0.1     —          3.1     3.0     (0.1

 

[1] Includes a loss on extinguishment of debt of $587, after-tax, recognized in the second quarter of 2012 related to the repurchase of all outstanding 10% fixed-to-floating rate junior subordinated debentures due 2068 with a $1.75 billion aggregate principal amount held by Allianz. The loss consisted of the premium associated with repurchasing the 10% Debentures at an amount greater than the face amount, the write-off of the unamortized discount and debt issuance costs related to the 10% Debentures and other costs related to the repurchase transaction.
[2] Total revenues of The Hartford are impacted by net investment income and mark-to-market effects of equity securities, trading, supporting the international variable annuity business, which have corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses. See page 3 for the impact to total revenues along with the corresponding amounts in benefits, losses and loss adjustment expenses in the three months ended June 30, 2011, September 30, 2011,December 31, 2011,March 31, 2012 and June 30, 2012, respectively.
[3] See page 8 for computation of basic and diluted earnings (losses) per common share.
[4] See page 10 for a computation of ROE measures.

 

1


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

OPERATING RESULTS BY SEGMENT

(A reconciliation of core earnings (losses) to net income (loss) for each of the segments is set forth on the respective segment pages contained in this supplement.)

 

                                   Year Over                          
     THREE MONTHS ENDED     Year     Sequential     SIX MONTHS ENDED  
     Jun. 30,     Sept. 30,     Dec. 31,     Mar. 31,     Jun. 30,     3 Month     3 Month     JUNE 30,  
     2011     2011     2011     2012     2012     Change     Change     2011     2012     Change  

Property & Casualty Commercial

   $ 96      $ 87      $ 29      $ 162      $ 160        67     (1 %)    $ 273      $ 322        18

Group Benefits

     30        20        17        5        34        13     NM        49        39        (20 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commercial Markets core earnings

     126        107        46        167        194        54     16     322        361        12

Consumer Markets core earnings (losses)

     (177     (10     85        102        (48     73     NM        (66     54        NM   

Individual Life

     41        (20     36        26        25        (39 %)      (4 %)      77        51        (34 %) 

Retirement Plans

     11        (20     —          12        5        (55 %)      (58 %)      22        17        (23 %) 

Mutual Funds

     27        24        20        20        18        (33 %)      (10 %)      54        38        (30 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Wealth Management core earnings (losses)

     79        (16     56        58        48        (39 %)      (17 %)      153        106        (31 %) 

ONGOING OPERATIONS

     28        81        187        327        194        NM        (41 %)      409        521        27

Life Other Operations

     236        43        206        373        37        (84 %)      (90 %)      485        410        (15 %) 

P&C Other Operations

     (167     9        16        20        (14     92     NM        (144     6        NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Runoff Operations core earnings (losses)

     69        52        222        393        23        (67 %)      (94 %)      341        416        22

Corporate core losses

     (83     (83     (70     (108     (98     (18 %)      9     (162     (206     (27 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CONSOLIDATED

                    

Core earnings

     14        50        339        612        119        NM        (81 %)      588        731        24

Add: Income (loss) from discontinued operations

     (80     3        1        (1     (1     99     —          82        (2     NM   

Add: Loss on extinguishment of debt, net of tax

     —          —          —          —          (587     —          —          —          (587     —     

Add: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings [1]

     99        7        (222     (515     368        NM        NM        (136     (147     (8 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 33      $ 60      $ 118      $ 96      $ (101     NM        NM      $ 534      $ (5     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PER SHARE DATA [2]

                    

Diluted earnings (losses) per common share

                    

Core earnings available to common shareholders

   $ 0.01      $ 0.08      $ 0.69      $ 1.25      $ 0.23        NM        (82 %)    $ 1.16      $ 1.50        29

Net income (loss) available to common shareholders

   $ 0.05      $ 0.11      $ 0.23      $ 0.18      $ (0.26     NM        NM      $ 1.06      $ (0.06     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DAC UNLOCK IMPACT ON CORE EARNINGS BY SEGMENT

                    

Individual Life

     (1     (57     2        (8     1        NM        NM        (3     (7     (133 %) 

