The Hartford(US:HIG)2024-04-25 20:17PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents the unaudited condensed consolidated financial statements for Q1 2024, including the auditor's review report, core financial statements, and detailed explanatory notes Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP reviewed the interim financial information for Q1 2024 and found no material modifications needed for U.S. GAAP conformity, affirming the fair presentation of the December 31, 2023 balance sheet - The independent auditors, Deloitte & Touche LLP, conducted a review and found no material modifications necessary for the interim financial statements to be in conformity with U.S. GAAP14 Condensed Consolidated Statements of Operations Reports Q1 2024 total revenues of $6.42 billion, a 9% increase, with net income rising significantly to $753 million and diluted EPS at $2.47 Q1 2024 vs Q1 2023 Statement of Operations Highlights | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $6,419 | $5,910 | +8.6% | | Earned Premiums | $5,446 | $5,063 | +7.6% | | Net Investment Income | $593 | $515 | +15.1% | | Income Before Income Taxes | $911 | $653 | +39.5% | | Net Income | $753 | $535 | +40.7% | | Net Income Available to Common Stockholders | $748 | $530 | +41.1% | | Diluted EPS | $2.47 | $1.66 | +48.8% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income for Q1 2024 was $605 million, a significant decrease from $1.12 billion in Q1 2023, primarily due to a net unrealized loss on fixed maturities Q1 2024 vs Q1 2023 Comprehensive Income | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Net Income | $753 | $535 | | Other Comprehensive Income (Loss) | $(148) | $587 | | Comprehensive Income | $605 | $1,122 | Condensed Consolidated Balance Sheets As of March 31, 2024, total assets increased slightly to $77.71 billion, with total liabilities and stockholders' equity also rising, driven by net income Balance Sheet Highlights (as of March 31, 2024 vs. Dec 31, 2023) | Metric | March 31, 2024 (in millions) | Dec 31, 2023 (in millions) | | :--- | :--- | :--- | | Total Investments | $56,107 | $55,922 | | Total Assets | $77,710 | $76,780 | | Unpaid Losses and Loss Adjustment Expenses | $42,771 | $42,318 | | Total Liabilities | $62,242 | $61,453 | | Total Stockholders' Equity | $15,468 | $15,327 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $15.47 billion, driven by net income, partially offset by treasury stock acquisitions, common stock dividends, and other comprehensive loss - Key drivers of the change in stockholders' equity in Q1 2024 were net income of $753 million, common stock dividends of $141 million, and treasury stock acquisitions of $353 million28 - The company declared a cash dividend of $0.470 per common share in Q1 2024, up from $0.425 in Q1 202328 Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $1.10 billion in Q1 2024, while net cash used for investing and financing activities remained stable Q1 2024 vs Q1 2023 Cash Flow Summary | Activity | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,097 | $871 | | Net Cash used for Investing Activities | $(435) | $(446) | | Net Cash used for Financing Activities | $(529) | $(545) | | Net Increase (Decrease) in Cash | $133 | $(126) | Notes to Condensed Consolidated Financial Statements Provides detailed explanations for financial statement figures, covering presentation basis, earnings per share, segment information, fair value measurements, and various financial components Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Provides management's analysis of the company's Q1 2024 financial condition and results, covering segment performance, investments, and risk management Key Performance Measures and Ratios Defines key non-GAAP and other financial measures, reconciling them to U.S. GAAP and explaining their relevance to business trends - Core earnings is a key non-GAAP metric that excludes items like certain realized gains/losses, restructuring costs, and M&A costs to provide a clearer view of ongoing business performance278279 Reconciliation of Net Income to Core Earnings (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Net Income Available to Common Stockholders | $748 | $530 | | Core Earnings | $709 | $536 | - The Underlying Combined Ratio is a non-GAAP measure that adjusts the standard combined ratio by excluding the effects of catastrophes and prior year development to better show the core underwriting profitability trend305 Financial Highlights Highlights strong Q1 2024 performance with increased net income, diluted EPS, and improved P&C combined ratio and Group Benefits margins - Net income available to common stockholders increased by $218 million (41%) in Q1 2024, driven by higher net investment income, favorable prior year development, and improved Group Benefits loss ratios322324325 - The Property & Casualty Combined Ratio improved by 2.9 points, benefiting from favorable prior