HARTFORD INSURANCE GROUP, INC. annual report, FY2021

The Hartford Financial Services Group, Inc. — 2021 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2021. The filing is an annual Form 10-K, not a quarterly filing. The registrant is The Hartford Financial Services Group, Inc., a holding company whose principal businesses are Commercial Lines, Personal Lines, Group Benefits, Hartford Funds, and run-off Property & Casualty operations.

Business Context

The Hartford provides property and casualty insurance, group life and disability products and services, and mutual funds and exchange-traded products, primarily in the United States. At December 31, 2021, total assets were $76.6 billion and total stockholders’ equity was $17.8 billion. Hartford Funds had $157.9 billion of assets under management at year-end.

The holding company relies primarily on dividends from subsidiaries to fund corporate obligations, shareholder dividends, and share repurchases. The company completed the sale of its Continental Europe operations on December 29, 2021, and sold its remaining 9.7% interest in Talcott Resolution on June 30, 2021.

Financial Performance and Key Metrics

Metric	2021	2020	Change
Total revenues	$22,390 million	$20,523 million	+9%
Earned premiums	$17,999 million	$17,288 million	+4%
Fee income	$1,488 million	$1,277 million	+17%
Net investment income	$2,313 million	$1,846 million	+25%
Net realized gains (losses)	$509 million	$(14) million	Improved materially
Net income	$2,365 million	$1,737 million	+36%
Net income available to common stockholders	$2,344 million	$1,716 million	+37%
Diluted EPS	$6.62	$4.76	+39%
Core earnings	$2,178 million	$2,086 million	+4%
Operating cash flow	$4,093 million	$3,871 million	+6%

The increase in reported earnings was driven largely by a change from net realized investment losses to gains, higher alternative-investment returns, higher fee income, lower restructuring costs, and improved Commercial Lines underwriting. The filing does not provide a consolidated GAAP operating margin; reported net income divided by revenue was approximately 10.6% in 2021 versus approximately 8.5% in 2020.

Segment Results

Commercial Lines: Earned premiums of $9,541 million, net income of $1,757 million, underwriting gain of $402 million, and combined ratio of 95.8 versus 100.4 in 2020. The underlying combined ratio improved to 89.1 from 95.5.
Personal Lines: Earned premiums of $2,954 million, net income of $385 million, underwriting gain of $275 million, and combined ratio of 90.7 versus 75.5 in 2020. The underlying combined ratio deteriorated to 89.9 from 83.1, reflecting higher automobile frequency and severity and higher property loss costs.
Group Benefits: Premiums and fee income of $5,687 million and net income of $249 million, down 35% from 2020. The loss ratio increased to 81.1% from 74.5%, primarily because of excess mortality and higher disability claims.
Hartford Funds: Net income of $217 million, up 28%, with ending AUM of $157.9 billion versus $139.4 billion. Mutual fund and ETP net flows were positive $3.9 billion, compared with negative $3.1 billion in 2020.
Property & Casualty Other Operations: Net loss of $95 million, an improvement from a $168 million loss, but the segment remained exposed to asbestos, environmental, sexual abuse, and other legacy liabilities.

Cash Flow, Capital, Debt and Liquidity

Operating activities provided $4.1 billion of cash; investing activities used $2.5 billion; financing activities used $1.6 billion. Cash and restricted cash ended at $337 million.
Total debt was $4.944 billion, up from $4.352 billion, primarily due to the issuance of $600 million of 2.9% senior notes due 2051.
Debt-to-stockholders’ equity increased to 28% from 23%; debt-to-capitalization increased to 22% from 19%.
The holding company had $1.9 billion of fixed maturities, short-term investments, investment sales receivable, and cash. Its revolving credit facility provides up to $750 million, with no borrowings outstanding at year-end. An intercompany liquidity agreement provides up to $2.0 billion of short-term advances, also unused at year-end.
The company repurchased 25.9 million shares for $1.7 billion during 2021. The remaining repurchase authorization was $1.3 billion at December 31, 2021 and $1.0 billion at February 17, 2022.
Expected 2022 holding-company liquidity requirements included $210 million of debt interest, $21 million of preferred dividends, $525 million of common dividends, and the expected $600 million par redemption of the 7.875% junior subordinated debentures.
U.S. statutory capital of the property and casualty and Group Benefits subsidiaries totaled $14.324 billion at year-end. All U.S. insurance subsidiaries reported RBC ratios above regulatory minimums.