Retirement Plans

     (2     (24     (1     8        (3     (50 %)      NM        —          5        —     

Life Other Operations

     (14     (126     44        192        (125     NM        NM        42        67        60
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DAC unlock impact on core earnings

     (17     (207     45        192        (127     NM        NM        39        65        67

Add: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings

     (49     (262     (40     22        (19     61     NM        (48     3        NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DAC unlock impact on net income (loss)

   $ (66   $ (469   $ 5      $ 214      $ (146     (121 %)      NM      $ (9   $ 68        NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] Includes those net realized capital gains (losses) excluded from core earnings. See page 9 for further analysis.
[2] See page 8 for the reconciliation of net income per common share to core earnings per common share.

 

2


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

                                   Year Over                          
     THREE MONTHS ENDED     Year     Sequential     SIX MONTHS ENDED  
     Jun. 30,     Sept. 30,     Dec. 31,     Mar. 31,     Jun. 30,     3 Month     3 Month     JUNE 30,  
     2011     2011     2011     2012     2012     Change     Change     2011     2012     Change  

Earned premiums

   $ 3,545      $ 3,518      $ 3,506      $ 3,442      $ 3,400        (4 %)      (1 %)    $ 7,064      $ 6,842        (3 %) 

Fee income

     1,219        1,192        1,130        1,134        1,114        (9 %)      (2 %)      2,428        2,248        (7 %) 

Net investment income (loss):

                    

Securities available-for-sale and other

     1,104        1,062        998        1,070        1,097        (1 %)      3     2,212        2,167        (2 %) 

Equity securities, trading [1]

     (597     (1,890     325        2,866        (1,687     (183 %)      NM        206        1,179        NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net investment income (loss)

     507        (828     1,323        3,936        (590     NM        NM        2,418        3,346        38

Realized capital gains (losses):

                    

Total other-than-temporary impairment (“OTTI”) losses

     (31     (71     (42     (36     (106     NM        (194 %)      (150     (142     5

OTTI losses recognized in other comprehensive income

     8        11        6        7        8        —          14     72        15        (79 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net OTTI losses recognized in earnings

     (23     (60     (36     (29     (98     NM        NM        (78     (127     (63 %) 

Net realized capital gains (losses), excluding OTTI losses recognized in earnings

     92        635        (350     (881     687        NM        NM        (256     (194     24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized capital gains (losses)

     69        575        (386     (910     589        NM        NM        (334     (321     4

Other revenues

     61        63        65        59        61        —          3     125        120        (4 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     5,401        4,520        5,638        7,661        4,574        (15 %)      (40 %)      11,701        12,235        5

Benefits, losses and loss adjustment expenses

     3,976        4,006        3,465        3,038        3,621        (9 %)      19     7,154        6,659        (7 %) 

Benefits, losses and loss adjustment expenses—returns credited on international variable annuities [1]

     (597     (1,889     324        2,864        (1,686     (182 %)      NM        206        1,178        NM   

Amortization of deferred policy acquisition costs and present value of future profits

     592        1,005        397        321        554        (6 %)      73     1,042        875        (16 %) 

Insurance operating costs and other expenses

     1,452        1,273        1,206        1,303        1,261        (13 %)      (3 %)      2,806        2,564        (9 %) 

Loss on extinguishment of debt

     —          —          —          —          910        —          —          —          910        —     

Interest expense

     128        128        124        124        115        (10 %)      (7 %)      256        239        (7 %) 

Goodwill impairment

     —          —          30        —          —          —          —          —          —          —     

Restructuring and other costs

     —          14        11        9        48        —          NM        —          57        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits and expenses

     5,551        4,537        5,557        7,659        4,823        (13 %)      (37 %)      11,464        12,482        9

Income (loss) from continuing operations before income taxes

     (150     (17     81        2        (249     (66 %)      NM        237        (247     NM   

Income tax expense (benefit)

     (263     (74     (36     (95     (149     43     (57 %)      (215     (244     (13 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     113        57        117        97        (100     NM        NM        452        (3     NM   

