filings.toolsItem 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of this report:
(1)Consolidated Financial Statements. See Index to Consolidated Financial Statements and Schedules below.
(2)Consolidated Financial Statement Schedules. See Index to Consolidated Financial Statement and Schedules below.
(3)Exhibits. See Exhibit Index elsewhere herein.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
*[1]*Deloitte & Touche LLP (PCAOB ID No. 34) is our principal accountant and an independent registered public accounting firm.
*[2]*Schedule has been omitted as information required is disclosed in the Notes to Consolidated Financial Statements or other Schedules.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
The Hartford Financial Services Group, Inc.
Hartford, Connecticut
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Hartford Financial Services Group, Inc. and its subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, effective January 1, 2023, the Company adopted FASB ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts Issued by Insurance Companies, using the modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Unpaid Losses and Loss Adjustment Expenses - Refer to Notes 1 and 11 to the financial statements
Critical Audit Matter Description
For property and casualty and group life and disability insurance products, the Company establishes reserves for unpaid losses and loss adjustment expenses to provide for the estimated costs of paying claims under insurance policies written by the Company. These reserves include estimates for both claims that have been reported and claims that have been incurred but not reported and include estimates of all losses and loss adjustment expenses associated with processing and settling these claims. This estimation process is based significantly on the assumption that past developments are an appropriate predictor of future events and involves a variety of actuarial techniques that analyze experience, trends and other relevant factors.
Given the subjectivity of estimating the ultimate cost to settle the liabilities for reported and unreported claims due to uncertainties caused by various factors including frequency and severity of claims as well as changes in the legislative and regulatory environment, performing audit procedures to evaluate whether unpaid losses and loss adjustment expenses were appropriately recorded as of December 31, 2023, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the unpaid losses and loss adjustment expenses included the following, among others:
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We tested the effectiveness of controls related to the unpaid losses and loss adjustment expenses, including controls over inputs, methods, and assumptions used in the Company's estimation processes.
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We tested the underlying data that served as the basis for the Company’s analysis, including historical claims.
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With the assistance of our actuarial specialists, we evaluated the methods and assumptions used by the Company to estimate the unpaid losses and loss adjustment expenses by:
–Assessing the reasonableness of the Company’s analysis and, for selected reserving lines, developing independent estimates of the unpaid losses and loss adjustment expenses and comparing such estimates to the Company’s estimates.
–Comparing the Company’s prior year assumptions of expected development of ultimate loss to actual losses incurred during the current year to identify potential management bias in the determination of the unpaid losses and loss adjustment expenses.
Investments in Fixed Maturities Classified as Available-for-Sale - Refer to Notes 1, 4, and 5 to the financial statements
Critical Audit Matter Description
Investments in fixed maturities classified as available-for-sale are reported at fair value in the financial statements. The investments without readily determinable fair values were valued using significant unobservable inputs, such as credit spreads and interest rates beyond the observable curve, that involved considerable judgment by the Company.
Given the Company used models and unobservable inputs to estimate the fair value of investments in fixed maturities classified as available-for-sale, performing audit procedures to evaluate these inputs required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the models and unobservable inputs used by the Company to estimate the fair value of investments in fixed maturities classified as available-for-sale included the following, among others:
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We tested the effectiveness of controls over the valuation of investments in fixed maturities classified as available-for-sale, including controls over inputs, methods, and assumptions used in the Company’s estimation processes.
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On a sample basis, we tested the accuracy and completeness of the investments owned as of December 31, 2023, and the relevant security attributes used in the determination of their fair values.
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With the assistance of our fair value specialists, for a sample of investments, we tested the mathematical accuracy of the fair value calculation and developed independent estimates of the fair value and compared our estimates to the Company’s estimates. In addition to developing independent estimates, we obtained an understanding of the models and inputs used by the Company and assessed those models and inputs for reasonableness. Such assessment included comparing inputs to external sources or developing independent inputs.
/s/ DELOITTE & TOUCHE LLP
Hartford, Connecticut
February 23, 2024
We have served as the Company’s auditor since 2002.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Operations
| For the years ended December 31, | |||||||||||
| (in millions, except for per share data) | 2023 | 2022 | 2021 | ||||||||
| Revenues | |||||||||||
| Earned premiums | $ | 21,026 | $ | 19,390 | $ | 17,999 | |||||
| Fee income | 1,300 | 1,349 | 1,488 | ||||||||
| Net investment income | 2,305 | 2,177 | 2,313 | ||||||||
| Net realized gains (losses) | (188) | (627) | 509 | ||||||||
| Other revenues | 84 | 73 | 81 | ||||||||
| Total revenues | 24,527 | 22,362 | 22,390 | ||||||||
| Benefits, losses and expenses | |||||||||||
| Benefits, losses and loss adjustment expenses | 14,238 | 13,138 | 12,720 | ||||||||
| Amortization of deferred policy acquisition costs ("DAC") | 2,044 | 1,824 | 1,668 | ||||||||
| Insurance operating costs and other expenses | 4,881 | 4,841 | 4,791 | ||||||||
| Interest expense | 199 | 213 | 234 | ||||||||
| Amortization of other intangible assets | 71 | 71 | 71 | ||||||||
| Restructuring and other costs | 6 | 13 | 1 | ||||||||
| Total benefits, losses and expenses | 21,439 | 20,100 | 19,485 | ||||||||
| Income before income taxes | 3,088 | 2,262 | 2,905 | ||||||||
| Income tax expense | 584 | 443 | 534 | ||||||||
| Net income | 2,504 | 1,819 | 2,371 | ||||||||
| Preferred stock dividends | 21 | 21 | 21 | ||||||||
| Net income available to common stockholders | $ | 2,483 | $ | 1,798 | $ | 2,350 | |||||
| Net income available to common stockholders per common share | |||||||||||
| Basic | $ | 8.09 | $ | 5.54 | $ | 6.73 | |||||
| Diluted | $ | 7.97 | $ | 5.46 | $ | 6.64 |
See Notes to Consolidated Financial Statements.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Comprehensive Income (Loss)
| For the years ended December 31, | |||||||||||
| (in millions) | 2023 | 2022 | 2021 | ||||||||
| Net income | $ | 2,504 | $ | 1,819 | $ | 2,371 | |||||
| Other comprehensive income (loss) (“OCI”): | |||||||||||
| Change in net unrealized gain (loss) on fixed maturities, available-for-sale ("AFS") | 1,112 | (4,225) | (1,224) | ||||||||
| Change in unrealized losses on fixed maturities for which an allowance for credit losses ("ACL") has been recorded | (1) | (5) | — | ||||||||
| Change in net gain on cash flow hedging instruments | (19) | 34 | (6) | ||||||||
| Change in foreign currency translation adjustments | 6 | (10) | (2) | ||||||||
| Change in liability for future policy benefits adjustments | (10) | 94 | 27 | ||||||||
| Change in pension and other postretirement plan adjustments | (96) | 143 | 228 | ||||||||
| OCI, net of tax | 992 | (3,969) | (977) | ||||||||
| Comprehensive income (loss) | $ | 3,496 | $ | (2,150) | $ | 1,394 |
See Notes to Consolidated Financial Statements
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Balance Sheets
| As of December 31, | ||||||||
| (in millions, except for share and per share data) | 2023 | 2022 | ||||||
| Assets | ||||||||
| Investments: | ||||||||
| Fixed maturities, AFS, at fair value (amortized cost of $41,726 and $39,533, and ACL of $21 and $12) | $ | 39,818 | $ | 36,231 | ||||
| Fixed maturities, at fair value using the fair value option ("FVO") | 327 | 333 | ||||||
| Equity securities, at fair value | 864 | 1,801 | ||||||
| Mortgage loans (net of ACL of $51 and $36) | 6,087 | 6,000 | ||||||
| Limited partnerships and other alternative investments | 4,785 | 4,177 | ||||||
| Other investments | 191 | 159 | ||||||
| Short-term investments | 3,850 | 3,859 | ||||||
| Total investments | 55,922 | 52,560 | ||||||
| Cash | 126 | 229 | ||||||
| Restricted cash | 63 | 115 | ||||||
| Accrued investment income | 404 | 372 | ||||||
| Premiums receivable and agents' balances (net of ACL of $109 and $109) | 5,607 | 4,949 | ||||||
| Reinsurance recoverables (net of allowance for uncollectible reinsurance of $103 and $105) | 7,104 | 6,964 | ||||||
| Deferred policy acquisition costs | 1,113 | 998 | ||||||
| Deferred income taxes, net | 1,173 | 1,437 | ||||||
| Goodwill | 1,911 | 1,911 | ||||||
| Property and equipment, net | 896 | 927 | ||||||
| Other intangible assets, net | 707 | 778 | ||||||
| Other assets | 1,754 | 1,768 | ||||||
| Total assets | $ | 76,780 | $ | 73,008 | ||||
| Liabilities | ||||||||
| Unpaid losses and loss adjustment expenses | $ | 42,318 | $ | 41,243 | ||||
| Reserve for future policy benefits | 484 | 502 | ||||||
| Other policyholder funds and benefits payable | 638 | 658 | ||||||
| Unearned premiums | 8,599 | 7,815 | ||||||
| Long-term debt | 4,362 | 4,357 | ||||||
| Other liabilities | 5,052 | 4,757 | ||||||
| Total liabilities | 61,453 | 59,332 | ||||||
| Commitments and Contingencies (Note 15) | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $0.01 par value — 50,000,000 shares authorized, 13,800 shares issued at December 31, 2023 and December 31, 2022, aggregate liquidation preference of $345 | 334 | 334 | ||||||
| Common stock, $0.01 par value — 1,500,000,000 shares authorized, 326,960,228 shares issued at December 31, 2023 and 344,960,228 shares issued at December 31, 2022 | 3 | 3 | ||||||
| Additional paid-in capital | 648 | 1,895 | ||||||
| Retained earnings | 19,007 | 17,058 | ||||||
| Treasury stock, at cost — 28,488,130 and 29,848,980 shares | (1,816) | (1,773) | ||||||
| Accumulated other comprehensive loss, net of tax | (2,849) | (3,841) | ||||||
| Total stockholders' equity | 15,327 | 13,676 | ||||||
| Total liabilities and stockholders’ equity | $ | 76,780 | $ | 73,008 |
See Notes to Consolidated Financial Statements.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Changes in Stockholders' Equity
| For the years ended December 31, | |||||||||||
| (in millions, except for share and per share data) | 2023 | 2022 | 2021 | ||||||||
| Preferred Stock | $ | 334 | $ | 334 | $ | 334 | |||||
| Common Stock | |||||||||||
| Common Stock, beginning of period | 3 | 4 | 4 | ||||||||
| Treasury stock retired | — | (1) | — | ||||||||
| Common Stock, end of period | 3 | 3 | 4 | ||||||||
| Additional Paid-in Capital | |||||||||||
| Additional Paid-in Capital, beginning of period | 1,895 | 3,309 | 4,322 | ||||||||
| Issuance of shares under incentive and stock compensation plans and other | (153) | (154) | (90) | ||||||||
| Stock-based compensation plans expense | 125 | 131 | 116 | ||||||||
| Treasury stock retired | (1,219) | (1,391) | (1,039) | ||||||||
| Additional Paid-in Capital, end of period | 648 | 1,895 | 3,309 | ||||||||
| Retained Earnings | |||||||||||
| Retained Earnings, beginning of period | 17,058 | 15,770 | 13,918 | ||||||||
| Net income | 2,504 | 1,819 | 2,371 | ||||||||
| Dividends declared on preferred stock | (21) | (21) | (21) | ||||||||
| Dividends declared on common stock | (534) | (510) | (498) | ||||||||
| Retained Earnings, end of period | 19,007 | 17,058 | 15,770 | ||||||||
| Treasury Stock, at cost | |||||||||||
| Treasury Stock, at cost, beginning of period | (1,773) | (1,740) | (1,192) | ||||||||
| Treasury stock acquired | (1,414) | (1,550) | (1,702) | ||||||||
| Treasury stock retired | 1,219 | 1,392 | 1,039 | ||||||||
| Issuance of shares under incentive and stock compensation plans from treasury stock and other | 207 | 183 | 146 | ||||||||
| Net shares acquired related to employee incentive and stock compensation plans | (55) | (58) | (31) | ||||||||
| Treasury Stock, at cost, end of period | (1,816) | (1,773) | (1,740) | ||||||||
| Accumulated Other Comprehensive Income (Loss) ("AOCI"), net of tax | |||||||||||
| Accumulated Other Comprehensive Income (Loss), net of tax, beginning of period | (3,841) | 128 | 1,170 | ||||||||
| Cumulative effect of accounting changes, net of tax | — | — | (65) | ||||||||
| Adjusted balance beginning of period | (3,841) | 128 | 1,105 | ||||||||
| Total other comprehensive income (loss) | 992 | (3,969) | (977) | ||||||||
| Accumulated Other Comprehensive Income (Loss), net of tax, end of period | (2,849) | (3,841) | 128 | ||||||||
| Total Stockholders’ Equity | $ | 15,327 | $ | 13,676 | $ | 17,805 | |||||
| Preferred Shares Outstanding | 13,800 | 13,800 | 13,800 | ||||||||
| Common Shares Outstanding (in thousands) | |||||||||||
| Common Shares Outstanding, beginning of period | 315,111 | 334,926 | 358,489 | ||||||||
| Treasury stock acquired | (19,238) | (22,273) | (25,878) | ||||||||
| Issuance of shares under incentive and stock compensation plans and other | 3,299 | 3,285 | 2,902 | ||||||||
| Return of shares under incentive and stock compensation plans to treasury stock | (700) | (827) | (587) | ||||||||
| Common Shares Outstanding, end of period | 298,472 | 315,111 | 334,926 | ||||||||
| Cash dividends declared per common share | $ | 1.75 | $ | 1.58 | $ | 1.44 | |||||
| Cash dividends declared per preferred share | $ | 1,500.00 | $ | 1,500.00 | $ | 1,500.00 |
See Notes to Consolidated Financial Statements.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Consolidated Statements of Cash Flows
| For the years ended December 31, | |||||||||||
| (in millions) | 2023 | 2022 | 2021 | ||||||||
| Operating Activities | |||||||||||
| Net income | $ | 2,504 | $ | 1,819 | $ | 2,371 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Net realized losses (gains) | 188 | 627 | (530) | ||||||||
| Amortization of deferred policy acquisition costs | 2,044 | 1,824 | 1,668 | ||||||||
| Additions to deferred policy acquisition costs | (2,159) | (1,939) | (1,739) | ||||||||
| Depreciation and amortization | 510 | 625 | 680 | ||||||||
| Loss on extinguishment of debt | — | 9 | — | ||||||||
| Loss on sale of business | — | — | 21 | ||||||||
| Other operating activities, net | 213 | 109 | (125) | ||||||||
| Change in assets and liabilities: | |||||||||||
| Increase in reinsurance recoverables | (155) | (470) | (583) | ||||||||
| Net change in accrued and deferred income taxes | (29) | (80) | 85 | ||||||||
| Increase in insurance liabilities | 1,819 | 2,192 | 2,411 | ||||||||
| Net change in premiums receivable and agents' balances | (708) | (562) | (190) | ||||||||
| Net change in other assets and other liabilities | (7) | (146) | 24 | ||||||||
| Net cash provided by operating activities | 4,220 | 4,008 | 4,093 | ||||||||
| Investing Activities | |||||||||||
| Proceeds from the sale/maturity/prepayment of: | |||||||||||
| Fixed maturities, AFS | 6,806 | 14,996 | 22,457 | ||||||||
| Fixed maturities, FVO | 2 | 2 | — | ||||||||
| Equity securities at fair value | 2,173 | 1,213 | 626 | ||||||||
| Mortgage loans | 1,036 | 973 | 1,506 | ||||||||
| Limited partnerships and other alternative investments | 295 | 349 | 537 | ||||||||
| Payments for the purchase of: | |||||||||||
| Fixed maturities, AFS | (9,105) | (14,255) | (21,754) | ||||||||
| Fixed maturities, FVO | — | (216) | (160) | ||||||||
| Equity securities at fair value | (1,183) | (1,371) | (1,420) | ||||||||
| Mortgage loans | (1,055) | (1,596) | (2,386) | ||||||||
| Limited partnerships and other alternative investments | (966) | (1,095) | (1,317) | ||||||||
| Net proceeds from (payments for) derivatives | (129) | 54 | (7) | ||||||||
| Net additions to property and equipment | (215) | (175) | (133) | ||||||||
| Net payments for short-term investments | (69) | (160) | (417) | ||||||||
| Other investing activities, net | (21) | 4 | (9) | ||||||||
| Proceeds from businesses sold, net of cash transferred | — | — | 11 | ||||||||
| Net cash used for investing activities | (2,431) | (1,277) | (2,466) | ||||||||
| Financing Activities | |||||||||||
| Deposits and other additions to investment and universal life-type contracts | 96 | 88 | 89 | ||||||||
| Withdrawals and other deductions from investment and universal life-type contracts | (100) | (102) | (75) | ||||||||
| Repayment of debt | — | (600) | — | ||||||||
| Proceeds from the issuance of debt | — | — | 588 | ||||||||
| Net issuance (return) of shares under incentive and stock compensation plans | 6 | (19) | 25 | ||||||||
| Treasury stock acquired | (1,400) | (1,550) | (1,702) | ||||||||
| Dividends paid on preferred stock | (21) | (21) | (21) | ||||||||
| Dividends paid on common stock | (528) | (506) | (485) | ||||||||
| Net cash used for financing activities | (1,947) | (2,710) | (1,581) | ||||||||
| Foreign exchange rate effect on cash | 3 | (14) | (6) | ||||||||
| Net increase (decrease) in cash and restricted cash, including cash classified within assets held for sale | (155) | 7 | 40 | ||||||||
| Less: Net decrease in cash classified as assets held for sale | — | — | (58) | ||||||||
| Net increase (decrease) in cash and restricted cash | (155) | 7 | 98 | ||||||||
| Cash and restricted cash — beginning of period | 344 | 337 | 239 | ||||||||
| Cash and restricted cash — end of period | $ | 189 | $ | 344 | $ | 337 | |||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
| Income tax paid | $ | 622 | $ | 548 | $ | 496 | |||||
| Interest paid | $ | 209 | $ | 212 | $ | 214 | |||||
See Notes to Consolidated Financial Statements.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in millions, except for per share data, unless otherwise stated)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The Hartford Financial Services Group, Inc. ("HFSG") is a holding company for insurance and financial services subsidiaries that provide property and casualty ("P&C") insurance, group life and disability products and mutual funds and exchange-traded funds ("ETF") to individual and business customers in the United States as well as in the United Kingdom and other international locations (collectively, “The Hartford”, the “Company”, “we” or “our”).
On December 29, 2021, the Company completed the sale of all of Navigators Holdings (Europe) N.V., a Belgium holding company, and its subsidiaries, Bracht, Deckers & Mackelbert N.V. and Assurances Contintales Contintale Verzekeringen N.V., collectively referred to as "Continental Europe Operations". For further discussion of this transaction, see Note 22 - Business Dispositions.
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. Generally Accepted Accounting Principles”) which differ materially from the accounting practices prescribed by various insurance regulatory authorities.
Consolidation
The Consolidated Financial Statements include the accounts of The Hartford Financial Services Group, Inc., and entities in which the Company directly or indirectly has a controlling financial interest. Entities in which the Company has significant influence over the operating and financing decisions but does not control are reported using the equity method. Intercompany transactions and balances between The Hartford and its subsidiaries and affiliates have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The most significant estimates include those used in determining property and casualty and group long-term disability ("LTD") insurance product reserves, net of reinsurance; evaluation of goodwill for impairment; valuation of investments and derivative instruments; and contingencies relating to corporate litigation and regulatory matters.
Reclassifications
Certain reclassifications have been made to prior year financial information to conform to the current year presentation.
Adoption of New Accounting Standards
Reference Rate Reform
On March 12, 2020, the Company adopted the Financial Accounting Standard Board's ("FASB") temporary guidance, which allows The Hartford to account for contract modifications made solely due to rate reform (such as replacing London Inter-Bank Offered Rate ("LIBOR") with another reference rate) as continuations of existing contracts and to maintain hedge accounting when the hedging effectiveness between a financial instrument and its hedge is only affected by the change to a replacement rate. As a result, The Hartford did not recognize gains and losses during the transition period of LIBOR to an alternative reference rate that would otherwise have arisen from accounting assessments and remeasurements. On December 21, 2022, the FASB extended the effective date for the temporary guidance and the temporary guidance now expires for contract modifications made and hedge relationships entered into or evaluated after December 31, 2024. The Company is not required to measure the effect of adoption on its financial position, cash flows or net income because the guidance provides relief from accounting for the effects of the change to a replacement rate.
Reserve for Future Policy Benefits
On January 1, 2023, the Company adopted the FASB’s updated guidance on accounting for long duration insurance contracts, which was applied on a modified retrospective basis as of January 1, 2021.
The new guidance requires the discount rate assumption to be updated, as of the transition date and quarterly going forward, to a current upper-medium grade fixed-income investment yield, which has been interpreted to represent a yield based on single-A credit rated fixed maturity instruments with similar duration to the liability. The new guidance also eliminated the requirement to adjust the reserve for future policy benefits for unrealized gains and losses on fixed maturity investments as if those unrealized gains and losses were realized (referred to as shadow reserves). The change in the reserve estimate resulting from updating the discount rate assumptions and eliminating shadow reserves was recognized as a net cumulative effect adjustment that increased the reserve for future policy benefits by $85 and decreased AOCI by $65, net of deferred tax effects, as of January 1, 2021.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The new guidance also requires that underlying cash flow assumptions (i.e., mortality, lapse and expense) in the reserve for future policy benefits be based on best estimate assumptions. The adjustments to the reserve for future policy benefits at adoption resulted in establishing a deferred profit liability on limited pay contracts of $18 representing the estimated profits based on best estimate cash flow assumptions.
The effect of adopting this guidance on the Company’s reserve for future policy benefits was as follows:
| Impact of Adoption on Reserve for Future Policy Benefits | ||||||||||||||||||||
| Payout Annuities | Life Conversions | Paid-up Life | Deferred Profit Liability | Other | Total | |||||||||||||||
| Reserve for Future Policy Benefits as of December 31, 2020 | $ | 189 | $ | 94 | $ | 267 | $ | — | $ | 88 | $ | 638 | ||||||||
| Adjustments: | ||||||||||||||||||||
| Removal of shadow reserve [1] | (26) | — | — | — | — | (26) | ||||||||||||||
| Update cash flow assumptions and establish deferred profit liability | (16) | — | (2) | 18 | — | — | ||||||||||||||
| Effect of measurement at current single-A rate [1] | 59 | 21 | 29 | — | 2 | 111 | ||||||||||||||
| Total Adjustments | 17 | 21 | 27 | 18 | 2 | 85 | ||||||||||||||
| Reserve for Future Policy Benefits as of January 1, 2021 | 206 | 115 | 294 | 18 | 90 | 723 | ||||||||||||||
| Change in reserves due to changes in the single-A rate | (11) | (7) | (15) | — | — | (33) | ||||||||||||||
| Other changes in reserves | (7) | (14) | (17) | 2 | (8) | (44) | ||||||||||||||
| Reserve for Future Policy Benefits as of December 31, 2021 | $ | 188 | $ | 94 | $ | 262 | $ | 20 | $ | 82 | $ | 646 |
*[1]*These changes were reflected as an adjustment to opening AOCI as of January 1, 2021, with a corresponding deferred tax benefit and increase in reinsurance recoverables of $18 and $2, respectively, resulting in a net decrease to AOCI of $65.
