Hartford Takes $118M Re Charge

Hartford Takes $118M Re Charge

NU Online News Service, Aug. 5, 2:00 p.m. EDT?In spite of recording a $118 million charge related to a reassessment of reinsurance recoveries, The Hartford Financial Services Group reported a 19 percent jump in second-quarter operating profit last night.[@@]

Second-quarter operating income, which is income excluding the impact of gains from investment sales, rose to $403 million, or $1.35 per share, from $340 million, or $1.26 per share last year.

With realized investment gains sagging to $31 million compared to $176 million, net income including gains fell 15 percent for the quarter. Net income for second-quarter 2004 was $433 million, or $1.46 per share. In second-quarter 2003, the comparable net income figure was $507 million, or $1.88 per share.

In a statement, The Hartford said the $118 million after-tax reinsurance charge (included in both the operating income and net income figures) was taken after the Connecticut-based insurer completed a study of its reinsurance recoverables associated with older, long-term casualty liabilities reported in the "other operations" segment, including asbestos liabilities.

Study results included two key findings:

? Due to the change in the various components of The Hartford's gross liabilities, the company concluded there was $126 million less reinsurance available.

? The study resulted in an increase in the company's allowance for uncollectible reinsurance to reflect management's current estimate of reinsurance that may not be collectible due to reinsurers' unwillingness or inability to pay in the future. The Hartford estimated that an additional allowance for potentially uncollectible reinsurance of $55 million was needed.

Together, the findings from the company's study bring to $181 million the total pre-tax charge for reinsurance-related issues in the current quarter.

Excluding the impact of the charge, operating income for the company grew 55 percent (rather than 19 percent) to $521 million.

For the property-casualty business, operating income prior to the charge grew 91 percent to $306 million, and 18 percent to $188 million including the effect of the reinsurance charge, according to Hartford. Within Hartford's property-casualty operations, second-quarter net written premiums for commercial business jumped 16 percent to $1.1 billion and personal lines net written premiums grew 11 percent to $945 million.

The property-casualty combined ratio for ongoing operations came in at 91.4 in the quarter.

For the first-half of 2004, Hartford's net income was just over $1 billion, or $3.38 per share, and operating income was $904 million, or $3.05 per share.

In last night's announcement, The Hartford said it was raising its earnings guidance for 2004 to somewhere between $6.50 and $6.80 per share. The prior range was $6.30 to $6.60. The new range reflects mid-July market levels but also assumes that U.S. equity markets experience a mild recovery through the balance of the year, Hartford said.