Hartford Financial Widens 2Q Net Loss to $190 Million on International Variable Annuity Hedging Program

Last year, Hartford Financial posted a second-quarter $101 million net loss.

Talcott Resolution, Hartford's legacy variable annuity business in the United Kingdom, United States and Japan, posted a second-quarter net loss of $332 million, compared with net income of $440 million last year. The current quarter net loss included net realized capital losses of $442 million, after-tax and DAC on the company's international VA hedging programs, and a $124 million loss from discontinued operations, after-tax, including a $102 million loss on the sale of the U.K. VA business.

Last month, Columbia Insurance Co., an insurance subsidiary of Berkshire Hathaway, said it planned to buy Hartford Financial's variable annuity business in the United Kingdom for about $285 million cash. The deal, which needs regulatory approvals, is expected to close by the end of this year.

"We continue to make progress reducing the size and risk of Talcott Resolution," said Christopher J. Swift, chief financial officer and executive vice president, in a statement. "During the second quarter, variable annuity surrender activity increased, with full surrenders rising to 34.8% on the Japan block and to 17.5% in the U.S., reflecting policyholder behavior in strong markets and our management of the block."

As life insurers continue to de-risk their volatile variable annuity businesses, some insurers, including Hartford, are offering policyholders cash to give up certain living benefits in which the companies guarantee them an income in retirement. But these variable annuity buybacks could disrupt relationships with broker-dealers --- a primary sales channel for these stock market-linked retirement-income products.

On the property/casualty side, Hartford said catastrophe losses dropped to $186 million, before tax, from $290 million, before tax last year.

"This quarter, P&C, Group Benefits and Mutual Funds margin improvements drove core earnings for those businesses up 28%, compared with second quarter 2012," said Liam E. McGee, chairman, president and chief executive officer of Hartford Financial, in a statement.

However, second-quarter net income and core earnings for Hartford also included unfavorable prior year development of $95 million, after-tax, on a core earnings basis. These included $91 million associated with its annual ground-up review of asbestos and environmental reserves and $52 million on the closing of the New York Fund for Reopened Cases, or NY25A. Unfavorable prior-year development comprised $37 million from P/C commercial and $141 million from P/C other operations on the asbestos and environmental reserve study. Unfavorable prior-year development in P&C commercial included $80 million for NY25A, before tax.

In March 2012, Hartford said it would sell off three units: its life insurance business; its retirement plans business and Woodbury Financial, an independent broker-dealer, as Hartford announced plans to focus on businesses that take insurance risk --- and reduce its exposure to market risk (Best's News Service, May 3, 2012). Paulson & Co. Inc., Hartford's largest shareholder, pressured the company to split its property/casualty insurance division from its life and annuity operations, plus run off its variable annuity business.

Earlier this year, Prudential Insurance Company of America completed its $615 million acquisition of Hartford's individual life insurance business (Best's News Service, Jan. 3, 2013), and Massachusetts Mutual Life Insurance Co. completed its acquisition of Hartford's retirement plans business for $400 million. American International Group Inc.'s (NYSE: AIG) life insurance and retirement business in December 2012 closed on its acquisition of Woodbury for an undisclosed sum. 

Units of Hartford Financial currently have Best's Financial Strength Ratings of A (Excellent) or A- (Excellent).