The effect of adopting this guidance on the Company’s Consolidated Balance Sheets as of January 1, 2021 as well as December 31, 2022 and 2021, and Consolidated Statements of Operations and Consolidated Statements of Comprehensive
Income for the years ended December 31, 2022 and 2021 was as follows:
| Impact of Adoption on Consolidated Balance Sheets | |||||||||||||||||||||||||||||||||||
| As of December 31, 2022 | As of December 31, 2021 | As of January 1, 2021 | |||||||||||||||||||||||||||||||||
| As previously reported | Effect of change | As currently reported | As previously reported | Effect of change | As currently reported | Balance prior to adoption | Effect of change | As currently reported | |||||||||||||||||||||||||||
| Reinsurance recoverables | $ | 6,966 | $ | (2) | $ | 6,964 | $ | 6,523 | $ | 1 | $ | 6,524 | $ | 6,011 | $ | 2 | $ | 6,013 | |||||||||||||||||
| Deferred income taxes, net | $ | 1,449 | $ | (12) | $ | 1,437 | $ | 270 | $ | 11 | $ | 281 | $ | 46 | $ | 18 | $ | 64 | |||||||||||||||||
| Reserve for future policy benefits | $ | 561 | $ | (59) | $ | 502 | $ | 596 | $ | 50 | $ | 646 | $ | 638 | $ | 85 | $ | 723 | |||||||||||||||||
| Retained earnings | $ | 17,048 | $ | 10 | $ | 17,058 | $ | 15,764 | $ | 6 | $ | 15,770 | $ | 13,918 | $ | — | $ | 13,918 | |||||||||||||||||
| AOCI | $ | (3,876) | $ | 35 | $ | (3,841) | $ | 172 | $ | (44) | $ | 128 | $ | 1,170 | $ | (65) | $ | 1,105 | |||||||||||||||||
| Total stockholders' equity | $ | 13,631 | $ | 45 | $ | 13,676 | $ | 17,843 | $ | (38) | $ | 17,805 | $ | 18,556 | $ | (65) | $ | 18,491 |
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Impact of Adoption on Consolidated Statements of Operations | |||||||||||||||||||||||
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | ||||||||||||||||||||||
| As previously reported | Effect of change | As currently reported | As previously reported | Effect of change | As currently reported | ||||||||||||||||||
| Benefits, losses and loss adjustment expenses | $ | 13,142 | $ | (4) | $ | 13,138 | $ | 12,729 | $ | (9) | $ | 12,720 | |||||||||||
| Income before income taxes | $ | 2,258 | $ | 4 | $ | 2,262 | $ | 2,896 | $ | 9 | $ | 2,905 | |||||||||||
| Income tax expense | $ | 443 | $ | — | $ | 443 | $ | 531 | $ | 3 | $ | 534 | |||||||||||
| Net income | $ | 1,815 | $ | 4 | $ | 1,819 | $ | 2,365 | $ | 6 | $ | 2,371 | |||||||||||
| Net income available to common stockholders | $ | 1,794 | $ | 4 | $ | 1,798 | $ | 2,344 | $ | 6 | $ | 2,350 | |||||||||||
| Net income available to common stockholders per common share | |||||||||||||||||||||||
| Basic | $ | 5.52 | $ | 0.02 | $ | 5.54 | $ | 6.71 | $ | 0.02 | $ | 6.73 | |||||||||||
| Diluted | $ | 5.44 | $ | 0.02 | $ | 5.46 | $ | 6.62 | $ | 0.02 | $ | 6.64 |
| Impact of Adoption on Consolidated Statements of Comprehensive Income | |||||||||||||||||||||||
| Year Ended December 31, 2022 | Year Ended December 31, 2021 | ||||||||||||||||||||||
| As previously reported | Effect of change | As currently reported | As previously reported | Effect of change | As currently reported | ||||||||||||||||||
| Change in net unrealized gain (loss) on fixed maturities, AFS | $ | (4,210) | $ | (15) | $ | (4,225) | $ | (1,218) | $ | (6) | $ | (1,224) | |||||||||||
| Change in liability for future policy benefits adjustments | $ | — | $ | 94 | $ | 94 | $ | — | $ | 27 | $ | 27 | |||||||||||
| Other comprehensive loss, net of tax | $ | (4,048) | $ | 79 | $ | (3,969) | $ | (998) | $ | 21 | $ | (977) | |||||||||||
| Comprehensive income (loss) | $ | (2,233) | $ | 83 | $ | (2,150) | $ | 1,367 | $ | 27 | $ | 1,394 |
Future Adoption of New Accounting Standards
Segment Disclosures
The FASB issued new guidance on Segment Reporting that requires enhanced disclosures on an annual and quarterly basis about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within the reported measure of segment profit or loss. The new guidance also requires disclosure of the title and position of the CODM as well as a description of how the reported measure of profit or loss is used to assess segment performance and allocate resources. The Company is required to provide the new disclosures beginning with the December 31, 2024 consolidated financial statements and on a quarterly basis beginning with the March 31, 2025 interim condensed consolidated financial statements. The new guidance will be applied on a retrospective basis for all periods presented. The Company is evaluating the disclosure impact of the new guidance; however, the new guidance will not have an impact on the consolidated financial position, results of operations, or cash flows.
Income Tax Disclosures
The FASB issued new disclosure requirements for income taxes primarily for the income tax rate reconciliation and income taxes paid. The income tax rate reconciliation within the income taxes note will present reconciling items based on specified categories with further disaggregation of items above a prescribed threshold. Disclosure of income taxes paid (net of refunds received) in the consolidated statement of cash flows will be disaggregated by federal (national), state, and foreign taxes with further disaggregation by individual jurisdictions subject to a
prescribed threshold. The Company is required to provide the new disclosure annually beginning with the December 31, 2025 consolidated financial statements. Disclosures are required to be provided on a prospective basis. Early adoption in an annual period and retrospective application is permitted. The Company is evaluating the disclosure impact of the new guidance; however, the new guidance will not have an impact on the consolidated financial position, results of operations, or cash flows.
Significant Accounting Policies
The Company’s significant accounting policies are as follows:
Revenue Recognition
Premium Revenue from Direct Insurance and Assumed Reinsurance
Property and casualty premiums are earned on a pro rata basis over the policy period and include accruals for policies that have been written by agents but not yet reported to us, as well as ultimate premium revenue anticipated under auditable and retrospectively rated policies. We estimate the amount of premium not yet reported based on current and historical trends of the business being written. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year's results. Unearned premiums represent the premiums applicable to the unexpired terms of policies in force, or period of risk.
Group life, disability and accident premiums are generally due from policyholders and recognized as revenue on a pro rata basis over the period of the contracts.
An estimated ACL is recorded on the basis of periodic evaluations of balances due from insureds and considering
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
historical credit loss information, adjusted for current economic conditions as well as reasonable and supportable forecasts when appropriate. The Company records total credit loss expenses related to premiums receivable in insurance operating costs and other expenses. Write-offs of premiums receivable and agents' balances and any related ACL are recorded in the period in which the balance is deemed uncollectible. Refer to Note 7 - Premiums Receivable and Agents' Balances for further discussion regarding the allowance for doubtful accounts included in premiums receivable and agents’ balances.
Non-Insurance Revenue from Contracts with Customers
Installment fees are charged on property and casualty insurance contracts for billing the insurance customer in installments over the policy term. These fees are recognized in fee income as earned on collection.
Insurance servicing revenues within Personal Lines consist of up-front commissions earned for collecting premiums and processing claims on insurance policies for which The Hartford does not assume underwriting risk, predominantly related to the National Flood Insurance Plan program. These insurance servicing revenues are recognized in other revenues over the period of the flood program's policy terms.
Group Benefits earns fee income from employers for the administration of underwriting, implementation and claims processing for employer self-funded plans and for leave management services. Fees are recognized as services are provided and collected monthly.
Hartford Funds provides investment management, administrative and distribution services to mutual funds and exchange-traded funds. The Company assesses investment advisory, distribution and other asset management fees primarily based on the average daily net asset values from mutual funds and exchange-traded funds, which are recorded in the period in which the services are provided and are collected monthly. Fluctuations in domestic and international markets and related investment performance, volume and mix of sales and redemptions of mutual funds or exchange-traded funds, and other changes to the composition of assets under management ("AUM") are all factors that ultimately have a direct effect on fee income earned.
Corporate investment management and other fees are primarily for managing third party invested assets, including management of a portion of the invested assets of The Hartford’s former life and annuity business. These fees, calculated based on the average quarterly net asset values, are recorded in the period in which the services are provided and are collected quarterly. Fluctuations in markets and interest rates and other changes to the composition of assets under management are all factors that ultimately have a direct effect on fee income earned.
Dividends to Policyholders
Policyholder dividends are paid to certain property and casualty policyholders. Policies that receive dividends are referred to as participating policies. Participating dividends to policyholders are accrued and reported in insurance operating costs and other expenses and other liabilities using an estimate of the amount to
be paid based on underlying contractual obligations under policies and applicable state laws.
Net written premiums for participating property and casualty insurance policies represented 6%, 7%, and 7% of total net written premiums for each of the years ended December 31, 2023, 2022 and 2021, respectively. Participating dividends to property and casualty policyholders were $39, $29 and $24 for the years ended December 31, 2023, 2022 and 2021, respectively.
There were no additional amounts of income allocated to participating policyholders.
Investments
Overview
The Company’s investments in fixed maturities consist of bonds, including structured securities, and redeemable preferred stock. Most of these investments are classified as AFS and are carried at fair value. The after tax difference between fair value and cost or amortized cost is reflected in stockholders’ equity as a component of AOCI. Fixed maturities for which the Company elected the fair value option are classified as FVO and are carried at fair value with changes in value recorded in net realized gains and losses. These investments represent certain investments in residual interests of securitizations and other securities that contain embedded credit derivatives. Equity securities are measured at fair value with any changes in valuation reported in net realized gains and losses. Mortgage loans are recorded at the outstanding principal balance adjusted for amortization of premiums or discounts and net of an ACL. Short-term investments are carried at amortized cost, which approximates fair value. Limited partnerships and other alternative investments are reported at their carrying value and are primarily accounted for under the equity method with the Company’s share of earnings included in net investment income. Recognition of income related to limited partnerships and other alternative investments is delayed due to the availability of the related financial information, as private equity and other funds are generally received on a three-month delay. Accordingly, income for the years ended December 31, 2023, 2022, and 2021 may not include the full impact of current year changes in valuation of the underlying assets and liabilities of the funds, which are generally obtained from the limited partnerships. Other investments primarily consist of equity fund investments, overseas deposits which are measured at fair value using the net asset value as a practical expedient, consolidated investment funds for which the Company has provided seed money and reports the underlying investments at fair value with changes in the fair value recognized in income consistent with accounting requirements for investment companies, and derivative instruments which are carried at fair value.
Net Realized Gains and Losses
Net realized gains and losses from investment sales are reported as a component of revenues and are determined on a specific identification basis. Net realized gains and losses also result from fair value changes in equity securities, fixed maturities, FVO, and derivatives contracts that do not qualify, or are not designated, as a hedge for accounting purposes. The Company records net credit losses on fixed maturities, AFS and
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
changes in the ACL on mortgage loans as a component of net realized gains and losses. Future changes in the ACL resulting from improvements in expected future cash flows are recorded through net realized gains and losses.
Net Investment Income
Interest income from fixed maturities and mortgage loans is recognized when earned on the constant effective yield method based on the estimated timing of cash flows. Most premiums and discounts on fixed maturities are amortized to the maturity date. Premiums on callable bonds may be amortized to call dates based on call prices. For structured financial assets subject to prepayment risk, yields are recalculated and adjusted periodically to reflect historical and/or estimated future prepayments using the retrospective method. For certain other structured securities, including securities that previously had an ACL and interest only securities, any yield adjustments are made using the prospective method. Prepayment fees and make-whole payments on fixed maturities and mortgage loans are recorded in net investment income when earned. For equity securities, dividends are recognized as investment income on the ex-dividend date. Limited partnerships and other alternative investments primarily use the equity method of accounting to recognize the Company’s share of earnings. For fixed maturities with an ACL, net investment income is recognized at the original effective rate and accretion of the ACL is recognized through net realized gains and losses. The Company’s non-income producing investments were not material for the years ended December 31, 2023, 2022 and 2021.
Accrued Investment Income
Accrued investment income primarily includes accruals of interest and dividend income from investments that have been earned but not yet received.
Derivative Instruments
Overview
The Company utilizes a variety of over-the-counter ("OTC") derivatives, derivatives cleared through central clearing houses ("OTC-cleared") and exchange traded derivative instruments as part of its overall risk management strategy as well as to engage in income generation covered call transactions and replication transactions. The types of instruments may include swaps, caps, floors, forwards, futures and options to achieve the following Company-approved objectives:
-
to hedge risk arising from interest rate, equity market, commodity market, credit spread and issuer default, price or currency exchange rates or volatility;
-
to manage liquidity;
-
to control transaction costs;
-
to enter into income generation covered call transactions and synthetic replication transactions.
Interest rate and credit default swaps involve the periodic exchange of cash flows with other parties, at specified intervals, calculated using agreed upon rates or other financial variables and notional principal amounts. Generally, little to no cash or principal payments are exchanged at the inception of the contract. Typically, at the time a swap is entered into, the cash
flow streams exchanged by the counterparties are equal in value.
The Company clears certain interest rate swap and credit default swap derivative transactions through central clearing houses. OTC-cleared derivatives require initial collateral at the inception of the trade in the form of cash or highly liquid securities, such as U.S. Treasuries and government agency investments. Central clearing houses also require additional cash as variation margin based on daily market value movements. For information on collateral, see the Derivative Collateral Arrangements section in Note 6 - Derivatives. In addition, OTC-cleared transactions include price alignment amounts either received or paid on the variation margin, which is characterized as interest and reflected in net investment income.
Forward contracts are customized commitments that specify a rate of interest or currency exchange rate to be paid or received on an obligation beginning on a future start date and are typically settled in cash.
Financial futures are standardized commitments to either purchase or sell designated financial instruments, at a future date, for a specified price and may be settled in cash or through delivery of the underlying instrument. Futures contracts trade on organized exchanges. Margin requirements for futures are met by pledging securities or cash, and changes in the futures’ contract values are settled daily in cash.
Option contracts grant the purchaser, for a premium payment, the right to either purchase from or sell to the issuer a financial instrument at a specified price, within a specified period or on a stated date. The contracts may reference commodities, which grant the purchaser the right to either purchase from or sell to the issuer commodities at a specified price, within a specified period or on a stated date. Option contracts are typically settled in cash.
Foreign currency swaps exchange an initial principal amount in two currencies, agreeing to re-exchange the currencies at a future date, at an agreed upon exchange rate. There may also be a periodic exchange of payments at specified intervals calculated using the agreed upon rates and exchanged principal amounts.
The Company’s derivative transactions conducted in insurance company subsidiaries are used in strategies permitted under the derivative use plans required by the State of Connecticut, the State of Illinois and the State of New York insurance regulators.
Accounting and Financial Statement Presentation of Derivative Instruments and Hedging Activities
Derivative instruments are recognized on the Consolidated Balance Sheets at fair value and are reported in Other Investments and Other Liabilities. For balance sheet presentation purposes, the Company has elected to offset the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty or
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
under a master netting agreement, which provides the Company with the legal right of offset.
On the date the derivative contract is entered into, the Company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability (“fair value” hedge), (2) a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset or liability (“cash flow” hedge), (3) a hedge of a net investment in a foreign operation (“net investment” hedge) or (4) held for other investment and/or risk management purposes, which primarily involve managing asset or liability related risks and do not qualify for hedge accounting. The Company currently does not designate any derivatives as fair value or net investment hedges.
Cash Flow Hedges - Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge, including foreign-currency cash flow hedges, are recorded in AOCI and are reclassified into earnings when the variability of the cash flow of the hedged item impacts earnings. Gains and losses on derivative contracts that are reclassified from AOCI to current period earnings are included in the line item in the Consolidated Statements of Operations in which the cash flows of the hedged item are recorded. Periodic derivative net coupon settlements are recorded in the line item of the Consolidated Statements of Operations in which the cash flows of the hedged item are recorded. Cash flows from cash flow hedges are presented in the same category as the cash flows from the items being hedged in the Consolidated Statement of Cash Flows.
Other Investment and/or Risk Management Activities - The Company’s other investment and/or risk management activities primarily relate to strategies used to reduce economic risk or replicate permitted investments and do not receive hedge accounting treatment. Changes in the fair value, including periodic derivative net coupon settlements, of derivative instruments held for other investment and/or risk management purposes are reported in current period earnings as net realized gains and losses.
Hedge Documentation and Effectiveness Testing
To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated changes in fair value or cash flows of the hedged item. At hedge inception, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction. The documentation process includes linking derivatives that are designated as fair value, cash flow, or net investment hedges to specific assets or liabilities on the balance sheet or to specific forecasted transactions and defining the effectiveness testing methods to be used. The Company also formally assesses both at the hedge’s inception and ongoing on a quarterly basis, whether the derivatives that are used in hedging transactions have been and are expected to continue to be highly effective in offsetting changes in fair values, cash flows or net investment in foreign operations of hedged items. Hedge effectiveness is assessed primarily using quantitative methods as well as using qualitative methods. Quantitative methods include regression or other statistical analysis of changes in fair value or cash flows associated with the hedge relationship. Qualitative methods may
include comparison of critical terms of the derivative to the hedged item.
Discontinuance of Hedge Accounting
The Company discontinues hedge accounting prospectively when (1) it is determined that the qualifying criteria are no longer met; (2) the derivative is no longer designated as a hedging instrument; or (3) the derivative expires or is sold, terminated or exercised.
When cash flow hedge accounting is discontinued because the Company becomes aware that it is not probable that the forecasted transaction will occur, the derivative continues to be carried on the balance sheet at its fair value, and gains and losses that were accumulated in AOCI are recognized immediately in earnings.
In other situations in which hedge accounting is discontinued, including those where the derivative is sold, terminated or exercised, amounts previously deferred in AOCI are reclassified into earnings when earnings are impacted by the hedged item.
Embedded Derivatives
The Company may purchase investments that contain embedded derivative instruments. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, which is reported with the host instrument in the Consolidated Balance Sheets, is carried at fair value with changes in fair value reported in net realized gains and losses.
Credit Risk of Derivative Instruments
Credit risk is defined as the risk of financial loss due to uncertainty of an obligor’s or counterparty’s ability or willingness to meet its obligations in accordance with agreed upon terms. Credit exposures are measured using the market value of the derivatives, resulting in amounts owed to the Company by its counterparties or potential payment obligations from the Company to its counterparties. The Company generally requires that OTC derivative contracts, other than certain forward contracts, be governed by International Swaps and Derivatives Association agreements which are structured by legal entity and by counterparty, and permit right of offset. Some agreements require daily collateral settlement based upon agreed upon thresholds. For purposes of daily derivative collateral maintenance, credit exposures are generally quantified based on the prior business day’s market value and collateral is pledged to and held by, or on behalf of, the Company to the extent the current value of the derivatives is greater than zero, subject to minimum transfer thresholds, if applicable. The Company also minimizes the credit risk of derivative instruments by entering into transactions with high quality counterparties primarily rated A or better, which are monitored and evaluated by the Company’s risk management team and reviewed by senior management. OTC-cleared derivatives are governed by clearing house rules. Transactions cleared through a central clearing house reduce risk due to their ability to require daily variation margin and act as an independent valuation source. In addition, the Company monitors counterparty credit exposure on
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
a monthly basis to ensure compliance with Company policies and statutory limitations.
Cash and Restricted Cash
Cash represents cash on hand and demand deposits with banks or other financial institutions. Restrictions on cash primarily relate to funds that are held to support regulatory and contractual obligations.
Reinsurance
The Company cedes insurance to affiliated and unaffiliated insurers in order to limit its maximum losses and to diversify its exposures and provide statutory surplus relief. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company also assumes reinsurance from other insurers and is a member of and participates in reinsurance pools and associations. Assumed reinsurance refers to the Company’s acceptance of certain insurance risks that other insurance companies or pools have underwritten.
Reinsurance accounting is followed for ceded and assumed transactions that provide indemnification against loss or liability relating to insurance risk (i.e., risk transfer). To meet risk transfer requirements, a reinsurance agreement must include insurance risk, consisting of underwriting and timing risk, and a reasonable possibility of a significant loss to the reinsurer. If the ceded and assumed transactions do not meet risk transfer requirements, the Company accounts for these transactions as deposit transactions. The Company had no deposit liability as of December 31, 2023 and 2022, reported in other liabilities.
Premiums, benefits, losses and loss adjustment expenses reflect the net effects of ceded and assumed reinsurance transactions. Included in other assets are prepaid reinsurance premiums, which represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts. Reinsurance recoverables are balances due from reinsurers for ceded paid and unpaid losses and loss adjustment expenses and are presented net of an allowance for uncollectible reinsurance. Changes in the allowance for uncollectible reinsurance are reported in benefits, losses and loss adjustment expenses in the Company's Consolidated Statements of Operations.
The Company periodically evaluates the recoverability of its reinsurance recoverable assets and establishes an allowance for uncollectible reinsurance. The allowance for uncollectible reinsurance reflects management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance or charge off reinsurer balances that are determined to be uncollectible. The Company records credit losses related to reinsurance recoverables in benefits, losses and loss adjustment expenses. Write-offs of reinsurance recoverables and any related ACL are recorded in the period in which the balance is deemed
uncollectible. Expected recoveries are included in the estimate of the ACL.
Retroactive reinsurance agreements, including adverse development covers ("ADC"), are reinsurance agreements under which our reinsurer agrees to reimburse us as a result of loss development related to past insurable events. For these agreements, the consideration paid in excess of the estimated ultimate losses to be recovered under the agreement at inception is recognized as a loss on reinsurance transaction. The benefit of subsequent adverse development ceded up to the total consideration paid is recognized as ceded losses, which are a reduction of incurred losses and loss adjustment expenses. The excess of the estimated amounts ultimately to be recovered under the agreement over the consideration paid is recognized as a deferred gain liability and amortized into income over the period the ceded losses are recovered in cash from the reinsurer. The amount of the deferred gain liability is recalculated each period based on cumulative recoveries not yet collected relative to the latest estimate of ultimate losses to be recovered. Ceded loss reserves under retroactive agreements were $1.7 billion and $1.5 billion, and the deferred gain liability reported in other liabilities was $997 and $803, as of December 31, 2023 and 2022, respectively. In any given period, the change in deferred gain included in net income includes amortization of the deferred gain based on the percentage of ultimate ceded losses collected plus any change in the deferred gain liability due to changes in the estimated ultimate losses to be recovered. The effect on income from change in the deferred gain was a charge to earnings of $194, $229 and $246 before tax for the years ended December 31, 2023, 2022, and 2021 respectively.
Deferred Policy Acquisition Costs
DAC represents costs that are directly related to the acquisition of new and renewal insurance contracts and incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or in compensation to employees. Such costs primarily include commissions, premium taxes, costs and certain other expenses that are directly related to successfully issued contracts, including a portion of policy issuance and underwriting costs.
For P&C insurance products and group life, disability and accident contracts, costs are deferred and amortized ratably over the period the related premiums are earned. Deferred acquisition costs are reviewed to determine if they are recoverable from future income, and if not, are charged to expense. Anticipated investment income is considered in the determination of the recoverability of DAC.
Income Taxes
The Company recognizes taxes payable or refundable for the current year and deferred taxes for the tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse. A deferred tax provision is recorded for the tax effects of temporary differences between the Company's current taxable income and its income before tax under generally accepted accounting principles in the Consolidated
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Statements of Operations. For deferred tax assets, the Company records a valuation allowance that is adequate to reduce the total deferred tax asset to an amount that will more likely than not be realized.
Goodwill
Goodwill represents the excess of the cost to acquire a business over the acquisition date fair value of net assets acquired. Goodwill is not amortized but is reviewed for impairment at least annually or more frequently if events occur or circumstances change that would indicate that a triggering event for a potential impairment has occurred. Goodwill is tested for impairment by comparing the fair value of a reporting unit to its carrying value. Goodwill is impaired up to the amount that the carrying value of the reporting unit exceeds the fair value. A reporting unit is defined as an operating segment or one level below an operating segment. The Company’s reporting units, for which goodwill has been allocated consist of Commercial Lines, Personal Lines, Group Benefits, and Hartford Funds.
Management’s determination of the fair value of each reporting unit incorporates multiple inputs into discounted cash flow calculations, including assumptions that market participants would make in valuing the reporting unit. Assumptions include levels of economic capital required to support the business, future business growth, earnings projections, the weighted average cost of capital used for purposes of discounting and, for the Hartford Funds segment, assets under management. Decreases in business growth, decreases in earnings projections and increases in the weighted average cost of capital will all cause a reporting unit’s fair value to decrease, increasing the possibility of impairments.
Intangible Assets
Acquired intangible assets on the Consolidated Balance Sheets include purchased customer relationship and agency or other distribution rights and licenses measured at fair value at acquisition. The Company amortizes finite-lived other intangible assets over their useful lives generally on a straight-line basis over the period of expected benefit, ranging from 1 to 15 years. Management revises amortization periods if it believes there has been a change in the length of time that an intangible asset will continue to have value. Indefinite-lived intangible assets are not subject to amortization. Intangible assets are assessed for impairment generally when events or circumstances indicate a potential impairment and at least annually for indefinite-lived intangibles. Finite-lived intangible assets are impaired if the carrying amount is not recoverable from undiscounted cash flows. Indefinite-lived intangible assets are impaired if the carrying amount exceeds fair value. Impaired intangible assets are written down to fair value.
Property and Equipment
Property and equipment, which includes capitalized software and right-of-use lease assets, is carried at cost net of accumulated depreciation. Depreciation is based on the estimated useful lives of the various classes of property and equipment and is recognized principally on the straight-line method. Accumulated depreciation was $2.4 billion and $2.3 billion as of December 31, 2023 and 2022, respectively. Depreciation expense was $204, $213, and $282 for the years
ended December 31, 2023, 2022 and 2021, respectively, and is reported in insurance operating costs and other expenses. The costs to access and develop hosted software arrangements, where The Hartford has the right to access and use the software, but not take possession, and the cost of certain software licenses are reported in other assets on a straight-line basis over the service period. Amortization of hosted software and certain software licenses was $85, $78, and $60 for the years ended December 31, 2023, 2022, and 2021, respectively, and is reported in insurance operating costs and other expenses.
Leases
Leases are classified as financing or operating leases. Where the lease is economically similar to a purchase because The Hartford obtains control of the underlying asset, the lease is classified as a financing lease and the Company recognizes amortization of the right of use asset and interest expense on the liability. Where the lease is not economically similar to a purchase as the lease provides The Hartford with only the right to control the use of the underlying asset over the lease term and the lease term is greater than one year, the lease is an operating lease and the lease cost is recognized as rental expense over the lease term on a straight-line basis. Leases with a term of one year or less are also expensed over the lease term but not recognized on the Consolidated Balance Sheets.
