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Original Source: FD (FAIR DISCLOSURE) WIRE
. Kim Johnson, Hartford Financial Services, IR . Ramani Ayer, Hartford Financial Services, Chairman, CEO . David Johnson, Hartford Financial Services, CFO . Alain Karaoglan, Deutsche Bank, Analyst . Andrew Kligerman, UBS Securities, Analyst . Tom Marra, Hartford Financial Services, COO-Life Company . Jimmy Bhullar, JPMorgan, Analyst . Tom Gallagher, Credit Suisse, Analyst . Liz Zlatkus, Hartford Financial Services, CFO-Hartford Life . Dave Zwiener, Hartford Financial Services, COO-Property & Casualty . Nigel Dally, Morgan Stanley, Analyst
. Bob Glasspiegel, Langen McAlenney, Analyst . Ron Frank, Citigroup, Analyst . Alan Strauss, Lord Abbett, Analyst . Eric Berg, Lehman Brothers, Analyst . Jay Cohen, Merrill Lynch, Analyst . Ed Spehar, Merrill Lynch, Analyst . Brian Meredith, Banc of America, Analyst
. Tamara Kravec, Banc of America, Analyst
The Co. reported full-year 2005 net income of $2.3b. 4Q05 net income was $474m, or $1.53 per diluted share.
A. Key Data From Call 1. Full-year 2005 net income = $2.3b. 2. 4Q05 net income = $474m. 3. 4Q05 diluted EPS = $1.53.
S1. Operating Performance (R.A.) 1. Full-Year 2005 Highlights:
1. Net income of $2.3b was a record for the Co. 2. Core earnings were up 14% vs. 2004 at $2.2b, or $7.36 per diluted share.
3. Book value excluding AOCI grew by 16% even in the year with
significant catastrophes. 4. ROE was over 15%. 5. The Co. had a strong year. 2. 4Q05 Overview: 1. Net income was $474m, or $1.53 per diluted share vs. $2.08 in 4Q04. 2. Core earnings were $505m, or $1.63 per diluted share vs. $2 in 4Q04. 3. Results were impacted by hurricane Wilma and hurricane-related
S2. Property & Causality (R.A.) 1. Market Dynamics: 1. 2005 was a record year for catastrophes. 1. These storms changed the lives of millions of Americans and are expected to have a significant impact on certain lines and markets. 2. According to broker surveys property re-insurance rates for national programs with coastal exposure have increased between 30-100%. 3. New catastrophe models originating from Cat modeling firms are under development to address storm frequency and severity. 4. Older models underestimated loss due to storm surge, demand of inflation, and the impact of multiple storms in the same region. 5. Even today, key learnings from these storms are being incorporated into underwriting and rating agency capital models. 6. The Co. believes that the industry can be expected to re-evaluate risk aggregations and re-insurance programs in Cat-prone areas. 2. Price Impact:
1. Today, the Co. is seeing property prices firming in the
impacted areas. 2. HIG has not seen any significant changes to pricing in other lines and geographic areas. 3. As the Co. looks to 2006, it anticipates that pricing outside of Cat-prone areas will stay rational. 4. With few exceptions, the Co. is still seeing signs of discipline competition in business insurance and personal lines. 5. The Co. believes that it is well positioned for 2006 and beyond. 6. HIG is re-examining its underwriting guidelines in re-insurance programs. 7. The Co. may make some minor adjustments to capacity in some regions, and it does not anticipate major changes. 8. The Co.'s principal property Cat treaty renewed on 01/01/06 and is now fully placed with terms and conditions similar to prior treaties. 9. HIG raised its retention from $125-175m, and increased the limits by a similar amount. 10. The Co. has the Cat bond coverage in place for mega hurricane events. 11. The Co.'s re-insurance costs for 2006 increased and were not out of line with expectations.
