Lower catastrophe costs and growth from property/casualty and retail products businesses helped Hartford Financial Services Group Inc. post strong fourth-quarter earnings growth.
The company said it expects to maintain much of that momentum this year, but it trimmed its 2007 outlook slightly, to reflect a change in an accounting standard. It also expressed optimism about its prospects for variable annuity sales this year.
The Connecticut company announced last week that its fourth-quarter net income increased 68% from a year earlier, to $783 million, or $2.42 a share.
Operating earnings rose 54.2%, to $768 million, or $2.37 a share. The average estimate of analysts polled by Thomson Financial has called for Hartford to report operating earnings of $2.27 a share.
Ramani Ayer, Hartfords chairman and chief executive officer, said in an earnings conference call Friday that his company got a lift from a good equity market and favorable weather.
Last year property/casualty insurance rates for coastal properties increased nationally, but no major storms made landfall after a record hurricane season in 2005.
Hartford executives said the company turned the corner on the annuity business. David Johnson, its chief financial officer, said during the conference call that the company expects stronger sales of variable annuities.
The variable annuities wholesaling team feels that they are on fire right now, he said. It has been a long road back for some of them, but they are feeling upbeat.
Net income for Hartfords life operations increased 23%, to $359 million. Total assets under management in life operations increased 18%, to $327 billion.
Retail products group deposits increased 50%, to $6.7 billion, as total retail assets under management increased 13%, to $165 billion, from a year earlier. Variable annuity deposits increased 26%, to $3.1 billion, and retail mutual fund deposits increased 79%, to $3 billion.
Strong net flows and good equity markets drove growth in assets under management. & And we expect it to grow from here, Mr. Ayer said.
In the fourth quarter, written premiums for property/casualty operations rose 2%, to $2.6 billion. Written premiums grew 4% in personal and small commercial lines while declining 1% in the middle and specialty commercial markets.
Analysts said Hartford slightly downgraded its earnings expectations for next year. It now expects to report core earnings of $9.30 to $9.60 per diluted share for this year. The previous guidance range was $9.35 to $9.65 per diluted share.
Jeffrey Schuman, an analyst at Keefe, Bruyette & Woods Inc., said Hartford changed its guidance to reflect the estimated effect of a new accounting standard, Deferred Acquisition Costs for Internal Replacements.
Annuity sales were good in the United States, he said, but not surprisingly good, given the strong equity market. He expects stronger sales growth to materialize from the variable annuity business.
Hartford is developing its variable annuity business in the United States and Japan, Mr. Schuman said. Fourth-quarter variable annuity net outflows shrank 26.4%, to $696 million. Hartfords Lifetime Income Builder II annuity rider, which was introduced in August, was added to 40% of the new variable annuity contracts sold in the quarter. This feature provides guaranteed income for life with income amounts that can increase over time.
Variable annuity assets under management increased 9%, to $114 billion.
We think that growth in their variable annuity business in the U.S. and Japan will be a gradual process, because markets are competitive, he said. Generally speaking, Hartford is executing well, and we expect that to continue in 2007.
Hartfords variable annuity deposits in Japan declined 51%, to $1.2 billion, because of strong competition from domestic and foreign companies.
Mr. Ayer said Hartfords variable annuity assets under management in Japan increased 21% last year, to $31 billion, despite more competition there. The company plans to launch a variable annuity next month that offers Japanese investors a rider they can use to lock in gains after they reach certain targeted levels of returns, he said.
We have very attractive returns [in Japan], and account values have grown, Mr. Ayer said. The Japanese variable annuity market should continue to present great growth opportunities.
Hartfords stock rose 0.47% Friday morning, to $92.33 a share by midday.