Unpaid Losses and Loss Adjustment Expenses
For property and casualty and group life, disability and accident insurance and assumed reinsurance products, the Company establishes reserves for unpaid losses and loss adjustment expenses to provide for the estimated costs of paying claims under insurance policies written by the Company. These reserves include estimates for both claims that have been reported and those that have not yet been reported, and include estimates of all losses and loss adjustment expenses associated with processing and settling these claims. Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process. This estimation process is based significantly on the assumption that past developments are an appropriate predictor of future events, and involves a variety of actuarial techniques that analyze experience, trends and other relevant factors. The effects of inflation are implicitly considered in the reserving process. In addition, a number of complex factors influence the uncertainties involved with the reserving process including social and economic trends and changes in the concepts of legal liability and damage awards. Accordingly, final claim settlements may vary from the present estimates, particularly when those payments may not occur until well into the future. The Company regularly reviews the adequacy of its estimated losses and loss adjustment expense reserves by reserve line within the various reporting segments. Adjustments to previously established reserves are reflected in the operating results of the period in which the adjustment is determined to be necessary. Such adjustments could possibly be significant, reflecting any variety of new and adverse or favorable trends.
Most of the Company’s property and casualty insurance products reserves are not discounted. However, the Company
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 1 - Basis of Presentation and Significant Accounting Policies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
has discounted to present value certain reserves for indemnity payments that are due to claimants under workers’ compensation policies because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The discount rate is based on the risk free rate for the expected claim duration as determined in the year the claims were incurred. The Company also has discounted liabilities for structured settlement agreements that provide fixed periodic payments to claimants. These structured settlements include annuities purchased to fund unpaid losses for permanently disabled claimants. These structured settlement liabilities are discounted to present value using the rate implicit in the purchased annuities and the purchased annuities are accounted for within reinsurance recoverables.
Group life and disability contracts with long-tail claim liabilities are discounted because the payment pattern and the ultimate costs are reasonably fixed and determinable on an individual claim basis. The discount rates are estimated based on investment yields expected to be earned on the cash flows net of investment expenses and expected credit losses. The Company establishes discount rates for these reserves in the year the claims are incurred (the incurral year) which is when the estimated settlement pattern is determined. The discount rate for life and disability reserves acquired from Aetna's U.S. group life and disability business were based on interest rates in effect at the acquisition date of November 1, 2017.
For further information about how unpaid losses and loss adjustment expenses are established, see Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses.
Reserve for Future Policy Benefits
The Company’s reserves for future policy benefits includes paid-up life insurance and whole-life policies resulting from conversion from group life policies included within the Group Benefits segment and reserves for run-off structured settlement and terminal funding agreement liabilities, which are reported in the Corporate category.
Contracts are grouped into cohorts by contract type and issue year. The Company establishes reserves for future policy benefits using the net premium approach, which represents the present value of future policyholder benefits and related expenses less the present value of future net premiums. Net premiums are calculated by multiplying gross premiums for the contracts in a specific cohort by a net premium ratio. The net premium ratio is determined for the lifetime of a given cohort as the present value of net benefits divided by the present value of gross premiums. Related expenses include termination and settlement costs and exclude acquisition costs and non-claim related costs, such as costs relating to investments, general administration, policy maintenance, product development, market research and general overhead or any other costs, which are expensed as incurred.
The Company estimates premiums, benefits and related expense cash flows using methods that include assumptions, such as estimates of mortality, lapse, and claim-related expenses, and the possible impact of inflation on those expenses. Benefits include all guaranteed cash flows to be paid to the policyholder.
The reserve for future policy benefits is adjusted for differences between actual and expected experience. Each quarter, the Company updates its estimates of cash flows expected over the life of a group of contracts using actual historical experience. These updated cash flows are used to calculate the revised net premiums and net premium ratio, which are used to derive an updated reserve for future policy benefits. In subsequent periods, the revised net premiums are used to measure the reserve for future policy benefits, subject to future revisions. Future cash flow assumptions, including mortality, lapse and expense are reviewed and, if a change is indicated, updated at least annually in the third quarter.
The difference between the newly calculated reserve balance and the reserve balance before updating for actual experience and/or future cash flow assumptions is the remeasurement gain or loss, which is immaterial for each of the years ended December 31, 2023, 2022 and 2021 is presented in benefits losses and loss adjustments expense in the Consolidated Statements of Operations. Changes to the reserve due to updates to cash flow assumptions discounted at the discount rate used immediately prior to transition are recognized on a catch-up basis in the Consolidated Statement of Operations.
The discount rate assumption is an equivalent single rate that is based on a current market observable, upper-medium grade fixed maturity yield. This has been interpreted to represent a yield based on single-A credit rated fixed maturity instruments with similar duration to the liability. The Company uses the yield of a market observable index of single-A credit rated fixed maturities as the basis for setting the discount rate. The discount rate assumption is updated quarterly and the change in the reserve estimate resulting from updating the discount rate assumption is recognized in other comprehensive income.
Treasury Stock
Treasury stock is the cost of common stock repurchased, which includes the purchase price of shares acquired and direct costs to acquire shares, including commissions and excise taxes. Issuance and retirement of treasury stock is recognized at the average cost of shares held in treasury.
Foreign Currency
Foreign currency translation gains and losses are reflected in stockholders’ equity as a component of AOCI. The Company’s foreign subsidiaries’ balance sheet accounts are translated at the exchange rates in effect at each year end and income statement accounts are translated at the average rates of exchange prevailing during the year. The national currencies of the international operations are generally their functional currencies; however, the U.S. dollar is the functional currency of Lloyd's Syndicate 1221 ("Lloyd's Syndicate"), for which the Company is the sole corporate member. Gains and losses resulting from the remeasurement of foreign currency transactions are reflected in earnings in net realized gains (losses) in the period in which they occur.
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| Table of Contents | Index to Consolidated Financial Statements and Schedules | |||||||
| Note 2 - Earnings Per Common Share |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. EARNINGS PER COMMON SHARE
Computation of Basic and Diluted Earnings per Common Share
| For the years ended December 31, | |||||||||||||||||
| (In millions, except for per share data) | 2023 | 2022 | 2021 | ||||||||||||||
| Earnings | |||||||||||||||||
| Net income | $ | 2,504 | $ | 1,819 | $ | 2,371 | |||||||||||
| Less: Preferred stock dividends | 21 | 21 | 21 | ||||||||||||||
| Net income available to common stockholders | $ | 2,483 | $ | 1,798 | $ | 2,350 | |||||||||||
| Shares | |||||||||||||||||
| Weighted average common shares outstanding, basic | 307.1 | 324.8 | 349.1 | ||||||||||||||
| Dilutive effect of stock-based awards under compensation plans | 4.4 | 4.7 | 5.0 | ||||||||||||||
| Weighted average common shares outstanding and dilutive potential common shares [1] | 311.5 | 329.5 | 354.1 | ||||||||||||||
| Net income available to common stockholders per common share | |||||||||||||||||
| Basic | $ | 8.09 | $ | 5.54 | $ | 6.73 | |||||||||||
| Diluted | $ | 7.97 | $ | 5.46 | $ | 6.64 | |||||||||||
*[1]*For additional information, see Note 16 - Equity and Note 20 - Stock Compensation Plans.
Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the year. Diluted earnings per common share includes the dilutive effect of stock-based awards under compensation plans.
Under the treasury stock method, for stock-based awards, shares are assumed to be issued and then reduced for the number of shares repurchasable with theoretical proceeds at the average market price for the period. Contingently issuable shares are included for the number of shares issuable assuming the end of the reporting period was the end of the contingency period, if dilutive.
3. SEGMENT INFORMATION
The Company currently conducts business principally in five reporting segments including Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits and Hartford Funds, as well as a Corporate category.
Over 95% of the Company’s revenues are generated in the United States (“U.S.”). The remaining revenues are generated in the U.K. and other international locations.
We report our results of operations consistent with the manner in which our chief operating decision maker ("CODM") reviews the business to assess performance, make operating decisions and allocate resources. The Company’s reporting segments, as well as the Corporate category, are as follows:
Commercial Lines
Commercial Lines provides a variety of insurance products and risk management services in the U.S. and internationally, with insurance coverages including workers’ compensation, property, automobile, general liability, umbrella, package business, professional liability, bond, marine, livestock, accident and health, and assumed reinsurance.
Personal Lines
Personal Lines provides standard automobile, homeowners and personal umbrella coverages to individuals across the U.S., including a special program designed exclusively for members of AARP. This agreement provides an important competitive advantage given the size of the 50 plus population and the
strength of the AARP brand, and is in place through December 31, 2032.
Property & Casualty Other Operations
Property & Casualty Other Operations includes certain property and casualty operations, managed by the Company, that have discontinued writing new business and includes substantially all of the Company’s asbestos and environmental ("A&E") exposures.
Group Benefits
Group Benefits provides employers and associations with group life, accident and disability coverage, along with other products and services, including voluntary benefits, and group retiree health.
Hartford Funds
Hartford Funds offers investment products for retail and retirement accounts and provides investment management, distribution and administrative services such as product design, implementation and oversight. This business also manages a portion of the mutual funds which support third-party life and annuity separate accounts.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 3 - Segment Information |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Corporate
The Company includes in the Corporate category reserves for run-off structured settlement and terminal funding agreement liabilities, restructuring costs, capital raising activities (including equity financing, debt financing and related interest expense), transaction expenses incurred in connection with an acquisition, certain M&A costs, purchase accounting adjustments related to goodwill and other expenses not allocated to the reporting segments. Interest expense of $199, $213 and $234, on debt for the years ended December 31, 2023, 2022 and 2021, respectively, is included in the Corporate category for segment reporting. Corporate also includes investment management fees and expenses related to managing third party assets. Talcott Resolution Life, Inc. is the holding company of the life and annuity business that we sold in May 2018. Up until June 30, 2021, Corporate included a 9.7% ownership interest in Hopmeadow Holdings LP, the legal entity that acquired Talcott Resolution in May 2018 (Hopmeadow Holdings, LP, Talcott Resolution Life Inc., and its subsidiaries are collectively referred to as "Talcott Resolution"). Refer to Note 5 - Investments for additional information.
Financial Measures and Other Segment Information
Certain transactions between segments occur during the year that primarily relate to tax settlements, insurance coverage, expense reimbursements, services provided, investment transfers and capital contributions. In addition, certain inter-segment transactions occur that relate to interest income on allocated surplus. Consolidated net income is unaffected by such transactions.
Revenues
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Earned premiums and fee income: | |||||||||||
| Commercial Lines | |||||||||||
| Workers’ compensation | $ | 3,670 | $ | 3,499 | $ | 3,172 | |||||
| General liability | 1,977 | 1,836 | 1,622 | ||||||||
| Marine | 256 | 235 | 228 | ||||||||
| Package business | 2,076 | 1,844 | 1,665 | ||||||||
| Property | 1,053 | 845 | 829 | ||||||||
| Professional liability | 787 | 737 | 655 | ||||||||
| Bond | 321 | 303 | 287 | ||||||||
| Assumed reinsurance | 615 | 467 | 328 | ||||||||
| Automobile | 927 | 844 | 789 | ||||||||
| Total Commercial Lines | 11,682 | 10,610 | 9,575 | ||||||||
| Personal Lines | |||||||||||
| Automobile | 2,156 | 2,047 | 2,059 | ||||||||
| Homeowners | 961 | 932 | 927 | ||||||||
| Total Personal Lines [1] | 3,117 | 2,979 | 2,986 | ||||||||
| Property & Casualty Other Operations | — | — | — | ||||||||
| Group Benefits | |||||||||||
| Group disability | 3,530 | 3,310 | 2,983 | ||||||||
| Group life | 2,583 | 2,393 | 2,388 | ||||||||
| Other | 402 | 354 | 316 | ||||||||
| Total Group Benefits | 6,515 | 6,057 | 5,687 | ||||||||
| Hartford Funds | |||||||||||
| Mutual fund and ETF | 900 | 964 | 1,094 | ||||||||
| Third-party life and annuity separate accounts [2] | 73 | 80 | 95 | ||||||||
| Total Hartford Funds | 973 | 1,044 | 1,189 | ||||||||
| Corporate | 39 | 49 | 50 | ||||||||
| Total earned premiums and fee income | 22,326 | 20,739 | 19,487 | ||||||||
| Total net investment income | 2,305 | 2,177 | 2,313 | ||||||||
| Net realized gains (losses) | (188) | (627) | 509 | ||||||||
| Other revenues | 84 | 73 | 81 | ||||||||
| Total revenues | $ | 24,527 | $ | 22,362 | $ | 22,390 |
*[1]*For 2023, 2022 and 2021, AARP members accounted for earned premiums of $2.9 billion, $2.7 billion and $2.7 billion, respectively.
*[2]*Represents revenues earned for investment advisory services on third party life and annuity separate account AUM by the Company's Hartford Funds segment.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 3 - Segment Information |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net Income (Loss)
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Commercial Lines | $ | 2,085 | $ | 1,624 | $ | 1,757 | |||||
| Personal Lines | (39) | 91 | 385 | ||||||||
| Property & Casualty Other Operations | (130) | (190) | (95) | ||||||||
| Group Benefits | 535 | 327 | 256 | ||||||||
| Hartford Funds | 174 | 162 | 217 | ||||||||
| Corporate | (121) | (195) | (149) | ||||||||
| Net income | 2,504 | 1,819 | 2,371 | ||||||||
| Preferred stock dividends | 21 | 21 | 21 | ||||||||
| Net income available to common stockholders | $ | 2,483 | $ | 1,798 | $ | 2,350 |
Net Investment Income
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Commercial Lines | $ | 1,532 | $ | 1,415 | $ | 1,502 | |||||
| Personal Lines | 171 | 140 | 157 | ||||||||
| Property & Casualty Other Operations | 69 | 63 | 75 | ||||||||
| Group Benefits | 469 | 524 | 550 | ||||||||
| Hartford Funds | 17 | 9 | 5 | ||||||||
| Corporate | 47 | 26 | 24 | ||||||||
| Net investment income | $ | 2,305 | $ | 2,177 | $ | 2,313 |
Amortization of DAC
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Commercial Lines | $ | 1,779 | $ | 1,563 | $ | 1,398 | |||||
| Personal Lines | 231 | 228 | 230 | ||||||||
| Group Benefits | 34 | 33 | 40 | ||||||||
| Total amortization of DAC | $ | 2,044 | $ | 1,824 | $ | 1,668 |
Amortization of Other Intangible Assets
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Commercial Lines | $ | 29 | $ | 29 | $ | 29 | |||||
| Personal Lines | 2 | 2 | 2 | ||||||||
| Group Benefits | 40 | 40 | 40 | ||||||||
| Total amortization of other intangible assets | $ | 71 | $ | 71 | $ | 71 |
Income Tax Expense (Benefit)
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Commercial Lines | $ | 502 | $ | 426 | $ | 402 | |||||
| Personal Lines | (15) | 22 | 95 | ||||||||
| Property & Casualty Other Operations | (36) | (52) | (28) | ||||||||
| Group Benefits | 133 | 75 | 56 | ||||||||
| Hartford Funds | 45 | 41 | 56 | ||||||||
| Corporate | (45) | (69) | (47) | ||||||||
| Total income tax expense | $ | 584 | $ | 443 | $ | 534 |
Assets
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Commercial Lines | $ | 49,711 | $ | 47,234 | ||||
| Personal Lines | 5,579 | 5,130 | ||||||
| Property & Casualty Other Operations | 4,235 | 3,897 | ||||||
| Group Benefits | 13,697 | 13,278 | ||||||
| Hartford Funds | 684 | 635 | ||||||
| Corporate | 2,874 | 2,834 | ||||||
| Total assets | $ | 76,780 | $ | 73,008 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 3 - Segment Information |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Non-Insurance Revenue from Contracts with Customers
| For the years ended December 31, | |||||||||||||||||||||||
| Revenue Line Item | 2023 | 2022 | 2021 | ||||||||||||||||||||
| Commercial Lines | |||||||||||||||||||||||
| Installment billing fees | Fee income | $ | 41 | $ | 39 | $ | 34 | ||||||||||||||||
| Personal Lines | |||||||||||||||||||||||
| Installment billing fees | Fee income | 30 | 30 | 32 | |||||||||||||||||||
| Insurance servicing revenues | Other revenues | 81 | 73 | 80 | |||||||||||||||||||
| Group Benefits | |||||||||||||||||||||||
| Administrative services | Fee income | 217 | 187 | 183 | |||||||||||||||||||
| Hartford Funds | |||||||||||||||||||||||
| Advisory, servicing and distribution fees | Fee income | 973 | 1,044 | 1,189 | |||||||||||||||||||
| Corporate | |||||||||||||||||||||||
| Investment management and other fees | Fee income | 39 | 49 | 50 | |||||||||||||||||||
| Other | Other revenues | 1 | 1 | 1 | |||||||||||||||||||
| Total non-insurance revenues with customers | $ | 1,382 | $ | 1,423 | $ | 1,569 |
4. FAIR VALUE MEASUREMENTS
The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs.
The fair value hierarchy levels are as follows:
Level 1 Fair values based primarily on unadjusted quoted prices for identical assets or liabilities, in active markets that the Company has the ability to access at the measurement date.
Level 2 Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.
Level 3 Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.
The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2023 | ||||||||||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Assets accounted for at fair value on a recurring basis | ||||||||||||||
| Fixed maturities, AFS | ||||||||||||||
| Asset-backed securities ("ABS") | $ | 3,320 | $ | — | $ | 3,320 | $ | — | ||||||
| Collateralized loan obligations ("CLO") | 3,090 | — | 2,977 | 113 | ||||||||||
| Commercial mortgage-backed securities ("CMBS") | 3,125 | — | 2,898 | 227 | ||||||||||
| Corporate | 17,866 | — | 16,005 | 1,861 | ||||||||||
| Foreign government/government agencies | 562 | — | 562 | — | ||||||||||
| Municipal | 6,039 | — | 6,039 | — | ||||||||||
| Residential mortgage-backed securities ("RMBS") | 4,287 | — | 4,251 | 36 | ||||||||||
| U.S. Treasuries | 1,529 | 18 | 1,511 | — | ||||||||||
| Total fixed maturities, AFS | 39,818 | 18 | 37,563 | 2,237 | ||||||||||
| Fixed maturities, FVO | 327 | — | 160 | 167 | ||||||||||
| Equity securities, at fair value | 864 | 333 | 473 | 58 | ||||||||||
| Derivative assets | ||||||||||||||
| Credit derivatives | (10) | — | (10) | — | ||||||||||
| Foreign exchange derivatives | 9 | — | 9 | — | ||||||||||
| Total derivative assets [1] | (1) | — | (1) | — | ||||||||||
| Short-term investments | 3,850 | 1,400 | 2,425 | 25 | ||||||||||
| Total assets accounted for at fair value on a recurring basis | $ | 44,858 | $ | 1,751 | $ | 40,620 | $ | 2,487 | ||||||
| Liabilities accounted for at fair value on a recurring basis | ||||||||||||||
| Derivative liabilities | ||||||||||||||
| Credit derivatives | $ | 10 | $ | — | $ | 10 | $ | — | ||||||
| Foreign exchange derivatives | 4 | — | 4 | — | ||||||||||
| Interest rate derivatives | (6) | — | (6) | — | ||||||||||
| Total derivative liabilities [2] | 8 | — | 8 | — | ||||||||||
| Total liabilities accounted for at fair value on a recurring basis | $ | 8 | $ | — | $ | 8 | $ | — |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2022 | ||||||||||||||
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Assets accounted for at fair value on a recurring basis | ||||||||||||||
| Fixed maturities, AFS | ||||||||||||||
| ABS | $ | 1,941 | $ | — | $ | 1,911 | $ | 30 | ||||||
| CLO | 2,941 | — | 2,826 | 115 | ||||||||||
| CMBS | 3,368 | — | 3,146 | 222 | ||||||||||
| Corporate | 15,233 | — | 13,644 | 1,589 | ||||||||||
| Foreign government/government agencies | 547 | — | 547 | — | ||||||||||
| Municipal | 6,296 | — | 6,296 | — | ||||||||||
| RMBS | 3,708 | — | 3,613 | 95 | ||||||||||
| U.S. Treasuries | 2,197 | — | 2,197 | — | ||||||||||
| Total fixed maturities, AFS | 36,231 | — | 34,180 | 2,051 | ||||||||||
| Fixed maturities, FVO | 333 | — | 155 | 178 | ||||||||||
| Equity securities, at fair value | 1,801 | 1,261 | 479 | 61 | ||||||||||
| Derivative assets | ||||||||||||||
| Credit derivatives | 2 | — | 2 | — | ||||||||||
| Foreign exchange derivatives | 32 | — | 32 | — | ||||||||||
| Total derivative assets [1] | 34 | — | 34 | — | ||||||||||
| Short-term investments | 3,859 | 1,429 | 2,237 | 193 | ||||||||||
| Total assets accounted for at fair value on a recurring basis | $ | 42,258 | $ | 2,690 | $ | 37,085 | $ | 2,483 | ||||||
| Liabilities accounted for at fair value on a recurring basis | ||||||||||||||
| Derivative liabilities | ||||||||||||||
| Credit derivatives | $ | (2) | $ | — | $ | (2) | $ | — | ||||||
| Foreign exchange derivatives | 21 | — | 21 | — | ||||||||||
| Interest rate derivatives | (6) | — | (6) | — | ||||||||||
| Total derivative liabilities [2] | 13 | — | 13 | — | ||||||||||
| Total liabilities accounted for at fair value on a recurring basis | $ | 13 | $ | — | $ | 13 | $ | — |
*[1]*Includes derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law. See footnote 2 to this table for derivative liabilities.
*[2]*Includes derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law.
The Company has overseas deposits included in other investments of $75 and $62 as of December 31, 2023 and December 31, 2022, respectively, which are measured at fair value using the net asset value as a practical expedient.
Fixed Maturities, Equity Securities, Short-term Investments, and Derivatives
Valuation Techniques
The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where
appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order:
-
Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1.
-
Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party pricing services are classified as Level 2 because the inputs used in pricing the securities are observable. However, some securities that are less liquid or trade less actively are classified as Level 3. Additionally, certain long-dated securities, such as municipal securities and bank loans, include benchmark interest rate or credit spread assumptions that are not observable in the marketplace and are thus classified as Level 3.
-
Internal matrix pricing is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third-party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads using market based data for public securities adjusted for credit spread differentials between public and private securities, which are obtained from a survey of multiple private placement brokers. The market-based reference credit spread considers the issuer’s sector, financial strength, and term to maturity, using an independent public security index, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the significant inputs are observable or can be corroborated with observable data.
-
Independent broker quotes, which are typically non-binding, use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3.
The fair value of derivative instruments is determined primarily using a discounted cash flow model or option model technique and incorporates counterparty credit risk. In some cases, quoted market prices for exchange-traded and OTC cleared derivatives may be used and in other cases independent broker quotes may
be used. The pricing valuation models primarily use inputs that are observable in the market or can be corroborated by observable market data. The valuation of certain derivatives may include significant inputs that are unobservable, such as volatility levels, and reflect the Company’s view of what other market participants would use when pricing such instruments.
Valuation Controls
The process for determining the fair value of investments is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company. The purpose of the Valuation Committee is to provide oversight of the pricing policy, procedures and controls, including approval of valuation methodologies and pricing sources. The Valuation Committee reviews market data trends, pricing statistics and trading statistics to ensure that prices are reasonable and consistent with our fair value framework. Controls and procedures used to assess third-party pricing services are reviewed by the Valuation Committee, including the results of annual due-diligence reviews. Controls include, but are not limited to, reviewing daily and monthly price changes, stale prices, and missing prices and comparing new trade prices to third-party pricing services, weekly price changes to published bond index prices, and daily OTC derivative market valuations to counterparty valuations. The Company has a dedicated pricing group that works with trading and investment professionals to challenge prices received by a third party pricing source if the Company believes that the valuation received does not accurately reflect the fair value. New valuation models and changes to current models require approval by the Valuation Committee. In addition, the Company’s enterprise-wide Operational Risk Management function provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models.