Income (loss) from discontinued operations, net of tax

     (80     3        1        (1     (1     99     —          82        (2     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     33        60        118        96        (101     NM        NM        534        (5     NM   

Less: Income (loss) from discontinued operations, net of tax

     (80     3        1        (1     (1     99     —          82        (2     NM   

Less: Loss on extinguishment of debt, net of tax

     —          —          —          —          (587     —          —          —          (587     —     

Less: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings

     99        7        (222     (515     368        NM        NM        (136     (147     (8 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core earnings

   $ 14      $ 50      $ 339      $ 612      $ 119        NM        (81 %)    $ 588      $ 731        24
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] Includes investment income and mark-to-market effects of equity securities, trading, supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses.

 

3


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

CONSOLIDATING BALANCE SHEETS

AS OF DECEMBER 31, 2011 AND JUNE 30, 2012

 

    LIFE [1]     PROPERTY & CASUALTY [1]     CORPORATE [1]     CONSOLIDATED  
    Dec. 31,
2011
    Jun. 30,
2012
    Change     Dec. 31,
2011
    Jun. 30,
2012
    Change     Dec. 31,
2011
    Jun. 30,
2012
    Change     Dec. 31,
2011
    Jun. 30,
2012
    Change  

Investments

                          —     

Fixed maturities, available-for-sale, at fair value

  $ 55,633      $ 58,891        6   $ 26,023      $ 26,222        1   $ 153      $ 114        (25 %)    $ 81,809      $ 85,227        4

Fixed maturities, at fair value using the fair value option

    1,317        1,154        (12 %)      11        11        —          —          —          —          1,328        1,165        (12 %) 

Equity securities, trading, at fair value

    30,499        29,215        (4 %)      —          —          —          —          —          —          30,499        29,215        (4 %) 

Equity securities, available-for-sale, at fair value

    515        446        (13 %)      302        295        (2 %)      104        110        6     921        851        (8 %) 

Mortgage loans

    4,979        5,817        17     749        1,058        41     —          —          —          5,728        6,875        20

Policy loans, at outstanding balance

    2,001        1,956        (2 %)      —          —          —          —          —          —          2,001        1,956        (2 %) 

Limited partnerships and other alternative investments

    1,318        1,543        17     1,214        1,401        15     —          —          —          2,532        2,944        16

Other investments

    2,244        1,365        (39 %)      121        157        30     29        26        (10 %)      2,394        1,548        (35 %) 

Short-term investments

    5,641        3,549        (37 %)      658        466        (29 %)      1,437        1,139        (21 %)      7,736        5,154        (33 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investments

    104,147        103,936        —          29,078        29,610        2     1,723        1,389        (19 %)      134,948        134,935        —     

Cash

    2,377        2,163        (9 %)      203        175        (14 %)      1        —          (100 %)      2,581        2,338        (9 %) 

Premiums receivable and agents’ balances

    344        331        (4 %)      3,102        3,206        3     —          —          —          3,446        3,537        3

Reinsurance recoverables

    2,022        2,193        8     2,746        2,750        —          —          —          —          4,768        4,943        4

Deferred policy acquisition costs and present value of future profits

    6,000        5,770        (4 %)      556        566        2     —          —          —          6,556        6,336        (3 %) 

Deferred income taxes

    174        (165     NM        800        528        (34 %)      1,157        1,445        25     2,131        1,808        (15 %) 

Goodwill

    470        470        —          119        119        —          417        417        —          1,006        1,006        —     

Property and equipment, net

    388        369        (5 %)      632        623        (1 %)      9        9        —          1,029        1,001        (3 %) 

Other assets

    1,070        2,112        97     1,205        1,216        1     (1     83        NM        2,274        3,411        50

Separate account assets

    143,870        144,662        1     —          —          —          —          —          —          143,870        144,662        1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 260,862      $ 261,841        —        $ 38,441      $ 38,793        1   $ 3,306      $ 3,343        1   $ 302,609      $ 303,977        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Future policy benefits, unpaid losses and loss adjustment expenses

    19,466        19,445        —          21,550        21,535        —          —          —          —        $ 41,016      $ 40,980        —     

