The Hartford reported fourth quarter 2018 income from continuing operations, after tax, of $196 million compared with a loss from continuing operations, after tax, of $558 million in fourth quarter 2017, which included an $877 million charge for the effect on the company’s net deferred tax assets of the reduction in the U.S. corporate tax rate from 35% in 2017 to 21% in 2018. Fourth quarter 2018 income from continuing operations, after tax, was $0.52 per diluted share1 versus a loss from continuing operations, after tax, of $1.56 per diluted share in fourth quarter 2017.
Fourth quarter 2018 net income included catastrophe losses of $361 million, before tax ($285 million, after tax), more than twice fourth quarter 2017 current accident year catastrophe losses of $179 million, before tax ($116 million, after tax). In addition, fourth quarter 2018 had net realized capital losses of $172 million, before tax ($136 after tax), compared with net realized capital gains of $60 million, before tax ($39 million, after tax), in fourth quarter 2017. Net realized capital losses in 2018 primarily reflect the change in accounting effective Jan. 1, 2018 for the recognition of the change in the fair value of equity securities in net realized capital gains (losses) that were recognized in accumulated other comprehensive income (AOCI) in 2017 and prior years. Fourth quarter 2018 income from continuing operations, after tax, also included a $52 million tax benefit due to a reduction in the sequestration fee payable on anticipated refunds of alternative minimum tax credits.
Core earnings of $284 million, or $0.78 per diluted share, in fourth quarter 2018 decreased slightly from $293 million, or $0.81 per diluted share, in fourth quarter 2017 as higher P&C catastrophe losses in fourth quarter 2018 largely offset higher core earnings in Group Benefits and Hartford Funds, a lower U.S. corporate tax rate, better Commercial Lines underlying underwriting results*, and higher net investment income in P&C and Corporate.
The company also announced a $1.0 billion share repurchase authorization, effective through Dec. 31, 2020. Based on projected holding company resources, the company expects to use a portion of this authorization in 2019 but anticipates using the majority of the program in 2020.
“The Hartford had another great year in 2018, with many important accomplishments and excellent financial results,” stated The Hartford’s Chairman and CEO Christopher Swift. “Even with elevated catastrophe losses, net income and core earnings were strong, and our net income and core earnings ROE2 were 13.7 percent and 11.6 percent, respectively.”
The Hartford’s President Doug Elliot said, “2018 was an excellent year for our P&C and Group Benefits businesses. Each is delivering strong underwriting and financial performance, and operationally we continue to achieve aggressive targets on our major initiatives. Commercial Lines had an outstanding result with a 92.6% combined ratio. In Personal Lines, 2018 results swung to a loss due to higher catastrophe losses, but underlying underwriting results and new business continued to improve. Group Benefits had outstanding results, with better than expected disability incidence and a strong contribution from the 2017 acquisition. We remain focused on delivering strong results in P&C and Group Benefits, including margins and top line growth.”
Swift continued, “With excellent financial results and expected excess capital generation, we are pleased to announce a new share repurchase authorization, totaling $1.0 billion, for use through year-end 2020. We also announced today the future operating model for Commercial Lines, including the Global Specialty business, to be formed upon closing the Navigators acquisition, which is expected in late March or April. We’re excited about the opportunities we see to create long-term shareholder value through strong operating performance, continued earnings growth, and disciplined capital management.”
[1] Calculated based on $190 million of income from continuing operations available to common shareholders, after tax, for the three month period ended Dec. 31, 2018
[2] Net income ROE represents net income (loss) available to common stockholders ROE