Valuation Inputs
Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries, money market funds, exchange-traded equity securities, open-ended mutual funds, certain short-term investments, and exchange traded derivative instruments.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Derivatives
| Level 2 Primary Observable Inputs | Level 3 Primary Unobservable Inputs | |||||||
| Fixed Maturity Investments | ||||||||
| Structured securities (includes ABS, CLO, CMBS and RMBS) | ||||||||
| • Benchmark yields and spreads • Monthly payment information • Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions • Credit default swap indices Other inputs for ABS, CLO, and RMBS: • Estimate of future principal prepayments, derived from the characteristics of the underlying structure • Prepayment speeds previously experienced at the interest rate levels projected for the collateral | • Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for less liquid securities or those that trade less actively, including subprime RMBS: • Estimated cash flows • Credit spreads, which include illiquidity premium • Constant prepayment rates • Constant default rates • Loss severity | |||||||
| Corporates | ||||||||
| • Benchmark yields and spreads • Reported trades, bids, offers of the same or similar securities • Issuer spreads and credit default swap curves Other inputs for investment grade privately placed securities that utilize internal matrix pricing: • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature | • Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for below investment grade privately placed securities and private bank loans: • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature | |||||||
| U.S. Treasuries, Municipals, and Foreign government/government agencies | ||||||||
| • Benchmark yields and spreads • Issuer credit default swap curves • Political events in emerging market economies • Municipal Securities Rulemaking Board reported trades and material event notices • Issuer financial statements | • Credit spreads beyond observable curve • Interest rates beyond observable curve | |||||||
| Equity Securities | ||||||||
| • Quoted prices in markets that are not active | • For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable | |||||||
| Short-term Investments | ||||||||
| • Benchmark yields and spreads • Reported trades, bids, offers • Issuer spreads and credit default swap curves • Material event notices and new issue money market rates | • Independent broker quotes | |||||||
| Derivatives | ||||||||
| Credit derivatives | ||||||||
| • Swap yield curve • Credit default swap curves | • Not applicable | |||||||
| Foreign exchange derivatives | ||||||||
| • Swap yield curve • Currency spot and forward rates • Cross currency basis curves | • Not applicable | |||||||
| Interest rate derivatives | ||||||||
| • Swap yield curve | • Not applicable |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Significant Unobservable Inputs for Level 3 - Securities
| Assets accounted for at fair value on a recurring basis | Fair Value | Predominant Valuation Technique | Significant Unobservable Input | Minimum | Maximum | Weighted Average [1] | Impact of Increase in Input on Fair Value [2] | ||||||||||||||||
| As of December 31, 2023 | |||||||||||||||||||||||
| CLO [3] | $ | 98 | Discounted cash flows | Spread | 268 bps | 270 bps | 269 bps | Decrease | |||||||||||||||
| CMBS [3] | $ | 226 | Discounted cash flows | Spread (encompasses prepayment, default risk and loss severity) | 365 bps | 1,315 bps | 509 bps | Decrease | |||||||||||||||
| Corporate [4] | $ | 1,741 | Discounted cash flows | Spread | 49 bps | 743 bps | 323 bps | Decrease | |||||||||||||||
| RMBS | $ | 36 | Discounted cash flows | Spread [6] | 32 bps | 298 bps | 161 bps | Decrease | |||||||||||||||
| Constant prepayment rate [6] | 1% | 5% | 4% | Decrease [5] | |||||||||||||||||||
| Constant default rate [6] | 1% | 5% | 2% | Decrease | |||||||||||||||||||
| Loss severity [6] | 10 bps | 70 bps | 41 bps | Decrease | |||||||||||||||||||
| Short-term investments [3] | $ | 15 | Discounted cash flows | Spread | 579 bps | 1,254 bps | 1,225 bps | Decrease | |||||||||||||||
| As of December 31, 2022 | |||||||||||||||||||||||
| CLO | $ | 115 | Discounted cash flows | Spread | 337 bps | 337 bps | 337 bps | Decrease | |||||||||||||||
| CMBS [3] | $ | 219 | Discounted cash flows | Spread (encompasses prepayment, default risk and loss severity) | 419 bps | 1,307 bps | 527 bps | Decrease | |||||||||||||||
| Corporate [4] | $ | 1,541 | Discounted cash flows | Spread | 77 bps | 642 bps | 360 bps | Decrease | |||||||||||||||
| RMBS [3] | $ | 65 | Discounted cash flows | Spread [6] | 62 bps | 249 bps | 160 bps | Decrease | |||||||||||||||
| Constant prepayment rate [6] | 1% | 10% | 7% | Decrease [5] | |||||||||||||||||||
| Constant default rate [6] | 1% | 4% | 2% | Decrease | |||||||||||||||||||
| Loss severity [6] | 10% | 100% | 38% | Decrease |
*[1]*The weighted average is determined based on the fair value of the securities.
*[2]*Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
*[3]*Excludes securities for which the Company bases fair value on broker quotations.
*[4]*Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value.
*[5]*Decrease for above market rate coupons and increase for below market rate coupons.
*[6]*Generally, a change in the assumption used for the constant default rate would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for constant prepayment rate and would have resulted in wider spreads.
As of December 31, 2023 and 2022, the fair values of the Company's level 3 derivatives were less than $1 for both periods.
The table above excludes certain securities for which fair values are predominately based on independent broker quotes. While the Company does not have access to the significant unobservable inputs that independent brokers may use in their pricing process, the Company believes brokers likely use inputs similar to those used by the Company and third-party pricing services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, prepayment rates, constant default rates and credit spreads. Therefore, similar to non-broker priced securities, increases in these inputs would generally cause fair values to decrease. As
of December 31, 2023, no significant adjustments were made by the Company to broker prices received.
Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs
The Company uses derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified within the same fair value hierarchy level as the associated asset or liability.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Year Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| Total realized/unrealized gains (losses) | ||||||||||||||||||||||||||||||||
| Fair value as of January 1, 2023 | Included in net income [1] | Included in OCI [2] | Purchases | Settlements | Sales | Transfers into Level 3 [3] | Transfers out of Level 3 [3] | Fair value as of December 31, 2023 | ||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Fixed maturities, AFS | ||||||||||||||||||||||||||||||||
| ABS | $ | 30 | $ | — | $ | — | $ | 82 | $ | — | $ | — | $ | — | $ | (112) | $ | — | ||||||||||||||
| CLO | 115 | — | — | 102 | (49) | — | — | (55) | 113 | |||||||||||||||||||||||
| CMBS | 222 | (2) | 3 | 6 | (18) | (5) | 21 | — | 227 | |||||||||||||||||||||||
| Corporate | 1,589 | (5) | 71 | 458 | (196) | (11) | 50 | (95) | 1,861 | |||||||||||||||||||||||
| RMBS | 95 | — | — | 40 | (29) | — | — | (70) | 36 | |||||||||||||||||||||||
| Total fixed maturities, AFS | 2,051 | (7) | 74 | 688 | (292) | (16) | 71 | (332) | 2,237 | |||||||||||||||||||||||
| Fixed maturities, FVO | 178 | (1) | — | — | (10) | — | — | — | 167 | |||||||||||||||||||||||
| Equity securities, at fair value | 61 | (1) | — | 1 | (3) | — | — | — | 58 | |||||||||||||||||||||||
| Short-term investments | 193 | — | — | 48 | (216) | — | — | — | 25 | |||||||||||||||||||||||
| Total Assets | $ | 2,483 | $ | (9) | $ | 74 | $ | 737 | $ | (521) | $ | (16) | $ | 71 | $ | (332) | $ | 2,487 | ||||||||||||||
| Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Total realized/unrealized gains (losses) | |||||||||||||||||||||||||||||||||||
| Fair value as of January 1, 2022 | Included in net income [1] | Included in OCI [2] | Purchases | Settlements | Sales | Transfers into Level 3 [3] | Transfers out of Level 3 [3] | Fair value as of December 31, 2022 | |||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Fixed maturities, AFS | |||||||||||||||||||||||||||||||||||
| ABS | $ | — | $ | — | $ | — | $ | 49 | $ | — | $ | — | $ | — | $ | (19) | $ | 30 | |||||||||||||||||
| CLO | 257 | — | (2) | 113 | (62) | — | — | (191) | 115 | ||||||||||||||||||||||||||
| CMBS | 196 | — | (15) | 51 | (10) | — | — | — | 222 | ||||||||||||||||||||||||||
| Corporate | 1,618 | — | (174) | 524 | (274) | (40) | 45 | (110) | 1,589 | ||||||||||||||||||||||||||
| Foreign Govt./Govt. Agencies | 5 | (1) | — | — | — | (7) | 3 | — | — | ||||||||||||||||||||||||||
| RMBS | 328 | — | (14) | 137 | (95) | — | — | (261) | 95 | ||||||||||||||||||||||||||
| Total fixed maturities, AFS | 2,404 | (1) | (205) | 874 | (441) | (47) | 48 | (581) | 2,051 | ||||||||||||||||||||||||||
| Fixed maturities, FVO | 160 | (24) | — | 55 | (13) | — | — | — | 178 | ||||||||||||||||||||||||||
| Equity securities, at fair value | 64 | 11 | — | 2 | (16) | — | — | — | 61 | ||||||||||||||||||||||||||
| Short-term investments | 80 | — | — | 284 | (121) | — | — | (50) | 193 | ||||||||||||||||||||||||||
| Total Assets | $ | 2,708 | $ | (14) | $ | (205) | $ | 1,215 | $ | (591) | $ | (47) | $ | 48 | $ | (631) | $ | 2,483 | |||||||||||||||||
*[1]*Amounts in these columns are generally reported in net realized gains (losses). All amounts are before income taxes.
*[2]*All amounts are before income taxes.
*[3]*Transfers into and/or (out of) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 4 - Fair Value Measurements |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Changes in Unrealized Gains (Losses) for Financial Instruments Classified as Level 3 Still Held at Year End | ||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||
| Changes in Unrealized Gain/(Loss) included in Net Income [1] [2] | Changes in Unrealized Gain/(Loss) included in OCI [3] | Changes in Unrealized Gain/(Loss) included in Net Income [1] [2] | Changes in Unrealized Gain/(Loss) included in OCI [3] | |||||||||||||||||
| Assets | ||||||||||||||||||||
| Fixed maturities, AFS | ||||||||||||||||||||
| CLO | $ | — | $ | 1 | $ | — | $ | (1) | ||||||||||||
| CMBS | — | 2 | — | (15) | ||||||||||||||||
| Corporate | (6) | 71 | (3) | (170) | ||||||||||||||||
| RMBS | — | — | — | (13) | ||||||||||||||||
| Total fixed maturities, AFS | (6) | 74 | (3) | (199) | ||||||||||||||||
| Fixed maturities, FVO | (1) | — | (24) | — | ||||||||||||||||
| Equity securities, at fair value | (1) | — | 2 | — | ||||||||||||||||
| Total Assets | $ | (8) | $ | 74 | $ | (25) | $ | (199) | ||||||||||||
*[1]*All amounts in these rows are reported in net realized gains (losses). All amounts are before income taxes.
*[2]*Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein.
*[3]*Changes in unrealized gains (losses) on fixed maturities, AFS are reported in changes in net unrealized gain (loss) on fixed maturities in the Consolidated Statements of Comprehensive Income.
Fair Value Option
The Company has elected the fair value option for certain investments in residual interests of securitizations and other securities that contain embedded credit derivatives with underlying credit risk related to residential real estate in order to reflect changes in fair value in earnings. These instruments are included within fixed maturities, FVO on the Consolidated Balance Sheets and changes in the fair value of these investments are reported in net realized gains and losses.
As of December 31, 2023 and 2022, the fair value of assets using the fair value option was $327 and $333, respectively, of which $167 and $178, respectively, were residual interests of securitizations.
For the years ended December 31, 2023, 2022, and 2021, net realized gains (losses) related to the change in fair value of assets using the fair value option were $5, $(28), and $(6), respectively.
Financial Instruments Not Carried at Fair Value
Financial Assets and Liabilities Not Carried at Fair Value
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Fair Value Hierarchy Level | Carrying Amount [1] | Fair Value | Fair Value Hierarchy Level | Carrying Amount [1] | Fair Value | ||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Mortgage loans | Level 3 | $ | 6,087 | $ | 5,584 | Level 3 | $ | 6,000 | $ | 5,362 | |||||||||||||
| Liabilities | |||||||||||||||||||||||
| Other policyholder funds and benefits payable | Level 3 | $ | 638 | $ | 639 | Level 3 | $ | 658 | $ | 658 | |||||||||||||
| Senior notes [2] | Level 2 | $ | 3,863 | $ | 3,533 | Level 2 | $ | 3,858 | $ | 3,339 | |||||||||||||
| Junior subordinated debentures [2] | Level 2 | $ | 499 | $ | 429 | Level 2 | $ | 499 | $ | 419 |
*[1]*As of December 31, 2023 and December 31, 2022, the carrying amount of mortgage loans is net of ACL of $51 and $36, respectively
*[2]*Included in long-term debt in the Consolidated Balance Sheets, except for any current maturities, which are included in short-term debt when applicable.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. INVESTMENTS
Net Investment Income
| For the years ended December 31, | |||||||||||
| (Before tax) | 2023 | 2022 | 2021 | ||||||||
| Fixed maturities [1] | $ | 1,895 | $ | 1,469 | $ | 1,349 | |||||
| Equity securities | 45 | 57 | 73 | ||||||||
| Mortgage loans | 235 | 211 | 181 | ||||||||
| Limited partnerships and other alternative investments | 212 | 515 | 732 | ||||||||
| Other investments [2] | 9 | 5 | 58 | ||||||||
| Gross investment income | $ | 2,396 | $ | 2,257 | $ | 2,393 | |||||
| Investment expenses | (91) | (80) | (80) | ||||||||
| Total net investment income | $ | 2,305 | $ | 2,177 | $ | 2,313 |
*[1]*Includes net investment income on short-term investments.
*[2]*Primarily includes changes in fair value of certain equity fund investments and income from derivatives that qualify for hedge accounting and are used to hedge fixed maturities.
Net Realized Gains (Losses)
| For the years ended December 31, | |||||||||||
| (Before tax) | 2023 | 2022 | 2021 | ||||||||
| Gross gains on sales of fixed maturities | $ | 30 | $ | 57 | $ | 319 | |||||
| Gross losses on sales of fixed maturities | (149) | (315) | (89) | ||||||||
| Equity securities [1] | |||||||||||
| Net realized gains (losses) on sales of equity securities | 100 | (83) | 81 | ||||||||
| Change in net unrealized gains (losses) of equity securities | (22) | (266) | 146 | ||||||||
| Net realized and unrealized gains (losses) on equity securities | 78 | (349) | 227 | ||||||||
| Net credit losses on fixed maturities, AFS | (14) | (18) | 4 | ||||||||
| Change in ACL on mortgage loans | (15) | (7) | 9 | ||||||||
| Intent-to-sell impairments | — | (6) | — | ||||||||
| Other, net [2] | (118) | 11 | 39 | ||||||||
| Net realized gains (losses) | $ | (188) | $ | (627) | $ | 509 |
*[1]*The change in net unrealized gains (losses) on equity securities still held as of the end of the period and included in net realized gains (losses) were $17, $(108), and $155 for the years ended December 31, 2023, 2022, and 2021, respectively.
*[2]*Includes gains (losses) on non-qualifying derivatives for 2023, 2022, and 2021 of $(108), $46, and $12, respectively, and gains (losses) from transactional foreign currency revaluation of $(15), $28, and $(1), respectively. Also included for the year ended December 31, 2021, is a loss of $21 on the sale of the Continental Europe Operations and a gain of $46 on the sale of the Company's previously owned interest in Talcott Resolution.
Proceeds from the sales of fixed maturities, AFS totaled $3.8 billion, $11.4 billion, and $15.9 billion for the years ended December 31, 2023, 2022, and 2021, respectively. Sales of AFS securities in 2023 were primarily a result of tactical changes to the portfolio driven by changing market conditions, in addition to duration and liquidity management. Non-cash investing activities for the year ended December 31, 2023, included $80 related to the exchange of short-term investments for mortgage loans.
Accrued Investment Income on Fixed Maturities, AFS and Mortgage Loans
As of December 31, 2023 and December 31, 2022, the Company reported accrued investment income related to fixed maturities, AFS of $371 and $338, respectively, and accrued
investment income related to mortgage loans of $20 and $18, respectively. These amounts are not included in the carrying value of the fixed maturities or mortgage loans. The Company does not include the current accrued investment income balance when estimating the ACL. The Company has a policy to write-off accrued investment income balances that are more than 90 days past due. Write-offs of accrued investment income are recorded as a credit loss component of net realized gains and losses.
Investment income on fixed maturities and mortgage loans is accrued unless it is past due over 90 days or management deems the interest uncollectible.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Recognition and Presentation of Intent-to-Sell Impairments and ACL on Fixed Maturities, AFS
The Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of fixed maturities, AFS in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized losses equal to the difference between the fair value on the impairment date and the amortized cost basis of the fixed maturity before recognizing the impairment.
For fixed maturities where a credit loss has been identified and no intent-to-sell impairment has been recorded, the Company will record an ACL for the portion of the unrealized loss related to the credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount and is recorded in OCI. The ACL is the excess of the amortized cost over the greater of the Company's best estimate of the present value of expected future cash flows or the security's fair value. Cash flows are discounted at the effective yield that is used to record interest income. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized gains and losses. The ACL is written off against the amortized cost in the period in which all or a portion of the related fixed maturity is determined to be uncollectible.
Developing the Company’s best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company's considerations include, but are not limited to, (a) changes in the financial condition of the issuer and/or the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security.
For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, instrument-specific developments including changes in credit ratings, industry earnings multiples and the issuer’s ability to restructure, access capital markets, and execute asset sales.
For structured securities, assumptions include, but are not limited to, various performance indicators such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, loan-to-value ("LTV") ratios, average cumulative collateral loss rates that vary by vintage year, prepayment speeds, and property value declines. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value.
| ACL on Fixed Maturities, AFS by Type | ||||||||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
| (Before tax) | CMBS | Corporate | Total | CMBS | Corporate | Foreign govt./govt. agencies | Total | Corporate | Total | |||||||||||||||||||||||||||||||||||
| Balance as of beginning of period | $ | 10 | $ | 2 | $ | 12 | $ | — | $ | 1 | $ | — | $ | 1 | $ | 23 | $ | 23 | ||||||||||||||||||||||||||
| Credit losses on fixed maturities where an allowance was not previously recorded | — | 9 | 9 | 7 | 10 | 3 | 20 | 2 | 2 | |||||||||||||||||||||||||||||||||||
| Reduction due to sales | — | (5) | (5) | — | (3) | (1) | (4) | (18) | (18) | |||||||||||||||||||||||||||||||||||
| Reduction due to intent to sell | — | — | — | — | — | (3) | (3) | — | — | |||||||||||||||||||||||||||||||||||
| Net increases (decreases) on fixed maturities where an allowance was previously recorded | 2 | 3 | 5 | 3 | (3) | 1 | 1 | (6) | (6) | |||||||||||||||||||||||||||||||||||
| Write-offs charged against the allowance | — | — | — | — | (3) | — | (3) | — | — | |||||||||||||||||||||||||||||||||||
| Balance as of end of period | $ | 12 | $ | 9 | $ | 21 | $ | 10 | $ | 2 | $ | — | $ | 12 | $ | 1 | $ | 1 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fixed Maturities, AFS
| Fixed Maturities, AFS, by Type | ||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Amortized Cost | ACL | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | ACL | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||
| ABS | $ | 3,347 | $ | — | $ | 18 | $ | (45) | $ | 3,320 | $ | 2,016 | $ | — | $ | — | $ | (75) | $ | 1,941 | ||||||||||||||||||
| CLO | 3,104 | — | 3 | (17) | 3,090 | 3,040 | — | 3 | (102) | 2,941 | ||||||||||||||||||||||||||||
| CMBS | 3,466 | (12) | 19 | (348) | 3,125 | 3,715 | (10) | 21 | (358) | 3,368 | ||||||||||||||||||||||||||||
| Corporate | 18,691 | (9) | 197 | (1,013) | 17,866 | 16,794 | (2) | 33 | (1,592) | 15,233 | ||||||||||||||||||||||||||||
| Foreign govt./govt. agencies | 583 | — | 6 | (27) | 562 | 596 | — | — | (49) | 547 | ||||||||||||||||||||||||||||
| Municipal | 6,207 | — | 131 | (299) | 6,039 | 6,718 | — | 93 | (515) | 6,296 | ||||||||||||||||||||||||||||
| RMBS | 4,675 | — | 18 | (406) | 4,287 | 4,214 | — | 2 | (508) | 3,708 | ||||||||||||||||||||||||||||
| U.S. Treasuries | 1,653 | — | 26 | (150) | 1,529 | 2,440 | — | — | (243) | 2,197 | ||||||||||||||||||||||||||||
| Total fixed maturities, AFS | $ | 41,726 | $ | (21) | $ | 418 | $ | (2,305) | $ | 39,818 | $ | 39,533 | $ | (12) | $ | 152 | $ | (3,442) | $ | 36,231 | ||||||||||||||||||
Fixed Maturities, AFS, by Contractual Maturity Year
| December 31, 2023 | December 31, 2022 | ||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||
| One year or less | $ | 1,526 | $ | 1,501 | $ | 1,417 | $ | 1,396 | |||||||||
| Over one year through five years | 9,670 | 9,433 | 8,340 | 7,930 | |||||||||||||
| Over five years through ten years | 6,568 | 6,211 | 7,259 | 6,485 | |||||||||||||
| Over ten years | 9,370 | 8,851 | 9,532 | 8,462 | |||||||||||||
| Subtotal | 27,134 | 25,996 | 26,548 | 24,273 | |||||||||||||
| Mortgage-backed and asset-backed securities | 14,592 | 13,822 | 12,985 | 11,958 | |||||||||||||
| Total fixed maturities, AFS | $ | 41,726 | $ | 39,818 | $ | 39,533 | $ | 36,231 |
Estimated maturities may differ from contractual maturities due to call or prepayment provisions. Due to the potential for variability in payment speeds (i.e., prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.
Concentration of Credit Risk
The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk. The Company had no investment exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity as of December 31, 2023, or December 31, 2022, other than U.S. government securities and certain U.S. government agencies.
As of December 31, 2023, other than U.S. government securities and certain U.S. government agencies, the
Company’s three largest exposures by issuer were NextEra Energy Inc., the Government of Canada, and Morgan Stanley each of which comprised less than 1% of total invested assets. As of December 31, 2022, other than U.S. government securities and certain U.S. government agencies, the Company’s three largest exposures by issuer were the Toronto Dominion Bank, Morgan Stanley, and the Mitsubishi UFJ Financial Group Inc. each of which comprised less than 1% of total invested assets. The Company’s three largest exposures by sector as of December 31, 2023, were the municipal sector, the financial services sector, and the RMBS sector which comprised approximately 11%, 9%, and 8%, respectively, of total invested assets. The Company’s three largest exposures by sector as of December 31, 2022, were the municipal sector, the financial services sector, and the RMBS sector which comprised approximately 12%, 9%, and 7%, respectively, of total invested assets.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unrealized Losses on Fixed Maturities, AFS
| Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| ABS | $ | 604 | $ | (6) | $ | 1,043 | $ | (39) | $ | 1,647 | $ | (45) | |||||||||||||||||||||||
| CLO | 209 | (1) | 2,249 | (16) | 2,458 | (17) | |||||||||||||||||||||||||||||
| CMBS | 117 | (7) | 2,837 | (341) | 2,954 | (348) | |||||||||||||||||||||||||||||
| Corporate | 810 | (10) | 11,149 | (1,003) | 11,959 | (1,013) | |||||||||||||||||||||||||||||
| Foreign govt./govt. agencies | 27 | — | 368 | (27) | 395 | (27) | |||||||||||||||||||||||||||||
| Municipal | 329 | (3) | 3,196 | (296) | 3,525 | (299) | |||||||||||||||||||||||||||||
| RMBS | 181 | (3) | 3,207 | (403) | 3,388 | (406) | |||||||||||||||||||||||||||||
| U.S. Treasuries | 120 | (11) | 1,121 | (139) | 1,241 | (150) | |||||||||||||||||||||||||||||
| Total fixed maturities, AFS in an unrealized loss position | $ | 2,397 | $ | (41) | $ | 25,170 | $ | (2,264) | $ | 27,567 | $ | (2,305) | |||||||||||||||||||||||
| Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or More | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| ABS | $ | 1,577 | $ | (50) | $ | 281 | $ | (25) | $ | 1,858 | $ | (75) | |||||||||||||||||||||||
| CLO | 1,490 | (48) | 1,378 | (54) | 2,868 | (102) | |||||||||||||||||||||||||||||
| CMBS | 2,560 | (270) | 521 | (88) | 3,081 | (358) | |||||||||||||||||||||||||||||
| Corporate | 11,157 | (1,071) | 2,575 | (521) | 13,732 | (1,592) | |||||||||||||||||||||||||||||
| Foreign govt./govt. agencies | 308 | (26) | 224 | (23) | 532 | (49) | |||||||||||||||||||||||||||||
| Municipal | 4,270 | (461) | 228 | (54) | 4,498 | (515) | |||||||||||||||||||||||||||||
| RMBS | 2,311 | (249) | 1,250 | (259) | 3,561 | (508) | |||||||||||||||||||||||||||||
| U.S. Treasuries | 1,554 | (145) | 633 | (98) | 2,187 | (243) | |||||||||||||||||||||||||||||
| Total fixed maturities, AFS in an unrealized loss position | $ | 25,227 | $ | (2,320) | $ | 7,090 | $ | (1,122) | $ | 32,317 | $ | (3,442) | |||||||||||||||||||||||
As of December 31, 2023, fixed maturities, AFS in an unrealized loss position consisted of 3,850 instruments and were primarily depressed due to higher interest rates and/or wider credit spreads since the purchase date. As of December 31, 2023, 94% of these fixed maturities were depressed less than 20% of cost or amortized cost. The decrease in unrealized losses during 2023, was primarily due to an increase in valuations as a result of tighter credit spreads.
