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Hartford Profit Falls 79% On Workers' Comp, Investments

Source: WSJ

Posted on 08 Feb 2012

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Driven by investment losses and the rising cost of workers' compensation claims, Hartford Financial Services Group Inc.'s fourth-quarter earnings fell 79% to $127 million.

But the insurer had already warned analysts about some of the challenges it faced in the fourth quarter, and core earnings per share exceeded Wall Street's expectations. The results sent Hartford's stock up 1.3% to $19.39 in after hours trading.

Core results at Hartford's consumer-markets unit nearly tripled to $83 million, but the gain failed to offset declines at the company's much larger commercial-markets and wealth management units.

Profit at the commercial-markets unit fell 83% to $40 million as Hartford boosted reserves by $128 million, primarily to pay workers' compensation claims for policies sold in 2010 and 2011.

Executives had warned about the increasing frequency of workers' compensation claims in December, and the head of the commercial-markets unit said the company is raising rates and looking to increase market share in other lines of coverage so that workers' compensation becomes a smaller part of its portfolio. It currently makes up about 50% of Hartford's middle-market commercial-insurance operation.

Profit at the wealth management unit, meanwhile, dropped 12% to $228 million.

Morgan Stanley analyst Nigel Dally called the wealth-management results "weaker than expected," but said the commercial and consumer units exceeded his estimates.

Hartford also said it bought $51.4 million of its own stock in the quarter, and purchased an additional $42.3 million so far this year. It marks the first time the insurer repurchased shares since taking a $3.4 billion federal rescue--since repaid--amid the depths of the financial crisis.

Hartford had announced the repurchase authorization in August, but volatile equity markets caused the company to delay its implementation. Executives said in December the company plans to complete the $500 million buyback early in the second quarter.

The company posted $386 million in realized investment losses, compared with $89 million a year earlier.

Core earnings, which excludes some investment results, declined to 69 cents a share from $1.06. Total revenue was down 4.9% at $5.64 billion.

Analysts polled by Thomson Reuters most recently projected earnings of 59 cents on revenue of $5.76 million.

P&C commercial premiums written grew 2% amid higher pricing and strong retention. However, the segment's combined ratio--the percentage of premiums that the company pays out in claims and expenses--rose to 101.5% from 95% amid higher workers' compensation loss costs. Hartford excludes catastrophes and adjustments to prior-year reserves from its combined ratio.