Other policyholder funds and benefits payable

    45,612        44,014        (4 %)      —          —          —          —          —          —          45,612        44,014        (4 %) 

Other policyholder funds and benefits payable— International variable annuities

    30,461        29,174        (4 %)      —          —          —          —          —          —          30,461        29,174        (4 %) 

Unearned premiums

    182        173        (5 %)      5,041        5,106        1     (1     (1     —          5,222        5,278        1

Debt

    —          —          —          —          —          —          6,216        7,125        15     6,216        7,125        15

Consumer notes

    314        254        (19 %)      —          —          —          —          —          —          314        254        (19 %) 

Other liabilities

    5,152        7,373        43     1,831        1,656        (10 %)      1,429        1,500        5     8,412        10,529        25

Separate account liabilities

    143,870        144,662        1     —          —          —          —          —          —          143,870        144,662        1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    245,057        245,095        —          28,422        28,297        —          7,644        8,624        13     281,123        282,016        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Common equity, excluding AOCI

    13,943        14,326        3     9,393        9,418        —          (3,657     (4,595     (26 %)      19,679        19,149        (3 %) 

Preferred stock

    —          —          —          —          —          —          556        556        —          556        556        —     

AOCI, net of tax

    1,862        2,420        30     626        1,078        72     (1,237     (1,242     —          1,251        2,256        80
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    15,805        16,746        6     10,019        10,496        5     (4,338     (5,281     (22 %)      21,486        21,961        2

Total liabilities and equity

  $ 260,862      $ 261,841        —        $ 38,441      $ 38,793        1   $ 3,306      $ 3,343        1   $ 302,609      $ 303,977        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] Please refer to the basis of presentation on page i for a description of Life, Property & Casualty and Corporate.

 

4


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

CAPITAL STRUCTURE

 

                                  Year Over        
    THREE MONTHS ENDED     Year     Sequential  
    Jun. 30,     Sept. 30,     Dec. 31,     Mar. 31,     Jun. 30,     3 Month     3 Month  
    2011     2011     2011     2012     2012     Change     Change  

DEBT

             

Short-term debt (includes current maturities of long-term debt)

  $ 400      $ 400      $ —        $ —        $ —          (100 %)      —     

Senior notes

    4,480        4,480        4,481        4,481        6,025        34     34

Junior subordinated debentures

    1,734        1,737        1,735        1,739        1,100        (37 %)      (37 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total debt [1][2]

  $ 6,614      $ 6,617      $ 6,216      $ 6,220      $ 7,125        8     15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY

             

Common stockholders' equity, excluding AOCI, net of tax

  $ 19,627      $ 19,651      $ 19,679      $ 19,390      $ 19,149        (2 %)      (1 %) 

Preferred stock

    556        556        556        556        556        —          —     

AOCI, net of tax

    (25     1,155        1,251        1,328        2,256        NM        70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

  $ 20,158      $ 21,362      $ 21,486      $ 21,274      $ 21,961        9     3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CAPITALIZATION

             

Total capitalization, including AOCI, net of tax

  $ 26,772      $ 27,979      $ 27,702      $ 27,494      $ 29,086        9     6

Total capitalization, excluding AOCI, net of tax

  $ 26,797      $ 26,824      $ 26,451      $ 26,166      $ 26,830        —          3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DEBT TO CAPITALIZATION RATIOS [2]

             

Total debt to capitalization, including AOCI

    24.7     23.6     22.4     22.6     24.5     (0.2     1.9   

Total debt to capitalization, excluding AOCI

    24.7     24.7     23.5     23.8     26.6     1.9        2.8   

Total rating agency adjusted debt to capitalization [3] [4]

