The Hartford survived second quarter COVID-19 related challenges by producing an overall profit, though the property/casualty insurer announced plans to reduce expenses through job cuts and other moves.
The insurer is calling its expense reduction move Hartford Next and described it as an “operational transformation and expense reduction” initiative. This will include job cuts, IT investments and other moves designed to save $500 million annually by 2022.
In order to achieve the savings, The Hartford said it expects to spend $320 million from now through 2022 and $40 million thereafter, with approximately $120 million over the remaining two quarters of 2020.
The expense reduction plan is designed to shave 2-2.5 points from its 2022 P/C expense ratio and 1.5 to 2 points from its 2020 Group Benefits expense ratio.
Fewer other Hartford Next details were released with the insurer’s Q2 results, though the initiative was likely to come up during The Hartford’s Q2 2020 investor webcast on July 31 on second quarter results.
“The second quarter has certainly presented some extraordinary challenges. COVID-19 has touched nearly all aspects of our business and has significantly impacted each of our stakeholders,” The Hartford President Doug Elliot said in prepared remarks.
Consolidated Q2 net income came in at $463 million, or $1.29 per diluted share for Q2 2020, which was 24 percent higher than last year’s second quarter income of $372 million, or $1.02 per diluted share over the same period in 2019.
The insurer said PG&E California wildfire recoverables helped offset the impacts of COVID and riot losses.
Written premiums were flat at $2.9 billion and the combined ratio came in at 96.9, compared to 96.1 in last year’s second quarter.
CATS and COVID
The insurer had $248 million in pretax catastrophe losses, including $110 million relating to civil unrest.
COVID-19 incurred losses were $251 million before tax ($198 million after tax). They include reserves for claims in states that presume health care and other essential workers contracted COVID-19 while on the job, though the number was partially offset by favorable frequency on other workers’ comp claims.
For commercial lines, The Hartford reported an overall net loss of $66 million compared to net income of $191 in second-quarter 2019, together with a 4 percent jump in premiums and combined ratio of 115.4 vs. 100.3 for second-quarter 2019.
For personal lines, income soared to $371 million from just $62 million in last year’s second quarter, with premiums falling 10 percent and the combined ratio landing at 38.3, which is 59 points lower than last year’s second-quarter ratio of 97.5.
The unusual personal lines second-quarter combined ratio is mainly explained by net favorable prior-year loss development of $349 million, before taxes, resulting from lower estimated losses on the 2017 and 2018 California wildfires, including a $260 million subrogation benefit from PG&E (before taxes). Lower auto loss frequency resulting from COVID shelter-in-place guidelines and fewer non-CAT property weather losses for homeowners also had an impact.
On the commercial lines side, results were impacted by $213 million in COVID-19 incurred losses, catastrophe losses that were more than $100 million higher than last year—the bulk of which came from civil unrest in May and June—and $55 million of unfavorable prior-year development before taxes. Explaining the latter charge, The Hartford said that $102 million of sexual molestation and abuse claims were partly offset by favorable catastrophe reserve development.
Elliot said the insurer took a number of actions that helped soften the pandemic’s impact on its customers while it continued to maintain underwriting discipline and pay claims.
“Pricing remained strong in the quarter,” Elliot stated, citing non-workers’ compensation standard commercial rate increases of 7.8 percent and U.S. wholesale specialty commercial lines rate increases of 24 percent. “Notwithstanding the economic uncertainty, our underlying foundation is solid and we will continue to advance our profitability and underwriting objectives.”
Other Q2 results:
- Commercial lines written premiums grew to nearly $2.2 billion, from $2 billion a year ago. Without specialty insurer Navigators (acquired in 2018), second quarter written premium would have been 11 percent less, due in part to lower new business across most lines and lower premium retention in the middle market.
- Commercial lines produced a 115.4 combined ratio, versus a 100.3 combined ratio in the 2019 first quarter. COVID-19 expenses caused the uptick.
- Personal lines written premiums hit $738 million, compared to $824 million a year ago. This dip came, in part from premium credits, but that was offset somewhat by a suspension of policy cancellations due to COVID-19 pressures.
Source: The Hartford