Material Changes Versus 2020

Commercial Lines written premiums increased 12%, supported by exposure growth, improved retention, new business, and pricing increases.
Personal Lines written premiums decreased 1%, as non-renewals exceeded new business.
Group Benefits results weakened substantially because direct COVID-19 and excess mortality claims increased to $645 million from $508 million. Group life excess mortality claims rose to $583 million from $239 million.
Property and casualty COVID-19 losses declined to $31 million from $278 million, but catastrophe losses increased to $664 million from $606 million.
Property and casualty prior-year reserve development changed from a favorable $136 million in 2020 to an unfavorable $199 million in 2021, including adverse development associated with general liability and sexual abuse claims.
Stockholders’ equity declined 4% to $17.843 billion, largely because after-tax AOCI declined by $998 million as unrealized gains on available-for-sale securities fell with higher interest rates, and because of share repurchases.
The company’s Hartford Next initiative produced estimated cumulative savings of $423 million relative to 2019 by year-end 2021. Management expects annual savings of approximately $540 million in 2022 and $625 million in 2023, relative to 2019.

Guidance, Outlook and Unusual Items

Commercial Lines: 2022 written premiums are expected to increase 4% to 5%. The combined ratio is expected at 90.0 to 92.0, with an underlying combined ratio of 86.5 to 88.5.
Personal Lines: 2022 written premiums are expected to decline as non-renewals exceed new business. The combined ratio is expected at 97.0 to 99.0, with an underlying combined ratio of 90.0 to 92.0. The Prevail automobile and homeowners product rollout is expected to support new business over time.
Group Benefits: Fully insured ongoing premiums are expected to grow approximately 2%. Management assumed 2022 excess mortality losses of $100 million to $200 million before tax and COVID-19 short-term disability losses of approximately $25 million. Core earnings margin is projected at 3.1% to 5.4%, versus 2.5% in 2021.
Hartford Funds: Management expects 2022 net income to increase assuming continued equity-market growth and net inflows.
The company recorded a $46 million pretax gain from the sale of its Talcott Resolution interest and a $21 million pretax loss on the sale of Continental Europe operations.
The Boy Scouts of America settlement-in-principle requires a $787 million pretax payment, subject to definitive documentation, bankruptcy-plan confirmation, releases, and court approval. Management expected approval by mid-2022 but stated that adverse outcomes remain possible if conditions are not satisfied.
Asbestos and environmental reserves were increased by $155 million before reinsurance in 2021. The NICO adverse development cover had $485 million of remaining capacity at year-end against a $1.5 billion aggregate limit.

Principal Risks and Contingencies

COVID-19 developments, including variants, excess mortality, disability claims, business interruption litigation, regulatory action, and economic disruption.
Inflation and supply-chain constraints increasing automobile repair, construction, medical, and other claim severity.
Catastrophe exposure from hurricanes, severe storms, wildfires, earthquakes, terrorism, cyber events, and changing climate and weather patterns.
Uncertainty in long-tail reserves, especially workers’ compensation, general liability, professional liability, asbestos and environmental claims, and sexual abuse claims.
COVID-19 business-income litigation remained unresolved. More than 260 lawsuits had been filed, including more than 60 purported class actions; management could not reasonably estimate a loss range.
Reinsurance counterparty risk and the possibility that recoveries may be delayed, disputed, or unavailable. The $300 million Navigators adverse development cover was fully exhausted as of year-end.
Interest-rate, credit-spread, equity-market, foreign-exchange, liquidity, and LIBOR-transition risks. The company expected approximately $4 billion of LIBOR-referenced floating-rate fixed maturities and $8.1 billion of related derivatives to remain outstanding after June 2023.
Regulatory restrictions on subsidiary dividends, rating downgrades, cybersecurity incidents, outsourcing failures, legal developments, and changes in accounting or tax rules.

Investor Verification Checklist

Reconcile GAAP net income, core earnings, investment gains, and segment underwriting results, particularly the effect of alternative-investment returns and realized gains.
Review Commercial Lines and Personal Lines combined-ratio trends, including catastrophe losses, prior-year development, pricing, retention, and inflation-related severity.
Assess Group Benefits’ excess mortality, disability incidence, reserve assumptions, and the sensitivity of results to the 2022 mortality guidance.
Review the status and ultimate cost of the Boy Scouts settlement-in-principle and COVID-19 business-income litigation.
Evaluate asbestos and environmental reserve adequacy, NICO recoveries, the remaining $485 million ADC limit, and deferred-gain accounting.
Confirm holding-company liquidity, subsidiary dividend capacity, debt redemption plans, repurchase activity, and the impact of capital deployment on ratings and statutory capital.
Assess the sustainability of Hartford Funds’ positive net flows and sensitivity of fee income to equity-market levels and AUM.
Verify the implementation and realized savings of Hartford Next against the projected $540 million and $625 million annual savings targets.