    28.6     27.4     26.5     26.5     27.3     (1.3     0.8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] On April 5, 2012, the Company issued $1.55 billion aggregate principal amount of senior notes and $600 million of junior subordinated debentures. The Company used the proceeds from these debt issuances to repurchase all of the outstanding 10% fixed to floating rate junior subordinated debentures due 2068 with a $1.75 billion aggregate principal amount held by Allianz SE for $2.125 billion. For additional information on the debt issuance, see Note 14 of the Company's June 30, 2012 10Q.
[2] The Hartford excludes consumer notes from total debt for capital structure analysis. Consumer notes were $368, $349, $314,$310 and $254 as of June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012, respectively.
[3] Reflects a rating agency assignment in the leverage calculation of an estimate of the adjusted unfunded pension liability of the Company’s defined benefit plans and six times the Company's rental expense on operating leases for total adjustments of $1.5 billion, $1.5 billion, $1.6 billion,$1.5 billion and $1.5 billion for the three months ended June 30, 2011, September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012, respectively.
[4] Reflects 25% equity credit for the junior subordinated debentures and the discount value of the debentures issued in October 2008. Reflects 100% equity credit for the MCP stock.

 

5


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

STATUTORY SURPLUS TO GAAP STOCKHOLDERS’ EQUITY RECONCILIATION

 

     June 30, 2012     December 31, 2011  

P&C U.S. Statutory Net Income [1]  [2]

   $ 528      $ 514   

Life U.S. Statutory Net Income (Loss) [1]  [2]  [3]

   $ 622      $ (1,272

P&C U.S. Statutory Capital and Surplus [1]

   $ 7,732      $ 7,412   

GAAP Adjustments

    

Deferred policy acquisition costs

     566        556   

Benefit reserves

     (55     (59

GAAP unrealized losses on investments, net of tax

     1,021        641   

Goodwill

     119        119   

Non-admitted assets

     900        1,081   

Other, net

     213        269   
  

 

 

   

 

 

 

P&C GAAP Stockholders’ Equity

   $ 10,496      $ 10,019   
  

 

 

   

 

 

 

Life U.S. Statutory Capital and Surplus [1]

   $ 7,666      $ 7,388   

GAAP Adjustments

    

Investment in subsidiaries

     3,696        3,748   

Deferred policy acquisition costs

     5,769        6,000   

Deferred taxes

     (2,074     (1,542

Benefit reserves

     (2,741     (2,991

Unrealized losses on investments, net of impairments

     3,294        2,472   

Asset valuation reserve and interest maintenance reserve

     987        816   

Goodwill

     470        470   

Other, net

     (321     (556
  

 

 

   

 

 

 

Life GAAP Stockholders’ Equity

   $ 16,746      $ 15,805   
  

 

 

   

 

 

 

 

[1] Please refer to the basis of presentation on page i for a description of Life and Property & Casualty.

 

[2] The net income (loss) shown above includes the six months ended June 30, 2012 and the year ended December 31, 2011, respectively.

 

[3] Net income (loss) does not include hedging activity recorded directly to surplus.

 

6


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

     THREE MONTHS ENDED    

Year Over

Year

    Sequential
3 Month
Change
 
     Jun. 30,
2011
    Sept. 30,
2011
    Dec. 31,
2011
    Mar. 31,
2012
    Jun. 30,
2012
    3 Month
Change
   

Fixed maturities net unrealized gain

   $ 324      $ 1,313      $ 1,599      $ 1,793      $ 2,507        NM        40

Equities net unrealized gain (loss)

     7        (68     (88     (41     (8     NM        80

Other-than-temporary impairment losses recognized in AOCI

     (107     (97     (99     (107     (94     12     12

Net deferred gain on cash-flow hedging instruments

     388        542        516        463        544        40     17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net unrealized gain

     612        1,690        1,928        2,108        2,949        NM        40

Foreign currency translation adjustments

     493        571        574        438        494        —          13

Pension and other postretirement adjustment

     (1,130     (1,106     (1,251     (1,218     (1,187     (5 %)      3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total accumulated other comprehensive income (loss)

   $ (25   $ 1,155      $ 1,251      $ 1,328      $ 2,256        NM        70
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

7


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

COMPUTATION OF BASIC AND DILUTED EARNINGS (LOSSES) PER COMMON SHARE

 

     THREE MONTHS ENDED     SIX MONTHS ENDED  
     Jun. 30,     Sept. 30,      Dec. 31,     Mar. 31,     Jun. 30,     JUNE 30,  
     2011     2011      2011     2012     2012     2011     2012  

Numerator:

               

Net income (loss)

