HARTFORD INSURANCE GROUP, INC. quarterly report, Q3 FY2021

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

Business context and reporting period

The filing covers the quarter and nine months ended September 30, 2021. The Hartford provides commercial and personal property and casualty insurance, group life and disability products, and mutual fund and exchange-traded product services. Reporting segments are Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Hartford Funds, and Corporate. The interim financial statements are unaudited and prepared under U.S. GAAP.

Key financial metrics

Metric	Three months ended Sept. 30, 2021	Three months ended Sept. 30, 2020	Nine months ended Sept. 30, 2021	Nine months ended Sept. 30, 2020
Total revenues	$5,686 million	$5,171 million	$16,574 million	$15,195 million
Net income	$482 million	$459 million	$1,636 million	$1,200 million
Net income available to common stockholders	$476 million	$453 million	$1,620 million	$1,184 million
Diluted EPS	$1.36	$1.26	$4.54	$3.29
Operating cash flow	Not separately presented	Not separately presented	$2,889 million	$2,655 million

Earned premiums increased 5% in the quarter and 3% year to date, while fee income increased 17% and 18%, respectively.
Net investment income increased 32% in the quarter and 35% year to date, primarily due to stronger returns from limited partnerships and other alternative investments. The nine-month investment yield was 4.3%, compared with 3.4% in 2020.
Net realized gains were $70 million in the quarter and $297 million year to date, compared with $6 million and a $116 million loss, respectively, in the prior-year periods.
Net income margins were approximately 8.5% for the quarter and 9.9% year to date, based on net income divided by total revenues.
At September 30, 2021, total assets were $76.3 billion, total investments were $57.6 billion, stockholders’ equity was $17.9 billion, and long-term debt was $4.9 billion.
Cash and restricted cash totaled $397 million at September 30, 2021, compared with $270 million at September 30, 2020.
Operating cash flow exceeded investing and financing cash uses; cash used in investing activities was $1.748 billion and cash used in financing activities was $963 million for the first nine months.

Segment performance

Commercial Lines: Nine-month net income was $1.055 billion versus $378 million. Earned premiums increased 5%, written premiums increased 11%, and the underlying combined ratio improved to 89.2% from 97.1%. The reported combined ratio was 99.8%.
Personal Lines: Nine-month net income declined to $304 million from $548 million. Earned premiums decreased 1%, and the underlying combined ratio worsened to 87.9% from 83.0%, mainly due to higher automobile claim frequency and severity.
Group Benefits: Nine-month net income declined to $207 million from $324 million. The total loss ratio increased to 80.1% from 72.6%, primarily due to excess mortality in group life and higher short-term disability claims.
Hartford Funds: Nine-month net income increased to $155 million from $119 million. Average assets under management increased 27% to $149.6 billion, and mutual fund and ETP net flows were positive $3.5 billion versus negative $3.4 billion in 2020.
Corporate: Nine-month net loss available to common stockholders improved to $127 million from $197 million, reflecting lower restructuring costs and realized gains, partly offset by transaction-related legal and consulting costs.

Material changes versus the prior comparable period

Profitability improved substantially, with nine-month net income available to common stockholders rising 37% to $1.620 billion and diluted EPS increasing from $3.29 to $4.54.
Commercial Lines benefited from economic recovery, higher audit and endorsement premiums, improved underlying loss performance, and lower direct COVID-19 losses.
Property and casualty results were adversely affected by higher catastrophe losses, including Hurricane Ida, and a shift from favorable to unfavorable prior accident-year development. Nine-month P&C prior-year development was unfavorable by $170 million versus favorable development of $320 million in 2020.
Group Benefits was negatively affected by excess mortality claims of $422 million in the first nine months, compared with $87 million in 2020.
COVID-19 and excess mortality claims totaled $475 million in the first nine months of 2021 versus $323 million in 2020; the 2021 amount was primarily excess mortality in group life.
Accumulated other comprehensive income declined to $307 million from $1.170 billion, primarily because of lower unrealized gains on available-for-sale fixed maturities as interest rates rose.
The company repurchased $1.202 billion of common stock, or approximately 19 million shares, during the first nine months. The repurchase authorization was subsequently increased to $3.0 billion.
The Hartford sold its retained 9.7% interest in Talcott Resolution on June 30, 2021 for $217 million, recognizing a $46 million pretax gain.

Guidance, outlook, commentary, risks, and unusual items

Management expected 2021 investment yield, excluding limited partnerships, alternative investments, and certain non-routine items, to be below 2020 levels because of lower reinvestment rates and short-term investment yields.
The Hartford Next cost-reduction program is expected to produce approximately $540 million of annual insurance operating-cost savings by 2022 and $625 million by 2023, relative to 2019. Total program costs are expected to be approximately $395 million, with $203 million incurred through September 30, 2021.
The company issued $600 million of 2.9% senior notes due 2051, receiving approximately $588 million of net proceeds. It expects to use the proceeds and other resources to redeem $600 million of 7.875% junior subordinated debentures in April 2022 and expects a pretax extinguishment loss of approximately $9 million.
Holding-company liquidity included approximately $2.1 billion of liquid investments and cash, a $750 million revolving credit facility with no borrowings outstanding, and a $2.0 billion intercompany liquidity agreement with no borrowings outstanding.
Expected near-term holding-company requirements included approximately $220 million of debt interest, $21 million of preferred dividends, $520 million of common dividends, and the expected $600 million debt redemption.
The company entered into a September 2021 agreement-in-principle to pay $787 million before tax to resolve Boy Scouts of America sexual abuse claims. The settlement remained subject to definitive documentation, bankruptcy-plan confirmation, releases, and court approval.
The company faces more than 260 COVID-19 business-interruption coverage lawsuits, including more than 60 putative class actions. Management could not reasonably estimate any potential loss; adverse outcomes could materially affect results.
Run-off asbestos and environmental reserves totaled $646 million net at September 30, 2021, comprising $621 million of asbestos reserves and $25 million of environmental reserves. The related adverse development cover had $640 million of remaining limit.
The pending sale of the Continental Europe Operations was expected to close in the fourth quarter of 2021, subject to regulatory and other customary conditions. The estimated pretax loss on the sale was approximately $68 million.
Key ongoing risks include COVID-19 and excess mortality, catastrophe and weather losses, inflation and rising interest rates, unfavorable reserve development, asbestos and environmental claims, reinsurer collectibility, investment-market volatility, regulatory changes, litigation, cyber risk, and potential ratings downgrades.

Important facts investors should verify

Confirm the final status and accounting impact of the $787 million Boy Scouts settlement and related bankruptcy-court approval.
Assess whether unfavorable general-liability and sexual-abuse reserve development continues, including the remaining capacity under the Navigators and asbestos-and-environmental adverse development covers.
Monitor Group Benefits excess mortality, disability claims, and the sustainability of the 2021 loss-ratio deterioration.
Evaluate the effect of higher interest rates, lower reinvestment yields, and unrealized fixed-maturity losses on capital, book value, and investment income.
Verify completion and final proceeds or loss from the Continental Europe Operations sale.
Track share repurchases, planned debt redemption, dividend capacity, insurance-subsidiary capital, and holding-company liquidity.
Review the outcomes of COVID-19 business-interruption litigation and any legislative or regulatory efforts to impose retroactive coverage.
Confirm that the company’s stated Hartford Next savings and cost estimates are being achieved without offsetting increases in operating, technology, or claims expenses.