Most of the fixed maturities depressed for twelve months or more relate to the corporate sector, RMBS, CMBS, and municipal bonds, which were primarily depressed because current rates are higher and/or market spreads are wider than at the respective purchase dates. The Company neither has an intention to sell nor does it expect to be required to sell the fixed maturities outlined in the preceding discussion. The decision to record credit losses on fixed maturities, AFS in the form of an ACL requires us to make qualitative and quantitative estimates of expected future cash flows.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Mortgage Loans
ACL on Mortgage Loans
The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level under multiple economic scenarios. The scenarios use macroeconomic data provided by an internationally recognized economics firm that generates forecasts of varying economic factors such as GDP growth, unemployment and interest rates. The economic scenarios are projected over 10 years. The first two to four years of the 10-year period assume a specific modeled economic scenario (including moderate upside, moderate recession and severe recession scenarios) and then revert to historical long-term assumptions over the remaining period. Using these economic scenarios, the forecasting model projects property-specific operating income and capitalization rates used to estimate the value of a future operating income stream. The operating income and the property valuations derived from capitalization rates are compared to loan payment and principal amounts to create debt service coverage ratios ("DSCRs") and LTVs over the forecast period. The Company's process also considers qualitative factors. The model overlays historical data about mortgage loan performance based on DSCRs and LTVs and projects the probability of default, amount of loss given a default and resulting expected loss through maturity for each loan under each economic scenario. Economic scenarios are probability-weighted based on a statistical analysis of the forecasted economic factors and qualitative analysis. The Company records the change in the ACL on mortgage loans based on the weighted-average expected credit losses across the selected economic scenarios.
When a borrower is experiencing financial difficulty, including when foreclosure is probable, the Company measures an ACL on individual mortgage loans. The ACL is established for any shortfall between the amortized cost of the loan and the fair value of the collateral less costs to sell. Estimates of collectibility from an individual borrower require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, cash flow projections may change based upon new information about
the borrower's ability to pay and/or the value of underlying collateral such as changes in projected property value estimates. As of December 31, 2023, the Company did not have any mortgage loans for which an ACL was established on an individual basis.
There were no mortgage loans held-for-sale as of December 31, 2023 or December 31, 2022. In addition, as of December 31, 2023 and December 31, 2022, the Company had no mortgage loans that have had extensions or restructurings other than what is allowable under the original terms of the contract or with borrowers experiencing financial difficulties.
| ACL on Mortgage Loans | |||||||||||
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| ACL as of beginning of period | $ | 36 | $ | 29 | $ | 38 | |||||
| Current period provision (release) | 15 | 7 | (9) | ||||||||
| ACL as of December 31, | $ | 51 | $ | 36 | $ | 29 |
The increase in the allowance for the 2023 period is primarily attributable to revised economic scenarios, lower property valuations, and overall weaker real estate fundamentals. During 2022, the Company increased the estimate of the ACL primarily attributable to the deteriorating economic conditions and the potential impact on real estate property valuations and, to a lesser extent, net additions of new loans. During 2021, the Company decreased the estimate of the ACL in response improved economic scenarios, including improved GDP growth and unemployment, and higher property valuations.
The weighted-average LTV ratio of the Company’s mortgage loan portfolio was 55% as of December 31, 2023, while the weighted-average LTV ratio at origination of these loans was 59%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan with property values based on appraisals updated no less than annually. Factors considered in estimating property values include, among other things, actual and expected property cash flows, geographic market data and the ratio of the property's net operating income to its value. DSCR compares a property’s net operating income to the borrower’s principal and interest payments and are updated no less than annually through reviews of underlying properties.
| Mortgage Loans LTV & DSCR by Origination Year as of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | 2018 & Prior | Total | ||||||||||||||||||||||||||||||||||||||
| Loan-to-value | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost [1] | Avg. DSCR | ||||||||||||||||||||||||||||||
| Greater than 80% | $ | — | —x | $ | 16 | 1.09x | $ | 38 | 1.05x | $ | — | —x | $ | — | —x | $ | 105 | 1.41x | $ | 159 | 1.29x | |||||||||||||||||||||||
| 65% - 80% | — | —x | 189 | 2.13x | 457 | 2.42x | 95 | 3.47x | 98 | 1.77x | 252 | 1.77x | 1,091 | 2.25x | ||||||||||||||||||||||||||||||
| Less than 65% | 400 | 1.47x | 724 | 2.75x | 1,105 | 2.99x | 527 | 2.92x | 679 | 2.90x | 1,453 | 2.67x | 4,888 | 2.72x | ||||||||||||||||||||||||||||||
| Total mortgage loans | $ | 400 | 1.47x | $ | 929 | 2.60x | $ | 1,600 | 2.78x | $ | 622 | 3.00x | $ | 777 | 2.76x | $ | 1,810 | 2.47x | $ | 6,138 | 2.60x |
[1]Amortized cost of mortgage loans excludes ACL of $51.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Mortgage Loans LTV & DSCR by Origination Year as of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2020 | 2019 | 2018 | 2017 & Prior | Total | ||||||||||||||||||||||||||||||||||||||
| Loan-to-value | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost [1] | Avg. DSCR | ||||||||||||||||||||||||||||||
| Greater than 80% | $ | — | —x | $ | — | —x | $ | — | —x | $ | — | —x | $ | — | —x | $ | 23 | 1.40x | $ | 23 | 1.40x | |||||||||||||||||||||||
| 65% - 80% | 16 | 2.02x | 59 | 2.61x | 43 | 2.78x | 100 | 1.95x | 108 | 1.11x | 117 | 1.91x | 443 | 1.91x | ||||||||||||||||||||||||||||||
| Less than 65% | 839 | 2.43x | 1,475 | 2.79x | 663 | 3.02x | 680 | 2.77x | 437 | 2.21x | 1,476 | 2.54x | 5,570 | 2.65x | ||||||||||||||||||||||||||||||
| Total mortgage loans | $ | 855 | 2.42x | $ | 1,534 | 2.78x | $ | 706 | 3.01x | $ | 780 | 2.66x | $ | 545 | 1.99x | $ | 1,616 | 2.48x | $ | 6,036 | 2.59x |
[1]Amortized cost of mortgage loans excludes ACL of $36.
| Mortgage Loans by Region | |||||||||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||||||||
| Amortized Cost | Percent of Total | Amortized Cost | Percent of Total | ||||||||||||||
| East North Central | $ | 368 | 6.0 | % | $ | 317 | 5.3 | % | |||||||||
| Middle Atlantic | 238 | 3.9 | % | 316 | 5.2 | % | |||||||||||
| Mountain | 699 | 11.4 | % | 707 | 11.7 | % | |||||||||||
| New England | 351 | 5.7 | % | 395 | 6.5 | % | |||||||||||
| Pacific | 1,326 | 21.6 | % | 1,299 | 21.5 | % | |||||||||||
| South Atlantic | 1,776 | 28.9 | % | 1,670 | 27.7 | % | |||||||||||
| West North Central | 103 | 1.7 | % | 105 | 1.7 | % | |||||||||||
| West South Central | 445 | 7.2 | % | 421 | 7.0 | % | |||||||||||
| Other [1] | 832 | 13.6 | % | 806 | 13.4 | % | |||||||||||
| Total mortgage loans | 6,138 | 100.0 | % | 6,036 | 100.0 | % | |||||||||||
| ACL | (51) | (36) | |||||||||||||||
| Total mortgage loans, net of ACL | $ | 6,087 | $ | 6,000 |
*[1]*Primarily represents loans collateralized by multiple properties in various regions.
| Mortgage Loans by Property Type | |||||||||||||||||
| December 31, 2023 | December 31, 2022 | ||||||||||||||||
| Amortized Cost | Percent of Total | Amortized Cost | Percent of Total | ||||||||||||||
| Commercial | |||||||||||||||||
| Industrial | $ | 2,363 | 38.5 | % | $ | 2,217 | 36.7 | % | |||||||||
| Multifamily | 2,200 | 35.9 | % | 2,247 | 37.2 | % | |||||||||||
| Office | 578 | 9.4 | % | 585 | 9.7 | % | |||||||||||
| Retail [1] | 917 | 14.9 | % | 947 | 15.7 | % | |||||||||||
| Single Family | 80 | 1.3 | % | — | — | % | |||||||||||
| Other | — | — | % | 40 | 0.7 | % | |||||||||||
| Total mortgage loans | 6,138 | 100.0 | % | 6,036 | 100.0 | % | |||||||||||
| ACL | (51) | (36) | |||||||||||||||
| Total mortgage loans, net of ACL | $ | 6,087 | $ | 6,000 |
[1]Primarily comprised of grocery-anchored retail centers, with no exposure to regional shopping malls.
Past-Due Mortgage Loans
Mortgage loans are considered past due if a payment of principal or interest is not received according to the contractual terms of the loan agreement, which typically includes a grace period. As of December 31, 2023 and December 31, 2022, the Company held no mortgage loans considered past due.
Mortgage Servicing
The Company originates, sells, and services commercial mortgage loans on behalf of third parties and recognizes servicing fee income over the period that services are performed. As of December 31, 2023, under this program, the Company serviced mortgage loans with a total outstanding principal of $9.4 billion, of which $4.4 billion was serviced on behalf of third parties and $5.0 billion was retained and reported in total investments on the Company's Consolidated Balance Sheets. As of December 31, 2022, the Company serviced mortgage loans with a total outstanding principal balance of $9.3 billion, of which $4.4 billion was serviced on behalf of third parties and $4.9 billion was retained and reported in total investments on the Company's Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or fair value and were $0 as of December 31, 2023 and December 31, 2022, because servicing fees were market-level fees at origination and remain adequate to compensate the Company for servicing the loans.
Variable Interest Entities
The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities or, at times, as an investment manager.
A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
consolidates the VIE in the Company’s Consolidated Financial Statements.
Consolidated VIEs
As of December 31, 2023 and 2022, the Company did not hold any securities for which it is the primary beneficiary.
Non-Consolidated VIEs
The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of December 31, 2023 and 2022 is limited to the total carrying value of $3.0 billion and $2.6 billion, respectively, which are a portion of the investments in limited partnerships and other alternative investments in the Company's Consolidated Balance Sheets that are primarily recorded using the equity method of accounting. As of December 31, 2023 and 2022, the Company has outstanding commitments totaling $1.7 billion and $1.8 billion, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management.
In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company is not the manager. These investments are included in ABS, CLO, CMBS, and RMBS and are reported in fixed maturities, AFS, and fixed maturities, FVO, on the Company's Consolidated Balance Sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs, and, where applicable, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.
Reverse Repurchase Agreements, Other Collateral Transactions and Restricted Investments
Reverse Repurchase Agreements
From time to time, the Company enters into reverse repurchase agreements where the Company purchases securities and simultaneously agrees to resell the same or substantially the same securities. The maturity of these transactions is generally within one year. The agreements require additional collateral to be transferred to the Company under specified conditions and the Company has the right to sell or re-pledge the securities received. The Company accounts for reverse repurchase
agreements as collateralized financing. As of December 31, 2023 and December 31, 2022, the Company reported $10 and $41, respectively, within short-term investments on the Consolidated Balance Sheets representing a receivable for the amount of cash transferred to purchase the securities.
Other Collateral Transactions
As of December 31, 2023 and December 31, 2022, the Company pledged collateral of $7 and $7, respectively, of U.S. government securities or cash primarily related to certain bank loan participations committed to through a limited partnership agreement.
For disclosure of collateral in support of derivative transactions, refer to the Derivative Collateral Arrangements section in Note 6 - Derivatives of Notes to Consolidated Financial Statements.
Other Restricted Investments
The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. In addition, the Company is required to hold fixed maturities and short-term investments in trust for the benefit of syndicate policyholders, hold fixed maturities in a Lloyd's of London ("Lloyd's") trust account to provide a portion of the required capital, and maintain other investments primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries. Lloyd's is an insurance market-place operating worldwide. Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate").
The following table presents the components of the Company’s exposure to other restricted investments.
| December 31, 2023 | December 31, 2022 | |||||||
| Fair Value | Fair Value | |||||||
| Securities on deposit with government agencies | $ | 2,339 | $ | 2,189 | ||||
| Fixed maturities in trust for benefit of Lloyd's Syndicate policyholders | 890 | 718 | ||||||
| Short-term investments in trust for benefit of Lloyd's Syndicate policyholders | 30 | 8 | ||||||
| Fixed maturities in Lloyd's trust account | 154 | 161 | ||||||
| Other investments | 75 | 62 | ||||||
| Total Other Restricted Investments | $ | 3,488 | $ | 3,138 |
Equity Method Investments
The majority of the Company's investments in limited partnerships and other alternative investments, including real estate joint ventures, real estate funds, private equity funds, and other funds (collectively, “limited partnerships”), are accounted for under the equity method of accounting. The remainder of investments in limited partnerships and other alternative investments consists of investments in insurer-owned life insurance accounted for at cash surrender value. Prior to June 30, 2021, the Company also had a retained 9.7% investment in Hopmeadow Holdings LP, the legal entity that acquired Talcott Resolution in May 2018 (collectively referred to as "Talcott Resolution"), which was accounted for under the equity method
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 5 - Investments |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
of accounting and was reported in other assets on the Company's Consolidated Balance Sheets. On June 30, 2021, the Company sold its 9.7% ownership interest in Talcott Resolution and received a total $217 in connection with the sale, resulting in a realized gain on sale of $46 before tax during 2021.
The Company recognized total equity method income of $181, $533, and $630 for the years ended December 31, 2023, 2022 and 2021, respectively. Equity method income is reported in net investment income, except amounts related to strategic investments classified in other assets which are reported in other revenues. For investments accounted for under the equity method, the Company’s maximum exposure to loss as of December 31, 2023 is limited to the total carrying value of $4.3 billion. In addition, the Company has outstanding commitments totaling $1.9 billion to fund limited partnership investments as of December 31, 2023. The Company’s investments accounted for under the equity method are generally of a passive nature in that the Company does not take an active role in the management.
In 2023, aggregate investment income from investments accounted for under the equity method exceeded 10% of the
Company’s before tax consolidated net income. Accordingly, the Company is disclosing aggregated, summarized financial data for the Company’s investments accounted for under the equity method based on the most recently available information. This aggregated, summarized financial data does not represent the Company’s proportionate share of investees' assets or earnings. Aggregate total assets of the investees totaled $308.3 billion and $289.9 billion as of December 31, 2023 and 2022, respectively. Aggregate total liabilities of the investees totaled $44.0 billion and $46.8 billion as of December 31, 2023 and 2022, respectively. Aggregate net investment loss of the investees totaled $1.2 billion for the period ended December 31, 2023. Aggregate total investment income of the investees totaled $1.6 billion, and $2.1 billion for the periods ended December 31, 2022 and 2021, respectively. Aggregate net income excluding net investment income of the investees totaled $13.0 billion, $11.9 billion and $46.7 billion for the periods ended December 31, 2023, 2022 and 2021, respectively. As of, and for the period ended, December 31, 2023, the aggregated summarized financial data reflects the latest available financial information.
6. DERIVATIVES
The Company utilizes a variety of OTC, OTC-cleared and exchange traded derivative instruments as a part of its overall risk management strategy as well as to enter into replication transactions or income generation covered call transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, commodity market, credit spread, issuer default, price, and currency exchange rate or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that are permissible investments under the Company’s investment policies.
Strategies that Qualify for Hedge Accounting
Some of the Company's derivatives satisfy hedge accounting requirements as outlined in Note 1 - Basis of Presentation and Significant Accounting Policies. Typically, these hedging instruments include interest rate swaps and, to a lesser extent, foreign currency swaps where the terms or expected cash flows of the hedged item closely match the terms of the swap. The interest rate swaps are typically used to manage interest rate duration of certain fixed maturity securities or debt instruments issued.
Cash Flow Hedges
Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives primarily convert interest receipts on variable-rate fixed maturity securities to fixed rates. The Company has also entered into interest rate swaps to convert the variable interest payments on the $500 junior subordinated debentures due 2067 to fixed interest payments. For further information, see the Junior Subordinated Debentures section within Note 14 - Debt.
Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.
Non-qualifying Strategies
Derivative relationships that do not qualify for hedge accounting (“non-qualifying strategies”) primarily include hedges of interest rate, foreign currency, equity, and commodity risk of certain fixed maturities and equities. In addition, hedging and replication strategies that utilize credit default swaps do not qualify for hedge accounting. The non-qualifying strategies include:
Credit Contracts
Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in the value of fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity or referenced index as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty or the Company should the referenced security issuers experience a credit event, as defined in the contract. The Company also enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.
Interest Rate Swaps and Futures
The Company uses interest rate swaps and futures to manage interest rate duration between assets and liabilities. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap going forward. As of December 31, 2023 and
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 6 - Derivatives |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 2022, the notional amount of interest rate swaps in offsetting relationships was $6.6 billion for both periods.
Foreign Currency Swaps and Forwards
The Company enters into foreign currency swaps to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.
Equity Index Options
The Company may enter into equity index options to hedge the impact of a decline in the equity markets on the investment portfolio. The Company has also previously entered into covered call options on equity securities to generate additional return.
Commodity Options
The Company previously purchased call option contracts on oil futures in order to partially offset potential changes in value related to certain fixed maturity securities that could arise if oil prices increased substantially.
Derivative Balance Sheet Classification
For reporting purposes, the Company has elected to offset within assets or liabilities based upon the net of the fair value amounts, income accruals, and related cash collateral receivables and payables of OTC derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The following fair value amounts do not include income accruals or related cash collateral receivables and payables, which are netted with derivative fair value amounts to determine balance sheet presentation. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the following table. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk.
Derivative Balance Sheet Presentation
| Net Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||||||
| Notional Amount | Fair Value | Fair Value | Fair Value | |||||||||||||||||||||||
| Hedge Designation/ Derivative Type | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2023 | Dec 31, 2022 | ||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||
| Interest rate swaps | $ | 3,450 | $ | 2,155 | $ | (1) | $ | — | $ | 1 | $ | — | $ | (2) | $ | — | ||||||||||
| Foreign currency swaps | 644 | 568 | 13 | 53 | 29 | 57 | (16) | (4) | ||||||||||||||||||
| Total cash flow hedges | 4,094 | 2,723 | 12 | 53 | 30 | 57 | (18) | (4) | ||||||||||||||||||
| Non-qualifying strategies | ||||||||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||||||||
| Interest rate swaps and futures | 6,626 | 7,245 | (5) | (6) | — | 2 | (5) | (8) | ||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||
| Foreign currency swaps and forwards | 645 | 569 | — | — | — | — | — | — | ||||||||||||||||||
| Credit contracts | ||||||||||||||||||||||||||
| Credit derivatives that purchase credit protection | — | 11 | — | — | — | — | — | — | ||||||||||||||||||
| Credit derivatives in offsetting positions | 998 | 207 | — | — | 27 | 3 | (27) | (3) | ||||||||||||||||||
| Total non-qualifying strategies | 8,269 | 8,032 | (5) | (6) | 27 | 5 | (32) | (11) | ||||||||||||||||||
| Total cash flow hedges and non-qualifying strategies | $ | 12,363 | $ | 10,755 | $ | 7 | $ | 47 | $ | 57 | $ | 62 | $ | (50) | $ | (15) | ||||||||||
| Balance Sheet Location | ||||||||||||||||||||||||||
| Fixed maturities, AFS | $ | 645 | $ | 569 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Other investments | 1,662 | 9,108 | (1) | 34 | 18 | 38 | (19) | (4) | ||||||||||||||||||
| Other liabilities | 10,056 | 1,078 | 8 | 13 | 39 | 24 | (31) | (11) | ||||||||||||||||||
| Total derivatives | $ | 12,363 | $ | 10,755 | $ | 7 | $ | 47 | $ | 57 | $ | 62 | $ | (50) | $ | (15) |
.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 6 - Derivatives |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Offsetting of Derivative Assets/Liabilities
The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Consolidated Balance Sheets. Offsetting amounts include fair value amounts, income accruals and related cash collateral receivables and payables associated with derivative instruments that are traded under a common master netting agreement, as described in the preceding discussion. Also included in the tables are financial collateral receivables and payables, which are contractually permitted to be offset upon an event of default, although are disallowed for offsetting under U.S. GAAP.
Offsetting Derivative Assets and Liabilities
| (i) | (ii) | (iii) = (i) - (ii) | (iv) | (v) = (iii) - (iv) | ||||||||||||||||
| Net Amounts Presented in the Statement of Financial Position | Collateral Disallowed for Offset in the Statement of Financial Position | |||||||||||||||||||
| Gross Amounts of Recognized Assets (Liabilities) | Gross Amounts Offset in the Statement of Financial Position | Derivative Assets [1] (Liabilities) [2] | Accrued Interest and Cash Collateral (Received) [3] Pledged [2] | Financial Collateral (Received) Pledged [4] | Net Amount | |||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||
| Other investments | $ | 57 | $ | 55 | $ | (1) | $ | 3 | $ | — | $ | 2 | ||||||||
| Other liabilities | $ | (50) | $ | (36) | $ | 8 | $ | (22) | $ | (13) | $ | (1) | ||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Other investments | $ | 62 | $ | 60 | $ | 34 | $ | (32) | $ | — | $ | 2 | ||||||||
| Other liabilities | $ | (15) | $ | (7) | $ | 13 | $ | (21) | $ | (7) | $ | (1) |
*[1]*Included in other investments in the Company's Consolidated Balance Sheets.
*[2]*Included in other liabilities in the Company's Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.
*[3]*Included in other investments in the Company's Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.
*[4]*Excludes collateral associated with exchange-traded derivative instruments.
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the
same period or periods during which the hedged transaction affects earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.
| Gain (Loss) Recognized in OCI | |||||||||||
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Interest rate swaps | $ | 6 | $ | — | $ | 4 | |||||
| Foreign currency swaps | (31) | 56 | 24 | ||||||||
| Total | $ | (25) | $ | 56 | $ | 28 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 6 - Derivatives |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Gain (Loss) Reclassified from AOCI into Income | |||||||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Net Realized Gain/(Loss) | Net Investment Income | Interest Expense | Net Realized Gain/(Loss) | Net Investment Income | Interest Expense | Net Realized Gain/(Loss) | Net Investment Income | Interest Expense | |||||||||||||||||||||||||||
| Interest rate swaps | $ | — | $ | (26) | $ | 15 | $ | — | $ | 6 | $ | (2) | $ | — | $ | 41 | $ | (10) | |||||||||||||||||
| Foreign currency swaps | — | 10 | — | — | 9 | — | — | 5 | — | ||||||||||||||||||||||||||
| Total | $ | — | $ | (16) | $ | 15 | $ | — | $ | 15 | $ | (2) | $ | — | $ | 46 | $ | (10) | |||||||||||||||||
| Total amounts presented on the Consolidated Statement of Operations | $ | (188) | $ | 2,305 | $ | 199 | $ | (627) | $ | 2,177 | $ | 213 | $ | 509 | $ | 2,313 | $ | 234 |
As of December 31, 2023, the before tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $18. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities and long-term debt that will occur over the next twelve months. Over that time, the Company will recognize the deferred net gains (losses) as an adjustment to net investment income or interest expense, as applicable, over the term of the hedged instrument cash flows.
During the years ended December 31, 2023, 2022, and 2021, the Company had no net reclassifications from AOCI to earnings
resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.
Non-qualifying Strategies
For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized gains (losses).
Non-Qualifying Strategies Recognized within Net Realized Gains (Losses)
| For the Year Ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Foreign exchange contracts | |||||||||||
| Foreign currency swaps and forwards | $ | — | $ | 5 | $ | 2 | |||||
| Interest rate contracts | |||||||||||
| Interest rate swaps, swaptions and futures | (3) | 25 | 3 | ||||||||
| Credit contracts | |||||||||||
| Credit derivatives that purchase credit protection | (105) | 4 | — | ||||||||
| Credit derivatives that assume credit risk | — | — | 7 | ||||||||
| Equity contracts | |||||||||||
| Equity options | — | (2) | — | ||||||||
| Commodity contracts | |||||||||||
| Commodity options | — | 14 | — | ||||||||
| Total [1] | $ | (108) | $ | 46 | $ | 12 |
*[1]*Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 4 - Fair Value Measurements.
Credit Risk Assumed through Credit Derivatives
The Company enters into credit default swaps that assume credit risk of a single entity or referenced index in order to synthetically replicate investment transactions that are permissible under the Company's investment policies. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be
equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk may reference investment grade single corporate issuers and baskets, which include standard diversified portfolios of corporate and CMBS issuers.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 6 - Derivatives |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Credit Risk Assumed Derivatives by Type
| Underlying Referenced Credit Obligation(s) [1] | ||||||||||||||||||||||||||
| Notional Amount [2] | Fair Value | Weighted Average Years to Maturity | Type | Average Credit Rating | Offsetting Notional Amount [3] | Offsetting Fair Value [3] | ||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||
| Basket credit default swaps [4] | ||||||||||||||||||||||||||
| Investment grade risk exposure | $ | 101 | $ | (1) | 5 years | CMBS Credit | AAA | $ | 101 | $ | 1 | |||||||||||||||
| Below investment grade risk exposure | 396 | 24 | 4 years | Corporate Credit | B+ | 396 | (24) | |||||||||||||||||||
| Below investment grade risk exposure | 2 | (1) | Less than 1 year | CMBS Credit | CCC- | 2 | 1 | |||||||||||||||||||
| Total [5] | $ | 499 | $ | 22 | $ | 499 | $ | (22) | ||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||||||||
| Basket credit default swaps [4] | ||||||||||||||||||||||||||
| Investment grade risk exposure | $ | 100 | $ | (1) | 6 years | CMBS Credit | AAA | $ | 100 | $ | 1 | |||||||||||||||
| Below investment grade risk exposure | 3 | (2) | Less than 1 year | CMBS Credit | B- | 3 | 2 | |||||||||||||||||||
| Total [5] | $ | 103 | $ | (3) | $ | 103 | $ | 3 |
*[1]*The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.