accident year development, lower catastrophe losses, and a lower expense ratio323 Consolidated Results of Operations Consolidated net income available to common stockholders rose 41% in Q1 2024, driven by P&C underwriting gains, net investment income, and realized gains Consolidated Results of Operations (Q1 2024 vs Q1 2023) | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | Earned Premiums | $5,446 | $5,063 | +8% | | Total Revenues | $6,419 | $5,910 | +9% | | Income, before tax | $911 | $653 | +40% | | Net Income Available to Common Stockholders | $748 | $530 | +41% | - The increase in net income was primarily due to higher P&C underwriting gain, increased net investment income, and a shift from net realized losses to gains330 Investment Results Total investments reached $56.1 billion, with net investment income up 15% due to higher yields and a shift to net realized gains Net Investment Income by Source (Q1 2024 vs Q1 2023) | Source | Q1 2024 (in millions) | Q1 2023 (in millions) | Yield (2024) | Yield (2023) | | :--- | :--- | :--- | :--- | :--- | | Fixed maturities | $526 | $445 | 4.5% | 4.0% | | Limited partnerships & alts | $16 | $26 | 1.3% | 2.5% | | Total Net Investment Income | $593 | $515 | 4.1% | 3.7% | - The average reinvestment rate for fixed maturities and mortgage loans in Q1 2024 was 6.1%, significantly higher than the 5.0% average yield of sales and maturities during the same period350 - Net realized gains were $28 million in Q1 2024, compared to a net loss of $7 million in Q1 2023, primarily due to fewer losses on sales of fixed maturities and appreciation in FVO securities335353 Critical Accounting Estimates Highlights critical accounting estimates requiring significant judgment, including P&C and group benefits reserves, noting favorable prior year development - The company identifies key critical accounting estimates as: P&C reserves, group benefit LTD reserves, goodwill impairment, investment valuation (including credit losses), and litigation contingencies361364 P&C Prior Accident Year Development (Favorable)/Unfavorable - Q1 2024 | Line of Business | Development (in millions) | | :--- | :--- | | Workers' compensation | $(67) | | General liability | $17 | | Assumed reinsurance | $9 | | Change in deferred gain on retroactive reinsurance | $(24) | | Total PYD | $(56) | Commercial Lines Commercial Lines net income increased 36% to $573 million in Q1 2024, driven by higher underwriting gain, improved combined ratio, and strong premium growth Commercial Lines Underwriting Ratios (Q1 2024 vs Q1 2023) | Ratio | Q1 2024 | Q1 2023 | Change (pts) | | :--- | :--- | :--- | :--- | | Loss and LAE Ratio | 58.3% | 60.7% | (2.4) | | Expense Ratio | 31.5% | 31.7% | (0.2) | | Combined Ratio | 90.1% | 92.7% | (2.6) | | Underlying Combined Ratio | 88.4% | 88.5% | (0.1) | - Written premiums increased 8% to $3.36 billion, driven by growth in Small Commercial, Middle & Large Commercial, and Global Specialty segments381398 - Renewal written price increases were strong across most lines, with notable increases in package business, automobile, and excess and surplus lines, while D&O pricing remained negative but improved399400 Personal Lines Personal Lines reported net income of $34 million in Q1 2024, a turnaround from a prior-year loss, driven by improved combined ratio and strong premium growth Personal Lines Underwriting Ratios (Q1 2024 vs Q1 2023) | Ratio | Q1 2024 | Q1 2023 | Change (pts) | | :--- | :--- | :--- | :--- | | Loss and LAE Ratio | 76.3% | 79.6% | (3.3) | | Expense Ratio | 25.3% | 26.5% | (1.2) | | Combined Ratio | 101.6% | 106.1% | (4.5) | | Underlying Combined Ratio | 96.1% | 97.0% | (0.9) | - Automobile renewal written price increases were 25.7% and homeowners were 15.2%, reflecting responses to higher loss cost trends415 - The underlying combined ratio for Automobile improved to 104.4% from 105.1%, while the Homeowners underlying ratio improved to 77.0% from 78.9%419 P&C Other Operations P&C Other Operations, primarily run-off A&E liabilities, reported net income of $8 million in Q1 2024, despite an increased underwriting loss - The underwriting loss increased to $9 million from $6 million in the prior year, mainly due to a $7 million provision for prior year development related to uncollectible reinsurance436439 - Comprehensive annual reviews for asbestos and environmental reserves are scheduled for the fourth quarter of 2024440 Group Benefits Group Benefits net income rose 17% to $108 million in Q1 2024, driven by an improved total loss ratio and 2% premium growth Group Benefits Ratios, Excluding Buyouts (Q1 2024 vs Q1 2023) | Ratio | Q1 2024 | Q1 2023 | Change (pts) | | :--- | :--- | :--- | :--- | | Group Disability Loss Ratio | 70.1% | 70.4% | (0.3) | | Group Life Loss Ratio | 82.6% | 86.7% | (4.1) | | Total Loss Ratio | 73.5% | 75.2% | (1.7) | | Expense Ratio | 25.4% | 24.7% | 0.7 | - Net income increased to $108 million, up 17% from $92 million in Q1 2023, driven by a lower loss ratio and higher premiums442452 - Fully insured ongoing sales decreased by 6% to $444 million, driven by lower group life sales445 Hartford Funds Hartford Funds reported a 10% increase in net income to $45 million in Q1 2024, driven by higher fee income from increased average AUM Hartford Funds AUM and Flows (Q1 2024 vs Q1 2023) | Metric (in millions) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Beginning Mutual Fund & ETF AUM | $119,316 | $112,472 | | Net Flows | $(2,511) | $(1,179) | | Change in Market Value | $6,754 | $4,215 | | Ending Mutual Fund & ETF AUM | $123,559 | $115,508 | - Net income increased 10% to $45 million, and the core earnings ROA improved to 12.5 bps from 11.6 bps in the prior year457462 Corporate The Corporate segment's net loss narrowed to $20 million in Q1 2024, driven by higher net investment income, realized gains, and a larger tax benefit - The net loss available to common stockholders narrowed to $20 million from $29 million year-over-year466 - The improvement was driven by a $6 million increase in net investment income, a $3 million increase in net realized gains, and a higher income tax benefit466468 Enterprise Risk Management The company manages insurance, operational, and financial risks through underwriting, exposure controls, and a high-quality investment portfolio - The company's primary catastrophe reinsurance for 2024 includes a per-occurrence property treaty covering 90% of losses from $500 million up to $1.2 billion, and an aggregate property treaty covering 100% of losses between $750 million and $950 million482 - The company has two Adverse Development Cover (ADC) reinsurance agreements with NICO for A&E and Navigators reserve development250491 - As of March 31, 2024, 85% of the Fixed Maturities, AFS portfolio was rated A or better506529 Capital Resources and Liquidity The company maintains a strong capital and liquidity position with $1.0 billion in liquid assets, active share repurchases, and a stable debt-to-capitalization ratio - The holding company had approximately $1.0 billion in liquid assets as of March 31, 2024, and access to a $750 million undrawn revolving credit facility564571 - In Q1 2024, the company repurchased 3.8 million common shares for $350 million568 Capitalization Summary (as of March 31, 2024) | Metric | Amount (in millions) | | :--- | :--- | | Total Debt | $4,363 | | Total Stockholders' Equity | $15,468 | | Total Capitalization | $19,831 | | Debt to Capitalization Ratio | 22% | Quantitative and Qualitative Disclosures About Market Risk This section's market risk disclosures are incorporated by reference from the Enterprise Risk Management section within the MD&A - The information required for this item is located in the Enterprise Risk Management section of the MD&A6 Controls and Procedures The company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during Q1 - Management concluded that the company's disclosure controls and procedures are effective as of the end of the quarter627 - No material changes occurred in the company's internal control over financial reporting during the quarter628 PART II. OTHER INFORMATION Legal Proceedings Information on the company's legal proceedings is detailed in Note 13 of the Condensed Consolidated Financial Statements - Information on legal proceedings is detailed in Note 13 - Commitments and Contingencies630 Risk Factors This section incorporates by reference the risk factors disclosed in the company's 2023 Annual Report on Form 10-K - For a detailed discussion of risk factors, readers are referred to the company's 2023 Form 10-K631 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 4.7 million shares for $432 million in Q1 2024, with $1.0 billion remaining under the current share repurchase authorization Q1 2024 Share Repurchases | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased Under Program | Remaining Authorization (millions) | | :--- | :--- | :--- | :--- | :--- | | Jan 2024 | 1,508,128 | $84.58 | 1,501,029 | $1,222 | | Feb 2024 | 1,916,318 | $94.17 | 1,119,428 | $1,119 | | Mar 2024 | 1,244,304 | $99.64 | 1,226,596 | $998 | | Total Q1 | 4,668,750 | $92.53 | 3,847,053 | $998 | - The Board of Directors approved a $3.0 billion share repurchase authorization effective from August 1, 2022, to December 31, 2024634 Other Information Discloses the adoption of Rule 10b5-1 trading arrangements by two executives and the termination of previous plans for other executives - On February 8, 2024, EVP Jonathan R. Bennett and EVP & CFO Beth A. Costello each adopted a Rule 10b5-1 trading arrangement for potential sales of company stock starting in May 2024636637 Exhibits Provides an index of exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL data - The report includes standard exhibits such as the Certificate of Incorporation, By-Laws, and Sarbanes-Oxley Act certifications from the CEO and CFO641