1. All additional costs were reflected in the earnings guidance
provided on Dec. 12. 3. Business: 1. Property and causality business produced good results in 4Q05. 2. Net written premium of $2.6b increased 6% vs. 4Q04 driven primarily by growth in business insurance, AARP, and personal agency lines. 3. Ongoing combined ratio including Cat and prior-year development was 92.1%. 4. Excluding Cats in prior-year development was 92.1%.
1. This is higher than a year ago primarily due to the impacts
of citizens' assessment and reinstatement premiums. 2. Adjusting for hurricane-related assessments included in the Co.'s underwriting expenses, its combined ratio would have been 1.9 points lower or 90.2%. 5. In the ongoing businesses with two of the toughest years on catastrophes, the accident year combined ratio were 95.2% in 2004 and 92.8% in 2005. 4. Business Insurance: 1. The Co. is continuing to see outstanding growth and good profitability.
2. Net written premium reached $1.3b in 4Q05, a 12% increase vs.
4Q04. 3. With the product and sales initiatives the Co. has in place, small commercial net written premium has grown by double digits in each of the past eight quarters. 4. In 4Q05, the Co. increased the sophistication of its pricing model. 5. With the aforementioned changes, the Co. expects to increase its competitiveness on the best risks. 6. Middle Markets: 1. Net written premiums grew 11%. 2. As the Co.'s entered 2006, early indications are that the primary pricing in this market should firm a bit as higher re-insurance costs are incorporated into rates. 7. Profitability in business insurance continues to be strong. 8. The combined ratio of 91.9% ex-catastrophes and prior-year
development was roughly 2 points higher than a year ago. 9. Adjusting for the citizens' assessments, combined ratio would
have been 89.9% or flat with a year ago. 5. Personal Lines:
1. 4Q05 personal lines growth in net written premiums was 5% over
prior year. 2. New business in AARP and agency is driving the Co.'s premium growth. 3. Competition is intensifying especially in personal auto. 4. Loss cost increases continues to be modest as lower frequency is partially offsetting higher severity. 5. Combined ratio before Cats and prior-year development was 89.4%. 1. This combined ratio included $24m in hurricane-related
assessments. 6. Adjusting of these aforementioned expenses, the Co.'s combined ratio would have been 86.8% for 4Q05. 7. The initiatives on pricing, product, and distribution are expected to enable HIG to continue to profitably grow in spite of increasing competition. 6. Specialty Commercial: 1. Net written premiums declined 9% from a year ago. 2. The lower written premium reflected the termination of a particular program in specialty causality, exit from crop insurance, and lower new business growth in specialty
property. 3. The combined ratio before catastrophes and prior-year development was 99.2%. 4. There were several one-time items affecting these combined ratio including reinstatement premiums. 5. Looking towards 2006, the Co. expects to be able to achieve a combined ratio excluding Cats and prior-year development in the low "90s". 7. Summary: 1. Results were excellent in 2005. 2. The Co. was able to grow the topline while achieving strong profitability. 3. Looking towards 2006, HIG believes that its initiatives will sustain its topline growth. 4. While underwriting margins will likely compress, the Co. expect returns will continue to exceed its long-term targets.
S3. 4Q05 Life Operations (R.A.) 1. Core Business Details: 1. Core earnings were $326m, up 6% vs. 4Q04. 1. This includes all of the tax benefits and expense items highlighted in the press release.
2. The underlying earnings momentum of life operations is even
stronger. 3. Adjusting for tax benefits in 4Q05 and 4Q04, every reporting segment except individual life recorded YoverY double-digit growth in core earnings. 4. Individual life core earnings were up by 8%. 2. Asset Under Management (AUM): 1. Total assets under management ended the qtr. up 11% to $277b.
2. The Co. is seeing AUM growth in every business including
individual annuities. 3. During 4Q05, good equity markets more than made up for net outflows in US variable annuities. 3. Variable Annuity (VA): 1. VA assets rose $1.7b to $105b. 2. The highly competitive US VA market continues to be future-driven with more new products launched every month. 1. With this competition, VA sales and deposits were $2.5b, and net outflows were $880m.
3. Lifetime Income Builder: 1. The Co.'s newest offering …