*[2]*Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements and applicable law which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.
*[3]*The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.
*[4]*Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.
*[5]*Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note 4 - Fair Value Measurements.
Derivative Collateral Arrangements
The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of December 31, 2023 and 2022, the Company has pledged cash collateral associated with derivative instruments of $25 and less than $1, respectively. In general, collateral receivable is recorded in other assets or other liabilities on the Company's Consolidated Balance Sheets as determined by the Company's election to offset on the balance sheet. As of December 31, 2023 and 2022, the Company pledged securities collateral associated with derivative instruments with a fair value of $14 and $8, respectively, which have been included in fixed maturities on the Consolidated Balance Sheets. The counterparties have the right to sell or re-pledge these securities.
In addition, as of December 31, 2023 and 2022, the Company has pledged initial margin of cash related to OTC-cleared and exchange traded derivatives with a fair value of $16 for both periods, which is recorded in other investments or other assets on the Company's Consolidated Balance Sheets. As of December 31, 2023 and 2022, the Company has pledged initial margin of securities related to OTC-cleared and exchange traded derivatives with a fair value of $112 and $57, respectively, which are included within fixed maturities on the Company's Consolidated Balance Sheets.
As of December 31, 2023 and 2022, the Company accepted cash collateral associated with derivative instruments of $49 and $56, respectively, which was invested and recorded in the Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other investments or other liabilities as determined by the Company's election to offset on the balance sheet. The Company also accepted securities collateral as of December 31, 2023 and 2022 with a fair value of $0 and $1, respectively, which the Company has the right to repledge or sell. As of December 31, 2023 and 2022, the Company had no repledged securities. In addition, as of December 31, 2023 and 2022, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 7 - Premiums Receivable and Agents' Balances |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. PREMIUMS RECEIVABLE AND AGENTS' BALANCES
| Premiums Receivable and Agents' Balances | ||||||||
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Premiums receivable, excluding receivables for losses within a deductible and retrospectively-rated policy premiums ("loss sensitive business") | $ | 5,303 | $ | 4,698 | ||||
| Receivables for loss sensitive business, by credit quality: | ||||||||
| AA | 94 | 106 | ||||||
| A | 54 | 38 | ||||||
| BBB | 136 | 119 | ||||||
| BB | 84 | 56 | ||||||
| Below BB | 45 | 41 | ||||||
| Total receivables for loss sensitive business | 413 | 360 | ||||||
| Total Premiums Receivable and Agents' Balances, Gross | 5,716 | 5,058 | ||||||
| ACL | (109) | (109) | ||||||
| Total Premiums Receivable and Agents' Balances, Net of ACL | $ | 5,607 | $ | 4,949 |
ACL on Premiums Receivable and Agents' Balances
Premiums receivable and agents' balances, excluding receivables for loss sensitive business, are primarily comprised of premiums due from policyholders, which are typically collectible within one year or less. For these balances, the ACL is estimated based on an aging of receivables and recent historical credit loss and collection experience, adjusted for current economic conditions and reasonable and supportable forecasts, when appropriate. Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods.
A portion of the Company's Commercial Lines business is written with large deductibles or under retrospectively-rated plans (referred to as "loss sensitive business"). Under some commercial insurance contracts with a large deductible, the
Company is obligated to pay the claimant the full amount of the claim and the Company is subsequently reimbursed by the policyholder for the deductible amount. As such, the Company is subject to credit risk until reimbursement is made. Retrospectively-rated policies are utilized primarily for workers' compensation coverage, whereby the ultimate premium is adjusted based on actual losses incurred. Although the premium adjustment feature of a retrospectively-rated policy substantially reduces insurance risk for the Company, it presents credit risk to the Company. The Company’s results of operations could be adversely affected if a significant portion of such policyholders failed to reimburse the Company for the deductible amount or the amount of additional premium owed under retrospectively-rated policies. The Company manages these credit risks through credit analysis, collateral requirements, and oversight.
The ACL for receivables for loss sensitive business is estimated as the amount of the receivable exposed to loss multiplied by estimated factors for probability of default and the amount of loss given a default. The probability of default is assigned based on each policyholder's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed and updated at least annually. The exposure amount is estimated net of collateral and other credit enhancement, considering the nature of the collateral, potential future changes in collateral values, and historical loss information for the type of collateral obtained. The probability of default factors are historical corporate defaults for receivables with similar durations estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors through multiple economic cycles. The Company's evaluation of the required ACL for receivables for loss sensitive business considers the current economic environment as well as the probability-weighted macroeconomic scenarios similar to the approach used for estimating the ACL for mortgage loans. See Note 5 - Investments.
During 2021, the ACL on premiums receivable decreased as the provision required on premiums written during the year was more than offset by write-offs and a reduction in the provision, primarily reflecting lessening expected impacts of COVID-19 relative to prior assumptions in certain lines of business.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 7 - Premiums Receivable and Agents' Balances |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Rollforward of ACL on Premiums Receivable and Agents' Balances for the Year Ended | |||||||||||||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||
| Receivables Excluding Receivables for Loss Sensitive Business | Receivables for Loss Sensitive Business | Total | Receivables Excluding Receivables for Loss Sensitive Business | Receivables for Loss Sensitive Business | Total | Receivables Excluding Receivables for Loss Sensitive Business | Receivables for Loss Sensitive Business | Total | |||||||||||||||||||||||||||
| Beginning ACL | $ | 85 | $ | 24 | $ | 109 | $ | 83 | $ | 22 | $ | 105 | $ | 117 | $ | 35 | $ | 152 | |||||||||||||||||
| Current period provision (release) | 52 | (2) | 50 | 48 | 3 | 51 | 17 | (13) | 4 | ||||||||||||||||||||||||||
| Current period gross write-offs | (55) | (2) | (57) | (56) | (1) | (57) | (59) | — | (59) | ||||||||||||||||||||||||||
| Current period gross recoveries | 7 | — | 7 | 10 | — | 10 | 8 | — | 8 | ||||||||||||||||||||||||||
| Ending ACL | $ | 89 | $ | 20 | $ | 109 | $ | 85 | $ | 24 | $ | 109 | $ | 83 | $ | 22 | $ | 105 |
8. REINSURANCE
The Company cedes insurance risk to reinsurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers.
The Company has two ADC reinsurance agreements in place, both of which are accounted for as retroactive reinsurance. One agreement covers substantially all A&E reserve development for 2016 and prior accident years ("A&E ADC") up to an aggregate limit of $1.5 billion and the other covered substantially all reserve development of Navigators Insurance Company ("NIC") and certain of its affiliates for 2018 and prior accident years (the "Navigators ADC") up to an aggregate limit of $300. As the Company has ceded all of the $300 available limit, there is no remaining limit available under the Navigators ADC. For more information on ADC agreements, see Note 1 - Basis of Presentation and Significant Accounting Policies, and Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses.
Property and Casualty ceded losses, which reduce losses and loss adjustment expenses incurred, were $1,043, $1,338 and $1,243 for the years ended December 31, 2023, 2022 and 2021, respectively.
Group Benefits ceded losses, which reduce losses and loss adjustment expenses incurred, were $93, $81 and $85 for the years ended December 31, 2023, 2022 and 2021, respectively.
Reinsurance Recoverables
Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported ("IBNR") unpaid losses. The Company’s estimate of losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance recoverables based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 8 - Reinsurance |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Reinsurance Recoverables by Credit Quality Indicator | |||||||||||||||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||
| P&C | Group Benefits | Corporate | Total | P&C | Group Benefits | Corporate | Total | ||||||||||||||||||||||
| AM Best Financial Strength Rating | |||||||||||||||||||||||||||||
| A++ | $ | 2,398 | $ | — | $ | — | $ | 2,398 | $ | 2,094 | $ | — | $ | — | $ | 2,094 | |||||||||||||
| A+ | 2,030 | 251 | 241 | 2,522 | 2,169 | 239 | 259 | 2,667 | |||||||||||||||||||||
| A | 810 | 1 | — | 811 | 763 | 1 | — | 764 | |||||||||||||||||||||
| A- | 653 | 5 | — | 658 | 79 | 6 | — | 85 | |||||||||||||||||||||
| B++ | 2 | — | 3 | 5 | 616 | — | 2 | 618 | |||||||||||||||||||||
| Below B++ | 22 | — | — | 22 | 20 | — | — | 20 | |||||||||||||||||||||
| Total Rated by AM Best | 5,915 | 257 | 244 | 6,416 | 5,741 | 246 | 261 | 6,248 | |||||||||||||||||||||
| Mandatory (Assigned) and Voluntary Risk Pools | 208 | — | — | 208 | 218 | — | — | 218 | |||||||||||||||||||||
| Captives | 353 | — | — | 353 | 319 | — | — | 319 | |||||||||||||||||||||
| Other not rated companies | 226 | 4 | — | 230 | 279 | 5 | — | 284 | |||||||||||||||||||||
| Gross Reinsurance Recoverables | 6,702 | 261 | 244 | 7,207 | 6,557 | 251 | 261 | 7,069 | |||||||||||||||||||||
| Allowance for uncollectible reinsurance | (100) | (1) | (2) | (103) | (102) | (1) | (2) | (105) | |||||||||||||||||||||
| Net Reinsurance Recoverables | $ | 6,602 | $ | 260 | $ | 242 | $ | 7,104 | $ | 6,455 | $ | 250 | $ | 259 | $ | 6,964 | |||||||||||||
Balances are considered past due when amounts that have been billed are not collected within contractually stipulated time periods, generally 30, 60 or 90 days. To manage reinsurer credit risk, a reinsurance security review committee evaluates the credit standing, financial performance, management and operational quality of each potential reinsurer. In placing reinsurance, the Company considers the nature of the risk reinsured, including the expected liability payout duration, and establishes limits tiered by reinsurer credit rating.
Where its contracts permit, the Company secures future claim obligations with various forms of collateral or other credit enhancement, including irrevocable letters of credit, secured trusts, funds held accounts and group wide offsets. As part of its reinsurance recoverable review, the Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between cedants and reinsurers and the overall credit quality of the Company’s reinsurers.
Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.
The allowance for uncollectible reinsurance comprises an ACL and an allowance for disputed balances. The ACL is estimated as the amount of reinsurance recoverables exposed to loss multiplied by estimated factors for the probability of default and the amount of loss given a default. The probability of default is assigned based on each reinsurer's credit rating, or a rating is estimated if no external rating is available. Credit ratings are reviewed on a quarterly basis and any significant changes are reflected in an updated estimate. The probability of default
factors are historical insurer and reinsurer defaults for liabilities with similar durations to the reinsured liabilities as estimated through multiple economic cycles. Credit ratings are forward-looking and consider a variety of economic outcomes. The loss given default factors are based on a study of historical recovery rates for general creditors of corporations through multiple economic cycles or, in the case of purchased annuities funding structured settlements accounted for as reinsurance, historical recovery rates for annuity contract holders.
As shown in the table above, a portion of the total gross reinsurance recoverable balance relates to the Company’s participation in various mandatory (assigned) and voluntary risk pools. Reinsurance recoverables due from pools are backed by the financial position of all insurance companies participating in the pools and the credit backing the reinsurance recoverable is not limited to the financial strength of each pool. The mandatory pools generally are funded through policy assessments or surcharges and if any participant in the pool defaults, remaining liabilities are apportioned among the other members.
The Company's evaluation of the required ACL for reinsurance recoverables considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 5 - Investments. Insurance companies, including reinsurers, are regulated and hold risk-based capital ("RBC") to mitigate the risk of loss due to economic factors and other risks. Non-U.S. reinsurers are either subject to a capital regime substantively equivalent to domestic insurers or we hold collateral to support collection of reinsurance recoverables. As a result, there is limited history of losses from insurer defaults. The decrease in the ACL in 2021 was primarily due to a higher than expected recovery from one reinsurer on which the Company had recognized an ACL.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 8 - Reinsurance |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Allowance for Uncollectible Reinsurance | |||||||||||||||||
| As of December 31, 2023 | As of December 31, 2022 | As of December 31, 2021 | |||||||||||||||
| P&C beginning allowance for uncollectible reinsurance | $ | 102 | $ | 96 | $ | 105 | |||||||||||
| Beginning allowance for disputed amounts | 60 | 54 | 53 | ||||||||||||||
| P&C beginning ACL | 42 | 42 | 52 | ||||||||||||||
| Current period provision (release) | 3 | — | (9) | ||||||||||||||
| Current period gross write-offs | (2) | — | (1) | ||||||||||||||
| P&C ending ACL | 43 | 42 | 42 | ||||||||||||||
| Ending allowance for disputed amounts | 57 | 60 | 54 | ||||||||||||||
| P&C ending allowance for uncollectible reinsurance | 100 | 102 | 96 | ||||||||||||||
| Group Benefits allowance for uncollectible reinsurance | 1 | 1 | 1 | ||||||||||||||
| Corporate allowance for uncollectible reinsurance | 2 | 2 | 2 | ||||||||||||||
| Total allowance for uncollectible reinsurance | $ | 103 | $ | 105 | $ | 99 |
Insurance Revenues
Property and Casualty Insurance Revenue
| For the years ended December 31, | ||||||||||||||
| Premiums Written | 2023 | 2022 | 2021 | |||||||||||
| Direct | $ | 16,144 | $ | 14,891 | $ | 13,696 | ||||||||
| Assumed | 975 | 718 | 631 | |||||||||||
| Ceded | (1,642) | (1,490) | (1,378) | |||||||||||
| Net | $ | 15,477 | $ | 14,119 | $ | 12,949 | ||||||||
| Premiums Earned | ||||||||||||||
| Direct | $ | 15,514 | $ | 14,328 | $ | 13,204 | ||||||||
| Assumed | 826 | 654 | 568 | |||||||||||
| Ceded | (1,612) | (1,462) | (1,277) | |||||||||||
| Net | $ | 14,728 | $ | 13,520 | $ | 12,495 |
Group Benefits Revenue
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Gross earned premiums, fees and other considerations | $ | 6,445 | $ | 5,988 | $ | 5,663 | |||||
| Reinsurance assumed | 174 | 175 | 128 | ||||||||
| Reinsurance ceded | (104) | (106) | (104) | ||||||||
| Net earned premiums, fees and other considerations | $ | 6,515 | $ | 6,057 | $ | 5,687 |
For its group benefits products, the Company reinsures certain of its risks to other reinsurers under yearly renewable term and coinsurance arrangements and variations thereto. Yearly renewable term and coinsurance arrangements result in passing
a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable for a corresponding proportionate amount of all benefit payments.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 9 - Deferred Policy Acquisition Costs |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. DEFERRED POLICY ACQUISITION COSTS
Changes in DAC
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Balance, beginning of period | $ | 998 | $ | 874 | $ | 782 | |||||
| Deferred costs | 2,159 | 1,939 | 1,739 | ||||||||
| Amortization — DAC | (2,044) | (1,824) | (1,668) | ||||||||
| Add back amortization of value of business acquired [1] | — | 9 | 21 | ||||||||
| Balance, end of period | $ | 1,113 | $ | 998 | $ | 874 |
*[1]*While the value of in-force contracts acquired from the Navigators Group acquisition is included in other intangible assets, the amortization of that asset is recorded as DAC amortization.
10. GOODWILL & OTHER INTANGIBLE ASSETS
The carrying value of goodwill allocated to reporting segments as of December 31, 2023 and 2022 was as follows:
| Carrying Value | |||||||||||
| Commercial Lines | $ | 659 | |||||||||
| Personal Lines | 119 | ||||||||||
| Hartford Funds | 180 | ||||||||||
| Group Benefits | 723 | ||||||||||
| Corporate [1] | 230 | ||||||||||
| Total | $ | 1,911 |
*[1]*The Corporate category includes goodwill that was acquired at a holding company level and not pushed down to a subsidiary within a reportable segment. Carrying value of goodwill within Corporate as of December 31, 2023 and 2022 includes $138 and $92 for the Group Benefits and Hartford Funds reporting units, respectively.
The annual goodwill assessment for The Hartford's reporting units was completed as of October 31, 2023 and 2022; all reporting units passed their annual impairment test with a
significant margin and as a result there were no write-downs of goodwill.
Other Intangible Assets
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||
| Amortized Intangible Assets: | |||||||||||||||||||||||
| Customer relationships | $ | 636 | $ | (269) | $ | 367 | $ | 636 | $ | (225) | $ | 411 | |||||||||||
| Marketing agreement with Aetna | 16 | (7) | 9 | 16 | (6) | 10 | |||||||||||||||||
| Distribution Agreement | 79 | (72) | 7 | 79 | (70) | 9 | |||||||||||||||||
| Distribution and Agency relationships & Other | 340 | (111) | 229 | 340 | (87) | 253 | |||||||||||||||||
| Total Finite Life Intangibles | 1,071 | (459) | 612 | 1,071 | (388) | 683 | |||||||||||||||||
| Total Indefinite Life Intangible Assets | 95 | 95 | 95 | 95 | |||||||||||||||||||
| Total Other Intangible Assets | $ | 1,166 | $ | (459) | $ | 707 | $ | 1,166 | $ | (388) | $ | 778 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 10 - Goodwill & Other Intangible Assets |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Expected Before Tax Amortization Expense for Acquired Intangibles as of December 31, 2023
| Other Intangible Assets | ||||||||
| 2024 | $ | 71 | ||||||
| 2025 | $ | 71 | ||||||
| 2026 | $ | 70 | ||||||
| 2027 | $ | 68 | ||||||
| 2028 | $ | 64 |
11. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
|PROPERTY & CASUALTY INSURANCE PRODUCT RESERVES, NET OF REINSURANCE
Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 33,083 | $ | 31,449 | $ | 29,622 | |||||
| Reinsurance and other recoverables | 6,465 | 6,081 | 5,725 | ||||||||
| Beginning liabilities for unpaid losses and loss adjustment expenses, net | 26,618 | 25,368 | 23,897 | ||||||||
| Provision for unpaid losses and loss adjustment expenses | |||||||||||
| Current accident year | 9,538 | 8,577 | 7,911 | ||||||||
| Prior accident year development [1] | 10 | 36 | 199 | ||||||||
| Total provision for unpaid losses and loss adjustment expenses | 9,548 | 8,613 | 8,110 | ||||||||
| Change in deferred gain on retroactive reinsurance included in other liabilities [1] | (194) | (229) | (246) | ||||||||
| Payments | |||||||||||
| Current accident year | (2,716) | (2,424) | (2,276) | ||||||||
| Prior accident years | (5,926) | (4,678) | (4,119) | ||||||||
| Total payments | (8,642) | (7,102) | (6,395) | ||||||||
| Foreign currency adjustment | 18 | (32) | 2 | ||||||||
| Ending liabilities for unpaid losses and loss adjustment expenses, net | 27,348 | 26,618 | 25,368 | ||||||||
| Reinsurance and other recoverables | 6,696 | 6,465 | 6,081 | ||||||||
| Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 34,044 | $ | 33,083 | $ | 31,449 |
*[1]*Prior accident year development does not include the benefit of a portion of losses ceded under the Navigators and A&E ADC which, under retroactive reinsurance accounting, is deferred and is recognized over the period the ceded losses are recovered in cash from National Indemnity Company ("NICO"), a subsidiary of Berkshire Hathaway Inc. For additional information regarding the two adverse development cover reinsurance agreements, refer to Adverse Development Covers discussion below.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Casualty Insurance Products Reserves, Net of Reinsurance, that are Discounted
| For the years ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Liability for unpaid losses and loss adjustment expenses, at undiscounted amounts | $ | 1,255 | $ | 1,343 | $ | 1,405 | |||||||||||||||||||||||
| Amount of discount | 339 | 347 | 355 | ||||||||||||||||||||||||||
| Carrying value of liability for unpaid losses and loss adjustment expenses | $ | 916 | $ | 996 | $ | 1,050 | |||||||||||||||||||||||
| Discount accretion included in losses and loss adjustment expenses | $ | 42 | $ | 36 | $ | 36 | |||||||||||||||||||||||
| Weighted average discount rate | 2.74 | % | 2.71 | % | 2.54 | % | |||||||||||||||||||||||
| Range of discount rates | 0.83 | % | - | 14.03 | % | 0.83 | % | - | 14.03 | % | 0.83 | % | - | 14.03 | % |
Reserves are discounted at rates in effect at the time claims were incurred, ranging from 0.83% for accident year 2020 to 14.03% for accident year 1981.
The reserves recorded for the Company’s property and casualty insurance products at December 31, 2023 represent the Company’s best estimate of its ultimate liability for losses and loss adjustment expenses related to losses covered by policies written by the Company. However, because of the significant uncertainties surrounding reserves it is possible that management’s estimate of the ultimate liabilities for these claims may change and that the required adjustment to recorded reserves could exceed the currently recorded reserves by an amount that could be material to the Company’s results of operations or cash flows.
Losses and loss adjustment expenses are also impacted by trends including frequency and severity as well as changes in the legislative and regulatory environment. In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty in the ultimate settlement of the liabilities gross of reinsurance include inadequate loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent emerging legal doctrines. In the case of the reserves for environmental exposures before reinsurance, factors contributing to the high degree of uncertainty in gross reserves include expanding theories of liabilities and damages, the risks inherent in major litigation, inconsistent decisions concerning the existence and scope of coverage for environmental claims, and uncertainty as to the monetary amount being sought by the claimant from the insured.
(Favorable) Unfavorable Prior Accident Year Development
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Workers’ compensation | $ | (236) | $ | (204) | $ | (190) | |||||
| Workers’ compensation discount accretion | 42 | 36 | 35 | ||||||||
| General liability | 41 | 56 | 454 | ||||||||
| Marine | (2) | 2 | 1 | ||||||||
| Package business | (24) | (39) | (91) | ||||||||
| Commercial property | (7) | (11) | (26) | ||||||||
| Professional liability | (2) | (11) | (2) | ||||||||
| Bond | (27) | (32) | (26) | ||||||||
| Assumed reinsurance | 34 | 19 | (6) | ||||||||
| Automobile liability - Commercial Lines | 20 | 38 | 9 | ||||||||
| Automobile liability - Personal Lines | — | (14) | (90) | ||||||||
| Homeowners | (6) | (1) | 3 | ||||||||
| Net asbestos and environmental reserves | — | — | — | ||||||||
| Catastrophes | (87) | (62) | (154) | ||||||||
| Uncollectible reinsurance | 13 | 3 | (6) | ||||||||
| Other reserve re-estimates, net | 57 | 27 | 42 | ||||||||
| Prior accident year development, including full benefit for the ADC cession | (184) | (193) | (47) | ||||||||
| Change in deferred gain on retroactive reinsurance included in other liabilities [1] | 194 | 229 | 246 | ||||||||
| Total prior accident year development | $ | 10 | $ | 36 | $ | 199 |
[1]The change in deferred gain for the years ended December 31, 2023, 2022 and 2021 included $194, $229 and $155, respectively of adverse development on A&E reserves in excess of ceded premium paid and included $0, $0 and $91 respectively, of adverse development on Navigators 2018 and prior accident year reserves ceded to NICO, primarily within professional liability, general liability and marine.
2023 re-estimates of prior accident year reserves
Workers’ compensation reserves were decreased within the 2014 to 2020 accident years primarily in small commercial, driven by lower than previously estimated claim
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
severity. In addition, the majority of the 2020 accident year relates to a $38 reduction of COVID-19 related reserves.
General liability reserves were increased driven by higher frequency and estimated cost to settle large individual claims for the 2016 to 2019 accident years, partially offset by a decrease in reserves for the 2020 accident year due to favorable experience. In addition, reserves for sexual molestation and sexual abuse claims were increased for older accident years. Also included was a decrease in reserves for extra contractual liability claims and other miscellaneous run-off lines.
Package business reserves decreased primarily due to lower than previously estimated property severity for accident year 2019 and 2021. Package liability is flat overall with reserve increases related to higher severity across multiple accident years offset by improvement in accident year 2020 due to favorable claim count emergence.
Commercial property reserves decreased primarily due to favorable development for accident years 2018 and 2021. In accident year 2022, unfavorable development in middle & large commercial was offset by favorable development in global specialty.
Professional liability reserves decreased modestly due to favorable development on directors' and officers' ("D&O") claims driven by the 2020 and 2021 accident years, partially offset by deterioration in 2019 and prior accident years experience across errors and omissions and other claims.