   $ 33      $ 60       $ 118      $ 96      $ (101   $ 534      $ (5

Less: MCP dividends

     11        10         11        10        11        21        21   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common shareholders

     22        50         107        86        (112     513        (26

Add: Impact of assumed conversion of preferred shares to common [4]

     —          —           —          —          —          21        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common shareholders and assumed conversion of preferred shares

     22        50         107        86        (112     534        (26

Net income (loss) available to common shareholders

     22        50         107        86        (112     513        (26

Less: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings [1]

     99        7         (222     (515     368        (136     (147

Less: Loss on extinguishment of debt, net of tax

     —          —           —          —          (587     —          (587

Less: Income (loss) from discontinued operations

     (80     3         1        (1     (1     82        (2
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core earnings available to common shareholders

     3        40         328        602        108        567        710   

Add: Impact of assumed conversion of preferred shares to common [4]

     —          —           11        10        —          21        21   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core earnings available to common shareholders and assumed conversion of preferred shares

   $ 3      $ 40       $ 339      $ 612      $ 108      $ 588      $ 731   

Denominator:

               

Weighted average common shares outstanding (basic)

     445.1        445.3         445.1        440.7        438.2        444.9        439.4   

Dilutive effect of stock compensation

     1.0        0.7         0.7        1.9        1.5        1.4        1.8   

Dilutive effect of CPP Warrants [2]

     32.9        27.4         23.1        26.4        25.1        33.4        25.7   

Dilutive effect of Allianz warrants [3]

     3.4        —           —          —          —          5.2        —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding and dilutive potential common shares (diluted), before assumed conversion of preferred shares

     482.4        473.4         468.9        469.0        464.8        484.9        466.9   

Dilutive effect of assumed conversion of MCP [4]

     —          —           20.7        20.9        —          20.7        21.0   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding and dilutive potential common shares (diluted) and assumed conversion of preferred shares

     482.4        473.4         489.6        489.9        464.8        505.6        487.9   

Basic earnings (losses) per common share

               

Net income (loss) available to common shareholders

   $ 0.05      $ 0.11       $ 0.24      $ 0.20      $ (0.26   $ 1.15      $ (0.06

Less: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings

     0.22        0.02         (0.50     (1.17     0.84        (0.30     (0.33

Less: Loss on extinguishment of debt, net of tax

     —          —           —          —          (1.34     —          (1.34

Less: Income (loss) from discontinued operations

     (0.18     —           —          —          (0.01     0.18        (0.01
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core earnings available to common shareholders

   $ 0.01      $ 0.09       $ 0.74      $ 1.37      $ 0.25      $ 1.27      $ 1.62   

Diluted earnings per common share [5]

               

Net income (loss) available to common shareholders

   $ 0.05      $ 0.11       $ 0.23      $ 0.18      $ (0.26   $ 1.06      $ (0.06

Add: Impact of assumed conversion of preferred shares to common [4]

     —          —           —          —          —          —          —     
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available to common shareholders and assumed conversion of preferred shares

   $ 0.05      $ 0.11       $ 0.23      $ 0.18      $ (0.26   $ 1.06      $ (0.06

Net income (loss) available to common shareholders

   $ 0.05      $ 0.11       $ 0.23      $ 0.18      $ (0.26   $ 1.06      $ (0.06

Add: Difference arising from shares used for the denominator between net loss and core earnings

     —          —           —          —          0.01        —          0.01   

Less: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings

     0.20        0.02         (0.47     (1.10     0.79        (0.28     (0.30

Less: Loss on extinguishment of debt, net of tax

     —          —           —          —          (1.26     —          (1.26

Less: Income (loss) from discontinued operations

     (0.16     0.01         —          —          (0.01     0.17        (0.01
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core earnings available to common shareholders

     0.01        0.08         0.70        1.28        0.23        1.17        1.52   

Add: Impact of assumed conversion of preferred shares to common [4]

     —          —           (0.01     (0.03     —          (0.01     (0.02
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core earnings available to common shareholders and assumed conversion of preferred shares

