The Hartford(US:HIG)2019-05-01 20:21Part I - Financial Information This section details the company's financial statements, management's analysis, and internal controls Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2019, highlighting key financial performance and position Condensed Consolidated Statements of Operations For the first quarter of 2019, total revenues increased to $4.94 billion, driven by a shift to net realized capital gains, with net income rising to $630 million Key Financial Metrics | Financial Metric | Q1 2019 (in millions) | Q1 2018 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,940 | $4,691 | +5.3% | | Net Realized Capital Gains (Losses) | $163 | $(30) | NM | | Income from Continuing Operations, net of tax | $630 | $428 | +47.2% | | Net Income | $630 | $597 | +5.5% | | Net Income Available to Common Stockholders | $625 | $597 | +4.7% | | Diluted EPS (Continuing Operations) | $1.71 | $1.18 | +44.9% | | Diluted EPS (Net Income) | $1.71 | $1.64 | +4.3% | Condensed Consolidated Balance Sheets As of March 31, 2019, total assets increased to $63.3 billion, and total stockholders' equity significantly rose to $14.3 billion Key Balance Sheet Items | Balance Sheet Item | March 31, 2019 (in millions) | Dec 31, 2018 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Investments | $47,895 | $46,790 | +2.4% | | Total Assets | $63,324 | $62,307 | +1.6% | | Total Liabilities | $48,984 | $49,206 | -0.5% | | Total Stockholders' Equity | $14,340 | $13,101 | +9.5% | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $279 million in Q1 2019, while investing activities provided $129 million in cash Key Cash Flow Activities | Cash Flow Activity | Q1 2019 (in millions) | Q1 2018 (in millions) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $279 | $712 | | Net Cash from (used for) Investing Activities | $129 | $(242) | | Net Cash used for Financing Activities | $(428) | $(677) | | Net Decrease in Cash | $(17) | $(212) | Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures on accounting policies, segment performance, investments, reserves, and contingencies, including strategic transactions and significant estimates - The company entered into a definitive agreement to acquire The Navigators Group, Inc. for $2.2 billion in cash, with the transaction expected to close in Q2 201926 - In May 2018, the company completed the sale of its life and annuity business, the results of which are now reported as discontinued operations for the prior year period27235 Segment Net Income Contribution | Segment | Net Income Q1 2019 (in millions) | Net Income Q1 2018 (in millions) | | :--- | :--- | :--- | | Commercial Lines | $363 | $298 | | Personal Lines | $96 | $89 | | Property & Casualty Other Operations | $23 | $17 | | Group Benefits | $118 | $54 | | Hartford Funds | $30 | $34 | | Corporate | $0 | $105 | - The company maintains significant reserves for Asbestos and Environmental (A&E) claims, with net reserves of $1.024 billion for asbestos and $196 million for environmental as of March 31, 2019. An adverse development cover (ADC) with NICO provides up to $1.5 billion of reinsurance coverage for unfavorable development over the December 31, 2016 reserve levels212213 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This section provides management's analysis of financial condition and results, covering segment performance, investment results, and capital position Consolidated Results of Operations Consolidated net income available to common stockholders increased 5% to $625 million, driven by a positive swing in net realized capital gains and improved Group Benefits results - The increase in income from continuing operations was primarily due to a shift to net realized capital gains from net realized capital losses in 2018, a lower disability loss ratio and lower expenses in Group Benefits308 - Other revenues increased significantly due to recognizing $28 million in income from the company's 9.7% ownership interest in the entity that acquired its former life and annuity business313 Segment Operating Summaries Segment performance was mixed, with Group Benefits showing significant improvement, while Commercial and Personal Lines experienced weaker underwriting results - Commercial Lines: Underwriting gain decreased 39% to $70 million, and the combined ratio deteriorated 2.8 points to 96.1%, driven by a higher underlying loss ratio and increased expenses384390393 - Personal Lines: Underwriting gain fell 19% to $54 million. The combined ratio increased 1.0 point to 93.2% due to higher expenses and less favorable prior year development408413418 - Group Benefits: Net income surged 119% to $118 million. The total loss ratio improved by 2.7 points to 74.7%, driven by a 5.3 point improvement in the group disability loss ratio due to favorable claim trends437442455 - Hartford Funds: Net income fell 12% to $30 million, reflecting lower fee revenue from a 4% decrease in daily average AUM compared to the prior year459466 Enterprise Risk Management The company manages primary risks through established policies, limits, and comprehensive reinsurance programs, including protection against property, workers' compensation, and terrorism catastrophes - The company utilizes a Per Occurrence Property Catastrophe Treaty covering losses between $350 million and $1.1 billion, and a Workers' Compensation Catastrophe Treaty covering losses between $100 million and $450 million481 - The company's estimated deductible under the federal Terrorism Risk Insurance Program (TRIPRA) is $1.3 billion for 2019487 - As of March 31, 2019, the company has ceded $523 million in adverse A&E reserve development to NICO under its ADC, leaving approximately $977 million of coverage available488367 Capital Resources and Liquidity The company maintains a strong capital and liquidity position, with $2.9 billion in liquid assets and an improved debt-to-capitalization ratio, supporting strategic initiatives like the Navigators Group acquisition - The holding company (HFSG Holding Company) held $2.9 billion in fixed maturities, short-term investments, and cash558 - A new $1.0 billion share repurchase authorization was announced in February 2019, effective through December 31, 2020568623 Capitalization Metrics | Capitalization Metric | March 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Debt | $4,266 million | $4,678 million | | Total Stockholders' Equity | $14,340 million | $13,101 million | | Total Capitalization | $18,606 million | $17,779 million | | Debt to Capitalization | 23% | 26% | Item 4. Controls and Procedures The company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures are effective as of the end of the period615 - No material changes in internal control over financial reporting occurred during the first quarter of 2019616 Part II. Other Information This section covers legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings The company is involved in various ordinary course legal actions, for which reserves have been established, with no expected material adverse effect on financial condition - The company faces ordinary course claims litigation, which is accounted for through unpaid loss and loss adjustment expense reserves618 - Other legal actions include putative class actions alleging underpayment of claims or improper underwriting, as well as individual actions seeking punitive damages for alleged bad faith619 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - The report incorporates by reference the risk factors disclosed in the company's 2018 Form 10-K, indicating no material changes during the quarter621 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In February 2019, the Board of Directors authorized a new $1.0 billion share repurchase program, effective through December 31, 2020 - A $1.0 billion share repurchase program was authorized in February 2019, effective through the end of 2020623