Bond reserves decreased primarily due to improvement in fidelity in 2013 and prior accident years, as well as improvement in contract surety in 2019 and prior accident years, partially offset by unfavorable development for 2013 and prior accident years related to customs bonds.
Assumed reinsurance reserves were increased due to higher reserve estimates in the Latin America casualty and surety business.
Automobile liability reserves - Commercial Lines increased primarily due to adverse loss development from elevated large loss frequency and severity pressures within middle & large commercial for accident year 2022, as well as unfavorable experience in accident year 2019, partly offset by favorable development in accident years 2020 and 2021.
Automobile liability reserves - Personal Lines were flat as increases for accident year 2022 from higher estimated severity and increasing attorney representation rates were fully offset by decreases, primarily within accident years 2019 to 2021, due to lower estimated severity.
Catastrophe reserves were decreased primarily within Commercial Lines driven by a reduction in reserves in accident year 2022 for Hurricane Ian and accident year 2021 for Hurricane Ida.
Uncollectible reinsurance was increased primarily in Commercial Lines related to a captive reinsurer and, to a lesser extent, an increase in reserves for potential collection disputes and credit concerns.
Other reserve re-estimates, net, were increased primarily due to an increase in unallocated loss adjustment expense ("ULAE") reserves within P&C Other Operations driven by an increase in gross asbestos and environmental reserves, as well as an increase in accident year 2022 Personal Lines automobile physical damage severity.
Asbestos and environmental reserves were reviewed in fourth quarter 2023 resulting in a $194 increase in reserves before ADC reinsurance, including $156 for asbestos and $38 for environmental. The Company recognized a $194 deferred gain on retroactive reinsurance, representing the amount of losses ceded to the ADC in excess of ceded premium paid. For additional information related to the adverse development cover with NICO, see the Adverse Development Covers section below and Note 15 - Commitments and Contingencies.
2022 re-estimates of prior accident year reserves
Workers’ compensation reserves were decreased for the 2014 through 2018 accident years, predominately within small commercial, and to a lesser extent in middle & large commercial, driven by lower than previously estimated claim severity and, to a lesser extent, a $14 reduction of COVID-19 related claims from 2020.
General liability reserves were increased, driven by an increase in the estimated cost to settle large individual claims in middle & large commercial for the 2016 to 2019 accident years, an increase in excess casualty and environmental in recent accident years, and increases in primary construction on older accident years, partially offset by a decrease in reserves for other mass torts.
Package business reserves decreased due to lower estimated severity and lower estimated loss adjustment expenses for accident years 2018 and prior, and a reduction in property reserves for the 2020 and 2021 accident years.
Commercial property reserves were decreased primarily due to favorable development for the 2020 accident year in middle & large commercial related to COVID-19 claims.
Professional liability reserves were decreased primarily due to favorable development on D&O claims for the 2018 to 2020 accident years and on errors and omissions claims for the 2013 to 2017 accident years, partially offset by large losses related to 2018 and prior accident years for primary and excess D&O claims.
Bond reserves were decreased primarily in contract surety due to favorable development on older accident years.
Assumed reinsurance reserves were increased primarily due to higher reserve estimates for syndicate property claims, including higher expected COVID-19 property losses in the 2020 accident year and increased reserves for international agriculture related to drought claims. Also contributing were reserve increases for Latin America P&C and specialty casualty business in recent accident years.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Automobile liability reserves were decreased in Personal Lines principally due to lower estimated severity on AARP Direct claims, primarily within accident years 2015 to 2020 and were increased in Commercial Lines principally due to a higher number of large claims in accident years 2017 to 2019, along with decreasing settlement rates and increasing attorney rep rates.
Catastrophes reserves were decreased in both Commercial and Personal Lines with the largest reduction related to 2019 and 2020 wind and hail events.
Asbestos and environmental reserves were reviewed in fourth quarter 2022 resulting in a $229 increase in reserves before ADC reinsurance, including $162 for asbestos and $67 for environmental. The Company recognized a $229 deferred gain on retroactive reinsurance, representing the amount of losses ceded to the ADC in excess of ceded premium paid. For additional information related to the adverse development cover with NICO, see the Adverse Development Covers section below and Note 15 - Commitments and Contingencies.
Other reserve re-estimates, net, were increased primarily due to an increase in ULAE reserves within P&C Other Operations driven by an increase in gross asbestos and environmental reserves, as well as unfavorable development from participation in involuntary market pools, and increased automobile physical damage severity.
2021 re-estimates of prior accident year reserves
Workers’ compensation reserves were decreased within small commercial and middle & large commercial for the 2013 through 2018 accident years driven by lower than previously estimated claim severity.
General liability reserves were increased including an increase for sexual molestation and sexual abuse claims above the amount of reserves previously recorded for this exposure, primarily to reflect an increase in reserves for claims made against the Boy Scouts of America ("BSA") as discussed further below, partially offset by reserve decreases for other mass torts and extra contractual liability claims. In addition, the Company recognized reserve increases on Navigators’ wholesale construction business for 2018 and prior accident years, largely included within the change in deferred gain on retroactive reinsurance in the above table.
Package business reserves decreased largely due to lower estimated loss adjustment expenses for accident years 2014 to 2018 and a reduction in estimated reserves for extra contractual liability claims.
Commercial property reserves were decreased primarily due to favorable development for the 2020 accident year in both middle & large commercial and global specialty.
Professional liability reserves were decreased due to lower estimated severity in both large and middle market D&O insurance for older accident years. More than offsetting this favorable reserve development were reserve increases on legacy Navigators public company D&O insurance for 2019 and
prior accident years, a portion of which is reflected within the change in deferred gain on retroactive reinsurance in the above table.
Bond reserves were reduced mostly due to favorable emergence on contract surety claims driven by higher than previously anticipated recoveries, largely for the 2016 to 2017 accident years.
Automobile liability reserves were decreased in Personal Lines principally due to lower estimated severity on AARP Direct and Agency claims, primarily within accident years 2017 to 2020, and a reduction in estimated reserves for extra contractual liability claims.
Catastrophes reserves were decreased in both Commercial and Personal Lines primarily driven by a reduction in reserves for 2018 and 2019 wind and hail events, lower estimated losses from 2018 and 2020 hurricanes, a reduction in estimated losses from the 2017 and 2018 California wildfires, including an expected recovery of subrogation from a utility related to the 2018 Woolsey wildfire in California, and a reduction in losses relating to the 2020 civil unrest.
Asbestos and environmental reserves were reviewed in fourth quarter 2021 resulting in a $155 increase in reserves before ADC reinsurance, including $106 for asbestos and $49 for environmental. The Company recognized a $155 deferred gain on retroactive reinsurance, representing the amount of losses ceded to the ADC in excess of ceded premium paid. For additional information related to the adverse development cover with NICO, see the Adverse Development Covers section below and Note 15 - Commitments and Contingencies.
Other reserve re-estimates, net, were increased primarily due to an increase in reserves for sexual molestation and sexual abuse claims within P&C Other Operations, principally on assumed reinsurance, as well as an increase in ULAE reserves within P&C Other Operations driven by an increase in gross asbestos and environmental reserves.
Settlement Agreement with Boy Scouts of America
On February 14, 2022, the Company executed a final settlement agreement (the “Settlement”) with the BSA, the Local Councils, and the attorneys representing a majority of the alleged victims, pursuant to which The Hartford agreed to pay $787 for sexual molestation and sexual abuse claims associated with liability policies issued by various Hartford Writing Companies in the 1970s and early 1980s. In exchange for its payment, the Company receives a complete release of its policies issued to BSA and the Local Councils, as well as an injunction against further abuse claims involving BSA. All conditions precedent to the Settlement have been satisfied, including approval by the bankruptcy court and the district court, and on April 20, 2023, The Hartford paid the Settlement amount of $787. Certain objecting parties have appealed the district court’s ruling and that appeal is pending before the Third Circuit. If the court approvals for the BSA’s plan of reorganization are not affirmed on appeal, it is possible that adverse outcomes, if any, could have a material adverse effect on the Company’s operating results.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Adverse Development Covers
The Company has an adverse development cover reinsurance agreement with NICO, a subsidiary of Berkshire Hathaway Inc., to reinsure loss development after 2016 on substantially all of the Company’s asbestos and environmental reserves (the “A&E ADC”). Under the A&E ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion including reserves for A&E exposure for accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E") and reserves for A&E exposure for accident years 1986 and subsequent from policies underwritten prior to 2016 that are reported in ongoing Commercial Lines and Personal Lines. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The A&E ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit.
Under retroactive reinsurance accounting, net adverse A&E reserve development after December 31, 2016 results in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid have been recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid result in a deferred gain. As of December 31, 2023, the Company has incurred $1,438 in cumulative adverse development on asbestos and environmental reserves that have been ceded under the A&E ADC treaty with NICO with $62 of available limit remaining under the A&E ADC. As a result, the Company has recorded a
$788 deferred gain within other liabilities, representing the difference between the reinsurance recoverable of $1,438 and ceded premium paid of $650. The deferred gain is recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims will result in charges against earnings which may be significant.
Immediately after closing on the acquisition of Navigators Group, effective May 23, 2019, the Company purchased the Navigators ADC, an aggregate excess of loss reinsurance agreement covering adverse reserve development, from NICO on behalf of Navigators Insurance Company and certain of its affiliates (collectively, “Navigators Insurers"). Under the Navigators ADC, the Navigators Insurers paid NICO a reinsurance premium of $91 in exchange for reinsurance coverage of $300 of adverse net loss reserve development that attaches $100 above the Navigators Insurers' existing net loss and allocated loss adjustment reserves as of December 31, 2018 subject to the treaty of $1.816 billion for accidents and losses prior to December 31, 2018.
As of December 31, 2023, the Company has recorded a reinsurance recoverable under the Navigators ADC of $300 as estimated cumulative loss development on the 2018 and prior accident year reserves has exhausted the treaty limit. While the reinsurance recoverable is $300, the Company has recorded a $209 cumulative deferred gain within other liabilities since, under retroactive reinsurance accounting, ceded losses in excess of the $91 of ceded premium paid must be recognized as a deferred gain. Of the $209 of cumulative ceded losses in excess of ceded premium paid, $0, $0 and $91 were recognized as changes in deferred gain in 2023, 2022 and 2021, respectively.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reconciliation of Loss Development to Liability for Unpaid Losses and Loss Adjustment Expenses As of December 31, 2023
| Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | Subtotal | |||||||||||||||||||||||||||||||
| Reserve Line | Cumulative Incurred for Accident Years Displayed in Triangles | Cumulative Paid for Accident Years Displayed in Triangles | Unpaid for Accident Years not Displayed in Triangles | Unpaid Unallocated Loss Adjustment Expenses, Net of Reinsurance | Discount | Unpaid Losses and Loss Adjustment Expenses, Net of Reinsurance | Reinsurance and Other Recoverables | Liability for Unpaid Losses and Loss Adjustment Expenses | ||||||||||||||||||||||||
| Workers' compensation | $ | 18,050 | $ | (9,482) | $ | 3,581 | $ | 388 | $ | (325) | $ | 12,212 | $ | 1,651 | $ | 13,863 | ||||||||||||||||
| General liability | 8,271 | (3,772) | 497 | 172 | — | 5,168 | 1,160 | 6,328 | ||||||||||||||||||||||||
| Marine | 1,452 | (1,182) | 11 | 14 | — | 295 | 255 | 550 | ||||||||||||||||||||||||
| Package business | 7,856 | (5,797) | 102 | 120 | — | 2,281 | 54 | 2,335 | ||||||||||||||||||||||||
| Commercial property | 4,068 | (3,568) | 13 | 27 | — | 540 | 271 | 811 | ||||||||||||||||||||||||
| Commercial automobile liability | 4,243 | (2,945) | 21 | 32 | — | 1,351 | 99 | 1,450 | ||||||||||||||||||||||||
| Commercial automobile physical damage | 215 | (194) | 3 | 1 | — | 25 | — | 25 | ||||||||||||||||||||||||
| Professional liability | 2,846 | (1,511) | 68 | 46 | — | 1,449 | 734 | 2,183 | ||||||||||||||||||||||||
| Bond | 680 | (284) | 26 | 36 | — | 458 | 14 | 472 | ||||||||||||||||||||||||
| Assumed Reinsurance | 1,798 | (1,242) | — | 6 | — | 562 | 44 | 606 | ||||||||||||||||||||||||
| Personal automobile liability | 10,874 | (9,393) | 29 | 62 | — | 1,572 | 27 | 1,599 | ||||||||||||||||||||||||
| Personal automobile physical damage | 1,535 | (1,462) | 7 | 4 | — | 84 | — | 84 | ||||||||||||||||||||||||
| Homeowners | 6,009 | (5,677) | 5 | 35 | — | 372 | 4 | 376 | ||||||||||||||||||||||||
| Other ongoing business | 170 | 5 | (14) | 161 | 347 | 508 | ||||||||||||||||||||||||||
| Asbestos and environmental [1] | 340 | — | — | 340 | 1,992 | 2,332 | ||||||||||||||||||||||||||
| Other operations [1] | 317 | 161 | — | 478 | 44 | 522 | ||||||||||||||||||||||||||
| Total P&C | $ | 67,897 | $ | (46,509) | $ | 5,190 | $ | 1,109 | $ | (339) | $ | 27,348 | $ | 6,696 | $ | 34,044 |
*[1]*Asbestos and environmental and other operations include asbestos, environmental and other latent exposures not foreseen when coverages were written, including, but not limited to, potential liability for pharmaceutical products, silica, talcum powder, head injuries, lead paint, construction defects, sexual molestation and sexual abuse and other long-tail liabilities. These reserve lines do not have significant paid or incurred loss development for the most recent ten accident years and therefore do not have loss development displayed in triangles.
The reserve lines in the above table and the loss triangles that follow represent the significant lines of business for which the Company regularly reviews the appropriateness of reserve levels. These reserve lines differ from the reserve lines reported on a statutory basis, as prescribed by the National Association of Insurance Commissioners ("NAIC"). The cumulative incurred losses displayed in the above table include the full reinsurance benefit of ceding $300 of losses to the Navigators ADC even though $209 of that benefit has been recorded as a deferred gain within other liabilities. The $300 of Navigators Insurers losses ceded to the Navigators ADC and reflected in the following triangles include $95 for professional liability, $105 for general liability, $38 for marine, $27 for assumed reinsurance, $14 for commercial automobile, $3 for commercial property, and $1 for bond. The triangles do not include $17 of losses ceded to the Navigators ADC related to older accident years and lines of business not in the triangles.
The following loss triangles present historical loss development for incurred and paid claims by accident year, including loss development on Navigators Insurers reserves prior to and after the May 23, 2019 acquisition date. Because the loss triangles include pre-acquisition date changes in ultimate incurred loss
estimates for Navigators Insurers’ reserves, changes in reserve development evident in the incurred loss triangles may differ from prior accident year development ("PYD") recorded by the Company as shown in the (Favorable) Unfavorable Prior Accident Year Development table above as that only includes changes in Navigators Insurers’ reserves post acquisition. In addition, the incurred loss triangles include reserve development on both catastrophe and non-catastrophe claims whereas the (Favorable) Unfavorable Prior Accident Year Development table above shows the total amount of catastrophe reserve development across all lines of business on a single line.
Triangles are limited to the number of years for which claims incurred typically remain outstanding, not exceeding ten years. Short-tail lines, which represent claims generally expected to be paid within a few years, have three years of claim development displayed. IBNR reserves shown in loss triangles include reserves for incurred but not reported claims as well as reserves for expected development on reported claims. Incurred and cumulative paid losses in currencies other than the U.S. dollar have been converted into U.S. dollars using the exchange rates as of December 31, 2023.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Workers' Compensation
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 1,869 | $ | 1,838 | $ | 1,789 | $ | 1,761 | $ | 1,713 | $ | 1,692 | $ | 1,679 | $ | 1,654 | $ | 1,637 | $ | 1,615 | $ | 327 | 126,753 | |||||||||||||||
| 2015 | 1,873 | 1,835 | 1,801 | 1,724 | 1,714 | 1,699 | 1,667 | 1,645 | 1,625 | 344 | 114,644 | |||||||||||||||||||||||||||
| 2016 | 1,772 | 1,772 | 1,780 | 1,767 | 1,748 | 1,708 | 1,670 | 1,634 | 375 | 112,675 | ||||||||||||||||||||||||||||
| 2017 | 1,862 | 1,869 | 1,840 | 1,822 | 1,757 | 1,665 | 1,635 | 442 | 112,215 | |||||||||||||||||||||||||||||
| 2018 | 1,916 | 1,917 | 1,915 | 1,904 | 1,870 | 1,836 | 524 | 119,524 | ||||||||||||||||||||||||||||||
| 2019 | 1,937 | 1,935 | 1,934 | 1,934 | 1,899 | 606 | 120,486 | |||||||||||||||||||||||||||||||
| 2020 | 1,865 | 1,864 | 1,849 | 1,808 | 766 | 91,762 | ||||||||||||||||||||||||||||||||
| 2021 | 1,831 | 1,832 | 1,831 | 791 | 102,180 | |||||||||||||||||||||||||||||||||
| 2022 | 2,000 | 2,001 | 1,049 | 112,597 | ||||||||||||||||||||||||||||||||||
| 2023 | 2,166 | 1,575 | 108,987 | |||||||||||||||||||||||||||||||||||
| Total | $ | 18,050 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 275 | $ | 598 | $ | 811 | $ | 960 | $ | 1,041 | $ | 1,099 | $ | 1,137 | $ | 1,167 | $ | 1,191 | $ | 1,207 | ||||||||||||
| 2015 | 261 | 576 | 778 | 909 | 1,004 | 1,068 | 1,117 | 1,151 | 1,179 | |||||||||||||||||||||||
| 2016 | 255 | 579 | 779 | 908 | 1,003 | 1,064 | 1,110 | 1,145 | ||||||||||||||||||||||||
| 2017 | 261 | 575 | 778 | 900 | 977 | 1,035 | 1,087 | |||||||||||||||||||||||||
| 2018 | 283 | 624 | 837 | 983 | 1,090 | 1,170 | ||||||||||||||||||||||||||
| 2019 | 291 | 637 | 856 | 1,007 | 1,129 | |||||||||||||||||||||||||||
| 2020 | 223 | 507 | 695 | 850 | ||||||||||||||||||||||||||||
| 2021 | 254 | 562 | 780 | |||||||||||||||||||||||||||||
| 2022 | 293 | 649 | ||||||||||||||||||||||||||||||
| 2023 | 286 | |||||||||||||||||||||||||||||||
| Total | $ | 9,482 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
General Liability
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 506 | $ | 475 | $ | 481 | $ | 494 | $ | 513 | $ | 522 | $ | 515 | $ | 505 | $ | 510 | $ | 506 | $ | 33 | 16,609 | |||||||||||||||
| 2015 | 556 | 560 | 554 | 594 | 633 | 647 | 637 | 647 | 641 | 51 | 16,786 | |||||||||||||||||||||||||||
| 2016 | 613 | 583 | 607 | 632 | 632 | 620 | 636 | 670 | 65 | 17,833 | ||||||||||||||||||||||||||||
| 2017 | 626 | 614 | 613 | 615 | 613 | 615 | 658 | 92 | 17,377 | |||||||||||||||||||||||||||||
| 2018 | 692 | 669 | 697 | 703 | 728 | 751 | 158 | 18,783 | ||||||||||||||||||||||||||||||
| 2019 | 822 | 826 | 821 | 839 | 859 | 259 | 18,432 | |||||||||||||||||||||||||||||||
| 2020 | 938 | 923 | 923 | 874 | 496 | 14,006 | ||||||||||||||||||||||||||||||||
| 2021 | 1,002 | 991 | 983 | 676 | 11,943 | |||||||||||||||||||||||||||||||||
| 2022 | 1,116 | 1,110 | 873 | 11,167 | ||||||||||||||||||||||||||||||||||
| 2023 | 1,219 | 1,173 | 7,835 | |||||||||||||||||||||||||||||||||||
| Total | $ | 8,271 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 15 | $ | 42 | $ | 130 | $ | 214 | $ | 304 | $ | 358 | $ | 402 | $ | 423 | $ | 437 | $ | 456 | ||||||||||||
| 2015 | 10 | 55 | 156 | 278 | 409 | 477 | 524 | 547 | 564 | |||||||||||||||||||||||
| 2016 | 12 | 52 | 131 | 283 | 368 | 446 | 513 | 564 | ||||||||||||||||||||||||
| 2017 | 15 | 67 | 156 | 255 | 344 | 441 | 506 | |||||||||||||||||||||||||
| 2018 | 21 | 83 | 177 | 288 | 409 | 512 | ||||||||||||||||||||||||||
| 2019 | 29 | 100 | 192 | 339 | 501 | |||||||||||||||||||||||||||
| 2020 | 45 | 110 | 202 | 308 | ||||||||||||||||||||||||||||
| 2021 | 34 | 115 | 209 | |||||||||||||||||||||||||||||
| 2022 | 26 | 135 | ||||||||||||||||||||||||||||||
| 2023 | 17 | |||||||||||||||||||||||||||||||
| Total | $ | 3,772 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Marine
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves [1] | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 164 | $ | 161 | $ | 159 | $ | 166 | $ | 165 | $ | 170 | $ | 169 | $ | 173 | $ | 172 | $ | 168 | $ | (1) | 7,500 | |||||||||||||||
| 2015 | 159 | 147 | 147 | 149 | 134 | 139 | 141 | 144 | 141 | — | 10,374 | |||||||||||||||||||||||||||
| 2016 | 140 | 144 | 139 | 149 | 150 | 148 | 150 | 160 | (6) | 13,616 | ||||||||||||||||||||||||||||
| 2017 | 154 | 174 | 161 | 160 | 166 | 169 | 176 | (3) | 16,101 | |||||||||||||||||||||||||||||
| 2018 | 131 | 147 | 141 | 147 | 153 | 157 | (15) | 10,678 | ||||||||||||||||||||||||||||||
| 2019 | 139 | 136 | 134 | 129 | 127 | (1) | 7,085 | |||||||||||||||||||||||||||||||
| 2020 | 145 | 138 | 134 | 138 | 6 | 5,108 | ||||||||||||||||||||||||||||||||
| 2021 | 127 | 128 | 119 | 29 | 5,161 | |||||||||||||||||||||||||||||||||
| 2022 | 140 | 132 | 38 | 4,855 | ||||||||||||||||||||||||||||||||||
| 2023 | 134 | 85 | 3,297 | |||||||||||||||||||||||||||||||||||
| Total | $ | 1,452 |
*[1]*Contributing to the negative IBNR reserves for some accident years is a lag in the timing of expected reinsurance recoveries under the Navigators ADC with NICO. Recoveries from NICO will not be collected until the Company has cumulative loss payments for all covered lines of more than the attachment point.