     0.01        0.08         0.69        1.25        0.23        1.16        1.50   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] See pages 11 and 12 for disclosure of the components of net realized capital gains (losses), net of tax and DAC, for the periods presented herein.
[2] The Hartford issued 52.1 million warrants to purchase The Hartford Common Stock to the U.S. Department of the Treasury on June 26, 2009 at a strike price of $9.79. The declaration of a quarterly common stock dividend of $0.10 during the third quarter of 2011 triggered a provision in The Hartford’s Warrant Agreement with The Bank of New York Mellon resulting in an adjustment to the warrant exercise price to $9.649 from $9.676.
[3] The Hartford issued 69.4 million warrants to purchase The Hartford Common Stock to Allianz on October 17, 2008 at a strike price of $25.23. On March 30, 2012, The Hartford repurchased 69.4 million warrants for $300 million as part of the company's existing $500 million equity repurchase program.
[4] The Hartford issued $575 of mandatory convertible preferred stock which, at June 30, 2011, September 30, 2011, and June 30, 2012 would have been convertible into 20.7 million, 20.8, and 21.0 million weighted average shares of common stock, respectively. However, the impact of applying the "if-converted" method to these shares was anti-dilutive and, therefore, the shares were not included in core earnings available to common shareholders and assumed conversion of preferred shares. Additionally at December 31, 2011 and March 31, 2012, the shares were not included in net income available to common shareholders and assumed conversion of preferred shares. At December 31, 2011 and March 31, 2012, the mandatory convertible preferred stock would have been convertible into 20.7 million and 20.9 million weighted average shares of common stock, respectively.
[5] As a result of anti-dilutive impact, in periods of a loss, weighted average common shares outstanding (basic) are used in the calculation of diluted earnings per share.

 

8


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

ANALYSIS OF NET REALIZED CAPITAL GAINS (LOSSES) AFTER-TAX AND DAC

 

                                  Year Over                          
    THREE MONTHS ENDED     Year     Sequential     SIX MONTHS
ENDED
 
    Jun. 30,     Sept. 30,     Dec. 31,     Mar. 31,     Jun. 30,     3 Month     3 Month     JUNE 30,  
    2011     2011     2011     2012     2012     Change     Change     2011     2012     Change  

Net Realized Capital Gains (Losses), After-Tax and DAC

                   

Gains/losses on sales, net

  $ 174      $ 52      $ 69      $ 112      $ 56        (68 %)      (50 %)    $ 126      $ 168        33

Net impairment losses

    (14     (34     (34     (16     (60     NM        NM        (44     (76     (73 %) 

Japanese fixed annuity contract hedges, net

    4        5        4        (13     1        (75 %)      NM        (7     (12     (71 %) 

Results of variable annuity hedge program

                   

U.S. GMWB derivatives, net

    (19     (167     (74     78        (55     (189 %)      NM        3        23        NM   

U.S. macro hedge

    (11     24        (29     (76     (1     91     99     (39     (77     (97 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total U.S. Program

    (30     (143     (103     2        (56     (87 %)      NM        (36     (54     (50 %) 

International program

    67        621        (98     (760     508        NM        NM        (85     (252     (196 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total results of variable annuity hedge program

    37        478        (201     (758     452        NM        NM        (121     (306     (153 %) 

Other net gain (loss) [1]

    (52     (228     (17     137        (56     (8 %)      NM        (41     81        NM   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized capital gains (losses), after-tax and DAC, excluding unlock

  $ 149      $ 273      $ (179   $ (538   $ 393        164     NM      $ (87   $ (145     (67 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DAC unlock impacts on net realized gains (losses)

    (49     (262     (40     22        (19     61     NM        (48     3        NM   

Total net realized captial gains (losses), after-tax and DAC

    100        11        (219     (516     374        NM        NM        (135     (142     (5 %) 

Reconciliation of Net Realized Capital Gains (Losses), net of tax and DAC, excluded from Core Earnings (Losses) to Total Net Realized Capital Gains (Losses) — After-Tax and DAC

                   

Total net realized capital gains (losses)

  $ 100      $ 11      $ (219   $ (516   $ 374        NM        NM      $ (135   $ (142     (5 %) 

Less: total net realized capital gains (losses) included in core earnings (losses)

    1        4        3        (1     6        NM        NM        1        5        NM   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net realized capital gains (losses), after tax and DAC, excluded from core earnings (losses)

  $ 99      $ 7      $ (222   $ (515   $ 368        NM        NM      $ (136   $ (147     (8 %) 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

[1] Other net gain (loss) primarily represents income from derivatives that qualify for hedge accounting and hedge fixed maturities.

 

9


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

COMPUTATION OF RETURN-ON-EQUITY MEASURES

 

    THREE MONTHS ENDED  
    Jun. 30,
2011
    Sept. 30,
2011
    Dec. 31,
2011
    Mar. 31,
2012
    Jun. 30,
2012
 

Numerator [1]:

         

Net income available to common shareholders - last 12 months

  $ 1,774      $ 1,208      $ 712      $ 307      $ 173   

Core earnings available to common shareholders - last 12 months

  $ 1,802      $ 1,173      $ 977      $ 1,015      $ 1,120   

Denominator [2]:

         

Average common stockholders’ equity, including AOCI

    18,079.0        20,387.0        20,120.0        20,360.5        21,059.5   

Less: Average AOCI

    (720.6     708.2        130.5        295.0        1,115.5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Average common stockholders' equity, excluding AOCI

    18,799.6        19,678.8        19,989.5        20,065.5        19,944.0   

ROE (net income last 12 months to common stockholders’ equity, including AOCI) [3]

    9.8     5.9     3.5     1.5     0.8

ROE (core earnings last 12 months to common stockholders’ equity, excluding AOCI) [3]

    9.6     6.0     4.9     5.1     5.6

 

[1] For a reconciliation of net income to core earnings, see page 8.
[2] Average equity is calculated by taking the sum of common stockholders' equity at the beginning of the twelve month period and common stockholders' equity at the end of the twelve month period and dividing by 2.
[3] When calculating return-on-equity, the MCP preferred stock is included in average common stockholders' equity and MCP preferred dividends are added back to net income available to common shareholders and core earnings available to common shareholders.

 

10


COMMERCIAL MARKETS


THE HARTFORD FINANCIAL SERVICES GROUP, INC.

COMMERCIAL MARKETS

INCOME STATEMENTS

 

                                  Year Over                          
    THREE MONTHS ENDED     Year     Sequential     SIX MONTHS ENDED  
    Jun. 30,     Sept. 30,     Dec. 31,     Mar. 31,     Jun. 30,     3 Month     3 Month     JUNE 30,  
    2011     2011     2011     2012     2012     Change     Change     2011     2012     Change  

Earned premiums

  $ 2,579      $ 2,553      $ 2,554      $ 2,514      $ 2,502        (3 %)      —        $ 5,105      $ 5,016        (2 %) 

Fee income

    14        16        16        15        16        14     7     30        31        3

Net investment income

    345        319        311        334        346        —          4     691        680        (2 %) 

Other revenues

    26        28        20        22        26        —          18     49        48        (2 %) 

Net realized capital gains (losses)

    23        (45     6        63        (16     NM        NM        (14     47        NM   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    2,987        2,871        2,907        2,948        2,874        (4 %)      (3 %)      5,861        5,822        (1 %) 

Losses and loss adjustment expenses

    1,997        1,983        2,080        1,886        1,847        (8 %)      (2 %)      3,827        3,733        (2 %) 

Amortization of deferred policy acquisition costs

    239        238        238        239        239        —          —          476        478        —     

Insurance operating costs and other expenses

    580        567        522        549        541        (7 %)      (1 %)      1,172        1,090        (7 %) 

Goodwill impairment

    —          —          30        —          —          —          —          —          —          —     

Restructuring and other costs

    —          —          —          —          4        —          —          —          4        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total benefits and expenses

    2,816        2,788        2,870        2,674        2,631        (7 %)      (2 %)      5,475        5,305        (3 %) 

Income from continuing operations before income taxes

    171        83        37        274        243        42     (11 %)      386        517        34

Income tax expense (benefit) [1]

    9        3        (15     66        58        NM        (12 %)      50        124        148
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of tax

    162        80