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 41 | $ | 81 | $ | 117 | $ | 132 | $ | 152 | $ | 157 | $ | 160 | $ | 162 | $ | 165 | $ | 166 | ||||||||||||
| 2015 | 40 | 86 | 117 | 126 | 134 | 140 | 141 | 143 | 143 | |||||||||||||||||||||||
| 2016 | 36 | 81 | 106 | 123 | 132 | 141 | 144 | 147 | ||||||||||||||||||||||||
| 2017 | 47 | 107 | 134 | 143 | 151 | 162 | 171 | |||||||||||||||||||||||||
| 2018 | 33 | 95 | 126 | 135 | 142 | 159 | ||||||||||||||||||||||||||
| 2019 | 34 | 80 | 96 | 106 | 115 | |||||||||||||||||||||||||||
| 2020 | 32 | 68 | 90 | 99 | ||||||||||||||||||||||||||||
| 2021 | 25 | 63 | 87 | |||||||||||||||||||||||||||||
| 2022 | 27 | 72 | ||||||||||||||||||||||||||||||
| 2023 | 23 | |||||||||||||||||||||||||||||||
| Total | $ | 1,182 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Package Business
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 566 | $ | 578 | $ | 601 | $ | 602 | $ | 603 | $ | 603 | $ | 593 | $ | 581 | $ | 576 | $ | 577 | $ | 18 | 43,611 | |||||||||||||||
| 2015 | 582 | 588 | 585 | 583 | 588 | 581 | 567 | 564 | 564 | 15 | 42,415 | |||||||||||||||||||||||||||
| 2016 | 655 | 638 | 632 | 625 | 611 | 595 | 591 | 590 | 33 | 44,318 | ||||||||||||||||||||||||||||
| 2017 | 695 | 702 | 692 | 657 | 644 | 637 | 640 | 43 | 46,880 | |||||||||||||||||||||||||||||
| 2018 | 719 | 724 | 688 | 667 | 655 | 654 | 60 | 45,254 | ||||||||||||||||||||||||||||||
| 2019 | 813 | 769 | 749 | 744 | 747 | 81 | 43,820 | |||||||||||||||||||||||||||||||
| 2020 | 915 | 893 | 877 | 837 | 147 | 62,738 | ||||||||||||||||||||||||||||||||
| 2021 | 946 | 954 | 958 | 235 | 47,187 | |||||||||||||||||||||||||||||||||
| 2022 | 1,038 | 1,039 | 317 | 45,649 | ||||||||||||||||||||||||||||||||||
| 2023 | 1,250 | 570 | 40,286 | |||||||||||||||||||||||||||||||||||
| Total | $ | 7,856 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 226 | $ | 345 | $ | 416 | $ | 468 | $ | 507 | $ | 525 | $ | 535 | $ | 542 | $ | 545 | $ | 551 | ||||||||||||
| 2015 | 212 | 332 | 383 | 445 | 486 | 505 | 513 | 530 | 542 | |||||||||||||||||||||||
| 2016 | 225 | 353 | 410 | 465 | 500 | 521 | 540 | 545 | ||||||||||||||||||||||||
| 2017 | 235 | 372 | 447 | 496 | 534 | 561 | 578 | |||||||||||||||||||||||||
| 2018 | 237 | 402 | 451 | 498 | 537 | 571 | ||||||||||||||||||||||||||
| 2019 | 254 | 413 | 488 | 571 | 626 | |||||||||||||||||||||||||||
| 2020 | 326 | 493 | 573 | 648 | ||||||||||||||||||||||||||||
| 2021 | 368 | 556 | 650 | |||||||||||||||||||||||||||||
| 2022 | 319 | 633 | ||||||||||||||||||||||||||||||
| 2023 | 453 | |||||||||||||||||||||||||||||||
| Total | $ | 5,797 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Commercial Property
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 293 | $ | 281 | $ | 282 | $ | 280 | $ | 280 | $ | 280 | $ | 280 | $ | 279 | $ | 279 | $ | 279 | $ | (1) | 21,124 | |||||||||||||||
| 2015 | 299 | 301 | 302 | 302 | 306 | 304 | 302 | 302 | 301 | 1 | 21,149 | |||||||||||||||||||||||||||
| 2016 | 406 | 420 | 400 | 407 | 409 | 409 | 406 | 406 | (1) | 24,099 | ||||||||||||||||||||||||||||
| 2017 | 578 | 516 | 456 | 439 | 441 | 438 | 440 | 3 | 24,727 | |||||||||||||||||||||||||||||
| 2018 | 450 | 436 | 424 | 403 | 400 | 393 | (3) | 21,916 | ||||||||||||||||||||||||||||||
| 2019 | 480 | 439 | 418 | 420 | 421 | — | 21,105 | |||||||||||||||||||||||||||||||
| 2020 | 501 | 469 | 439 | 437 | 54 | 20,573 | ||||||||||||||||||||||||||||||||
| 2021 | 530 | 500 | 463 | 45 | 18,285 | |||||||||||||||||||||||||||||||||
| 2022 | 497 | 480 | 71 | 17,350 | ||||||||||||||||||||||||||||||||||
| 2023 | 448 | 140 | 15,390 | |||||||||||||||||||||||||||||||||||
| Total | $ | 4,068 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 170 | $ | 250 | $ | 270 | $ | 279 | $ | 279 | $ | 279 | $ | 280 | $ | 280 | $ | 280 | $ | 280 | ||||||||||||
| 2015 | 179 | 257 | 285 | 296 | 302 | 303 | 302 | 302 | 302 | |||||||||||||||||||||||
| 2016 | 215 | 343 | 379 | 396 | 402 | 407 | 407 | 408 | ||||||||||||||||||||||||
| 2017 | 229 | 378 | 412 | 427 | 433 | 439 | 440 | |||||||||||||||||||||||||
| 2018 | 188 | 344 | 378 | 385 | 394 | 394 | ||||||||||||||||||||||||||
| 2019 | 215 | 351 | 383 | 405 | 407 | |||||||||||||||||||||||||||
| 2020 | 221 | 336 | 355 | 366 | ||||||||||||||||||||||||||||
| 2021 | 241 | 382 | 403 | |||||||||||||||||||||||||||||
| 2022 | 180 | 369 | ||||||||||||||||||||||||||||||
| 2023 | 199 | |||||||||||||||||||||||||||||||
| Total | $ | 3,568 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Commercial Automobile Liability
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 309 | $ | 317 | $ | 331 | $ | 337 | $ | 341 | $ | 334 | $ | 333 | $ | 332 | $ | 332 | $ | 332 | $ | 4 | 30,171 | |||||||||||||||
| 2015 | 308 | 358 | 372 | 356 | 356 | 359 | 360 | 358 | 360 | 6 | 28,745 | |||||||||||||||||||||||||||
| 2016 | 385 | 393 | 390 | 391 | 391 | 395 | 395 | 396 | 7 | 29,260 | ||||||||||||||||||||||||||||
| 2017 | 372 | 383 | 379 | 383 | 381 | 394 | 398 | 2 | 26,411 | |||||||||||||||||||||||||||||
| 2018 | 349 | 396 | 405 | 406 | 424 | 433 | 21 | 24,799 | ||||||||||||||||||||||||||||||
| 2019 | 425 | 439 | 450 | 460 | 471 | 30 | 28,573 | |||||||||||||||||||||||||||||||
| 2020 | 428 | 424 | 419 | 397 | 79 | 22,194 | ||||||||||||||||||||||||||||||||
| 2021 | 440 | 443 | 429 | 157 | 19,999 | |||||||||||||||||||||||||||||||||
| 2022 | 468 | 500 | 238 | 20,384 | ||||||||||||||||||||||||||||||||||
| 2023 | 527 | 403 | 18,107 | |||||||||||||||||||||||||||||||||||
| Total | $ | 4,243 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expense, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31 | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 59 | $ | 131 | $ | 197 | $ | 252 | $ | 299 | $ | 309 | $ | 318 | $ | 320 | $ | 325 | $ | 328 | ||||||||||||
| 2015 | 62 | 142 | 207 | 267 | 314 | 335 | 344 | 348 | 350 | |||||||||||||||||||||||
| 2016 | 65 | 147 | 232 | 303 | 339 | 357 | 379 | 385 | ||||||||||||||||||||||||
| 2017 | 60 | 134 | 211 | 285 | 328 | 368 | 386 | |||||||||||||||||||||||||
| 2018 | 62 | 153 | 238 | 305 | 360 | 387 | ||||||||||||||||||||||||||
| 2019 | 67 | 160 | 247 | 327 | 393 | |||||||||||||||||||||||||||
| 2020 | 55 | 119 | 200 | 264 | ||||||||||||||||||||||||||||
| 2021 | 55 | 127 | 212 | |||||||||||||||||||||||||||||
| 2022 | 64 | 171 | ||||||||||||||||||||||||||||||
| 2023 | 69 | |||||||||||||||||||||||||||||||
| Total | $ | 2,945 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Commercial Automobile Physical Damage
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | |||||||||||||||||||||||||||||||||
| 2021 | $ | 58 | $ | 62 | $ | 61 | $ | 1 | 15,490 | |||||||||||||||||||||||||||||
| 2022 | 70 | 74 | 1 | 16,713 | ||||||||||||||||||||||||||||||||||
| 2023 | 80 | 10 | 15,610 | |||||||||||||||||||||||||||||||||||
| Total | $ | 215 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||
| 2021 | $ | 51 | $ | 61 | $ | 61 | ||||||||||||||||||||||||||
| 2022 | 59 | 72 | ||||||||||||||||||||||||||||||
| 2023 | 61 | |||||||||||||||||||||||||||||||
| Total | $ | 194 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Professional Liability
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Claims Made Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves [1] | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 187 | $ | 183 | $ | 181 | $ | 178 | $ | 179 | $ | 182 | $ | 183 | $ | 174 | $ | 169 | $ | 167 | $ | 6 | 6,751 | |||||||||||||||
| 2015 | 164 | 174 | 180 | 190 | 214 | 207 | 200 | 197 | 198 | (3) | 7,266 | |||||||||||||||||||||||||||
| 2016 | 183 | 176 | 203 | 197 | 195 | 196 | 194 | 192 | 2 | 8,443 | ||||||||||||||||||||||||||||
| 2017 | 205 | 203 | 231 | 226 | 239 | 242 | 217 | 5 | 9,514 | |||||||||||||||||||||||||||||
| 2018 | 244 | 275 | 271 | 271 | 267 | 326 | 47 | 9,863 | ||||||||||||||||||||||||||||||
| 2019 | 295 | 313 | 330 | 347 | 355 | 77 | 9,921 | |||||||||||||||||||||||||||||||
| 2020 | 369 | 363 | 336 | 325 | 156 | 7,994 | ||||||||||||||||||||||||||||||||
| 2021 | 339 | 343 | 327 | 207 | 6,698 | |||||||||||||||||||||||||||||||||
| 2022 | 349 | 355 | 265 | 7,033 | ||||||||||||||||||||||||||||||||||
| 2023 | 384 | 338 | 6,725 | |||||||||||||||||||||||||||||||||||
| Total | $ | 2,846 |
*[1]*Contributing to the negative IBNR reserves for some accident years is a lag in the timing of expected reinsurance recoveries under the Navigators ADC with NICO. Recoveries from NICO will not be collected until the Company has cumulative loss payments for all covered lines of more than the attachment point.
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Claims Made Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 8 | $ | 38 | $ | 74 | $ | 108 | $ | 131 | $ | 135 | $ | 146 | $ | 145 | $ | 151 | $ | 157 | ||||||||||||
| 2015 | 9 | 41 | 86 | 108 | 125 | 141 | 164 | 175 | 186 | |||||||||||||||||||||||
| 2016 | 8 | 51 | 88 | 111 | 124 | 148 | 167 | 177 | ||||||||||||||||||||||||
| 2017 | 11 | 48 | 87 | 122 | 149 | 179 | 191 | |||||||||||||||||||||||||
| 2018 | 15 | 72 | 127 | 161 | 195 | 233 | ||||||||||||||||||||||||||
| 2019 | 21 | 77 | 148 | 198 | 241 | |||||||||||||||||||||||||||
| 2020 | 19 | 71 | 118 | 147 | ||||||||||||||||||||||||||||
| 2021 | 15 | 55 | 95 | |||||||||||||||||||||||||||||
| 2022 | 18 | 64 | ||||||||||||||||||||||||||||||
| 2023 | 20 | |||||||||||||||||||||||||||||||
| Total | $ | 1,511 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Bond
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 71 | $ | 67 | $ | 66 | $ | 67 | $ | 59 | $ | 59 | $ | 60 | $ | 60 | $ | 64 | $ | 62 | $ | 10 | 1,393 | |||||||||||||||
| 2015 | 67 | 67 | 63 | 60 | 54 | 48 | 47 | 42 | 37 | 12 | 1,411 | |||||||||||||||||||||||||||
| 2016 | 61 | 61 | 61 | 55 | 51 | 45 | 37 | 34 | 14 | 1,344 | ||||||||||||||||||||||||||||
| 2017 | 63 | 90 | 101 | 94 | 79 | 70 | 68 | 25 | 1,793 | |||||||||||||||||||||||||||||
| 2018 | 68 | 68 | 72 | 71 | 70 | 63 | 32 | 1,737 | ||||||||||||||||||||||||||||||
| 2019 | 72 | 73 | 74 | 73 | 71 | 53 | 1,890 | |||||||||||||||||||||||||||||||
| 2020 | 83 | 84 | 79 | 83 | 55 | 2,201 | ||||||||||||||||||||||||||||||||
| 2021 | 85 | 85 | 88 | 62 | 2,870 | |||||||||||||||||||||||||||||||||
| 2022 | 85 | 93 | 42 | 2,456 | ||||||||||||||||||||||||||||||||||
| 2023 | 81 | 71 | 1,414 | |||||||||||||||||||||||||||||||||||
| Total | $ | 680 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 18 | $ | 31 | $ | 40 | $ | 43 | $ | 43 | $ | 44 | $ | 46 | $ | 47 | $ | 52 | $ | 52 | ||||||||||||
| 2015 | 9 | 20 | 24 | 31 | 34 | 32 | 30 | 25 | 25 | |||||||||||||||||||||||
| 2016 | 2 | 12 | 15 | 20 | 22 | 22 | 22 | 20 | ||||||||||||||||||||||||
| 2017 | 5 | 46 | 55 | 54 | 42 | 43 | 43 | |||||||||||||||||||||||||
| 2018 | 6 | 16 | 23 | 24 | 29 | 29 | ||||||||||||||||||||||||||
| 2019 | 3 | 13 | 15 | 16 | 16 | |||||||||||||||||||||||||||
| 2020 | 4 | 12 | 21 | 26 | ||||||||||||||||||||||||||||
| 2021 | 8 | 21 | 23 | |||||||||||||||||||||||||||||
| 2022 | 11 | 42 | ||||||||||||||||||||||||||||||
| 2023 | 8 | |||||||||||||||||||||||||||||||
| Total | $ | 284 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assumed Reinsurance
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves [1] | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 119 | $ | 142 | $ | 122 | $ | 118 | $ | 115 | $ | 116 | $ | 116 | $ | 115 | $ | 116 | $ | 116 | $ | (1) | 1,934 | |||||||||||||||
| 2015 | 102 | 92 | 95 | 94 | 95 | 96 | 96 | 96 | 96 | (1) | 1,723 | |||||||||||||||||||||||||||
| 2016 | 89 | 91 | 98 | 100 | 102 | 102 | 102 | 104 | (2) | 1,975 | ||||||||||||||||||||||||||||
| 2017 | 129 | 153 | 162 | 157 | 153 | 155 | 155 | (3) | 2,557 | |||||||||||||||||||||||||||||
| 2018 | 128 | 127 | 129 | 134 | 136 | 132 | (17) | 3,026 | ||||||||||||||||||||||||||||||
| 2019 | 181 | 189 | 186 | 190 | 209 | 22 | 3,710 | |||||||||||||||||||||||||||||||
| 2020 | 183 | 181 | 187 | 179 | 29 | 3,177 | ||||||||||||||||||||||||||||||||
| 2021 | 192 | 196 | 204 | 41 | 2,431 | |||||||||||||||||||||||||||||||||
| 2022 | 266 | 274 | 101 | 1,971 | ||||||||||||||||||||||||||||||||||
| 2023 | 329 | 188 | 977 | |||||||||||||||||||||||||||||||||||
| Total | $ | 1,798 |
*[1]*Contributing to the negative IBNR reserves for some accident years is a lag in the timing of expected reinsurance recoveries under the Navigators ADC with NICO. Recoveries from NICO will not be collected until the Company has cumulative loss payments for all covered lines of more than the attachment point.
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 66 | $ | 119 | $ | 106 | $ | 109 | $ | 112 | $ | 113 | $ | 115 | $ | 115 | $ | 115 | $ | 116 | ||||||||||||
| 2015 | 42 | 65 | 77 | 83 | 91 | 94 | 95 | 96 | 96 | |||||||||||||||||||||||
| 2016 | 36 | 66 | 85 | 90 | 95 | 97 | 99 | 101 | ||||||||||||||||||||||||
| 2017 | 44 | 116 | 135 | 145 | 147 | 149 | 151 | |||||||||||||||||||||||||
| 2018 | 25 | 111 | 133 | 139 | 142 | 144 | ||||||||||||||||||||||||||
| 2019 | 62 | 132 | 153 | 159 | 176 | |||||||||||||||||||||||||||
| 2020 | 50 | 89 | 113 | 133 | ||||||||||||||||||||||||||||
| 2021 | 46 | 102 | 133 | |||||||||||||||||||||||||||||
| 2022 | 60 | 129 | ||||||||||||||||||||||||||||||
| 2023 | 63 | |||||||||||||||||||||||||||||||
| Total | $ | 1,242 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Personal Automobile Liability
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 1,146 | $ | 1,153 | $ | 1,198 | $ | 1,200 | $ | 1,199 | $ | 1,202 | $ | 1,201 | $ | 1,199 | $ | 1,199 | $ | 1,199 | $ | 5 | 209,028 | |||||||||||||||
| 2015 | 1,195 | 1,340 | 1,338 | 1,330 | 1,331 | 1,328 | 1,324 | 1,320 | 1,319 | 3 | 216,908 | |||||||||||||||||||||||||||
| 2016 | 1,407 | 1,402 | 1,393 | 1,397 | 1,395 | 1,386 | 1,384 | 1,384 | 3 | 215,868 | ||||||||||||||||||||||||||||
| 2017 | 1,277 | 1,275 | 1,228 | 1,214 | 1,200 | 1,198 | 1,197 | 6 | 187,557 | |||||||||||||||||||||||||||||
| 2018 | 1,108 | 1,104 | 1,072 | 1,058 | 1,056 | 1,055 | 22 | 156,286 | ||||||||||||||||||||||||||||||
| 2019 | 1,018 | 1,010 | 991 | 986 | 971 | 21 | 139,723 | |||||||||||||||||||||||||||||||
| 2020 | 805 | 782 | 775 | 741 | 37 | 96,668 | ||||||||||||||||||||||||||||||||
| 2021 | 881 | 886 | 852 | 101 | 101,842 | |||||||||||||||||||||||||||||||||
| 2022 | 928 | 1,018 | 235 | 106,927 | ||||||||||||||||||||||||||||||||||
| 2023 | 1,138 | 586 | 99,620 | |||||||||||||||||||||||||||||||||||
| Total | $ | 10,874 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 430 | $ | 843 | $ | 1,032 | $ | 1,125 | $ | 1,165 | $ | 1,182 | $ | 1,186 | $ | 1,190 | $ | 1,192 | $ | 1,193 | ||||||||||||
| 2015 | 475 | 935 | 1,142 | 1,243 | 1,292 | 1,304 | 1,310 | 1,313 | 1,314 | |||||||||||||||||||||||
| 2016 | 505 | 968 | 1,188 | 1,308 | 1,345 | 1,363 | 1,373 | 1,377 | ||||||||||||||||||||||||
| 2017 | 441 | 836 | 1,033 | 1,123 | 1,161 | 1,180 | 1,187 | |||||||||||||||||||||||||
| 2018 | 359 | 710 | 888 | 965 | 1,011 | 1,028 | ||||||||||||||||||||||||||
| 2019 | 323 | 654 | 816 | 897 | 933 | |||||||||||||||||||||||||||
| 2020 | 238 | 486 | 615 | 679 | ||||||||||||||||||||||||||||
| 2021 | 247 | 553 | 691 | |||||||||||||||||||||||||||||
| 2022 | 301 | 662 | ||||||||||||||||||||||||||||||
| 2023 | 329 | |||||||||||||||||||||||||||||||
| Total | $ | 9,393 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Personal Automobile Physical Damage
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | |||||||||||||||||||||||||||||||||
| 2021 | $ | 412 | $ | 413 | $ | 412 | $ | 1 | 225,735 | |||||||||||||||||||||||||||||
| 2022 | 533 | 549 | 10 | 239,278 | ||||||||||||||||||||||||||||||||||
| 2023 | 574 | 27 | 222,805 | |||||||||||||||||||||||||||||||||||
| Total | $ | 1,535 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||
| 2021 | $ | 388 | $ | 411 | $ | 411 | ||||||||||||||||||||||||||
| 2022 | 498 | 538 | ||||||||||||||||||||||||||||||
| 2023 | 513 | |||||||||||||||||||||||||||||||
| Total | $ | 1,462 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Homeowners
| Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 710 | $ | 707 | $ | 702 | $ | 700 | $ | 698 | $ | 698 | $ | 698 | $ | 698 | $ | 698 | $ | 699 | $ | — | 121,928 | |||||||||||||||
| 2015 | 690 | 703 | 690 | 684 | 684 | 684 | 684 | 684 | 682 | — | 120,017 | |||||||||||||||||||||||||||
| 2016 | 669 | 673 | 663 | 658 | 658 | 658 | 658 | 658 | — | 119,815 | ||||||||||||||||||||||||||||
| 2017 | 866 | 889 | 884 | 783 | 775 | 774 | 771 | 5 | 124,772 | |||||||||||||||||||||||||||||
| 2018 | 903 | 910 | 673 | 642 | 639 | 645 | 11 | 102,905 | ||||||||||||||||||||||||||||||
| 2019 | 501 | 475 | 470 | 468 | 467 | 4 | 84,781 | |||||||||||||||||||||||||||||||
| 2020 | 525 | 512 | 513 | 505 | 12 | 88,502 | ||||||||||||||||||||||||||||||||
| 2021 | 502 | 501 | 491 | 14 | 77,212 | |||||||||||||||||||||||||||||||||
| 2022 | 499 | 507 | 27 | 63,841 | ||||||||||||||||||||||||||||||||||
| 2023 | 584 | 115 | 63,662 | |||||||||||||||||||||||||||||||||||
| Total | $ | 6,009 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Accident Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 526 | $ | 663 | $ | 684 | $ | 691 | $ | 695 | $ | 697 | $ | 697 | $ | 698 | $ | 698 | $ | 698 | ||||||||||||
| 2015 | 487 | 645 | 665 | 674 | 680 | 681 | 681 | 682 | 682 | |||||||||||||||||||||||
| 2016 | 481 | 621 | 640 | 649 | 653 | 655 | 656 | 657 | ||||||||||||||||||||||||
| 2017 | 538 | 747 | 795 | 757 | 761 | 762 | 761 | |||||||||||||||||||||||||
| 2018 | 484 | 712 | 616 | 619 | 627 | 626 | ||||||||||||||||||||||||||
| 2019 | 318 | 425 | 445 | 458 | 460 | |||||||||||||||||||||||||||
| 2020 | 335 | 454 | 478 | 486 | ||||||||||||||||||||||||||||
| 2021 | 305 | 440 | 464 | |||||||||||||||||||||||||||||
| 2022 | 298 | 453 | ||||||||||||||||||||||||||||||
| 2023 | 390 | |||||||||||||||||||||||||||||||
| Total | $ | 5,677 |
Property and casualty reserves, including IBNR
The Company estimates ultimate losses and allocated loss adjustment expenses ("ALAE") by accident year. IBNR represents the excess of estimated ultimate loss reserves over case reserves. The process to estimate ultimate losses and loss adjustment expenses is an integral part of the Company's reserve setting. Reserves for ALAE and ULAE are generally established separate from the reserves for losses.
Reserves for losses are set by line of business within the reporting segments. Case reserves are established by a claims handler on each individual claim and are adjusted as new information becomes known during the course of handling the claim. Lines of business for which reported losses emerge over a long period of time are referred to as long-tail lines of business. Lines of business for which reported losses emerge
more quickly are referred to as short-tail lines of business. The Company’s shortest tail lines of business are homeowners, commercial property and automobile physical damage. The longest tail lines of business include workers’ compensation, general liability and professional liability. For short-tail lines of business, emergence of paid loss and case reserves is credible and likely indicative of ultimate losses. For long-tail lines of business, emergence of paid losses and case reserves is less credible in the early periods after a given accident year and, accordingly, may not be indicative of ultimate losses.
The Company’s reserving actuaries regularly review reserves for both current and prior accident years using the most current claim data. A variety of actuarial methods and judgments are used for most lines of business to arrive at selections of estimated ultimate losses and loss adjustment expenses. The
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
reserve selections incorporate input, as appropriate, from claims personnel, pricing actuaries and operating management about reported loss cost trends and other factors that could affect the reserve estimates.
For both short-tail and long-tail lines of business, an expected loss ratio ("ELR") is used to record initial reserves. This ELR is determined by starting with the average loss ratio of recent prior accident years and adjusting that ratio for the effect of expected changes to earned pricing, loss frequency and severity, mix of business, ceded reinsurance and other factors. For short-tail lines, IBNR for the current accident year ("CAY") is initially recorded as the product of the ELR for the period, earned premium for the period and the proportion of losses expected to be reported in future calendar periods for the current accident period. For long-tailed lines, IBNR reserves for the current accident year are initially recorded as the product of the ELR for the period and the earned premium for the period, less reported losses for the period. For certain short-tailed lines of business, including commercial property, homeowners, and automobile physical damage, IBNR amounts in the above loss development triangles are negative in certain accident years due to anticipated salvage and subrogation recoveries on paid losses.
As losses for a given accident year emerge or develop in subsequent periods, reserving actuaries use other methods to estimate ultimate unpaid losses in addition to the ELR method. These primarily include paid and reported loss development methods, frequency/severity techniques and the Bornhuetter-Ferguson method (a combination of the ELR and paid development or reported development method). Within any one line of business, the methods that are given more weight vary based primarily on the maturity of the accident year, the mix of business and the particular internal and external influences impacting the claims experience or the methods. The output of the reserve reviews are reserve estimates that are referred to as actuarial indications.
Paid development and reported development techniques are used for most lines of business though more weight is given to the reported development method for some of the long-tailed lines like general liability. In addition, for long-tailed lines of business, the Company relies on the ELR method for immature accident years. Frequency/severity techniques are used predominantly for professional liability and are also used for automobile liability. The Berquist-Sherman technique is also
used for automobile liability, marine and assumed reinsurance. For most lines, reserves for ALAE, or those expenses related to specific claims) are analyzed using paid development techniques and an analysis of the relationship between ALAE and loss payments. For most of the lines acquired through the Navigators Group book of business, loss and ALAE are reviewed on a combined basis. Reserves for ULAE are determined using the expected cost per claim year and the anticipated claim closure pattern as well as the ratio of paid ULAE to paid losses.
The recorded reserve for losses and loss adjustment expenses represents the Company's best estimate of the ultimate settlement amount of unpaid losses and loss adjustment expenses. In applying judgment, the best estimate is selected after considering the estimates derived from a number of actuarial methods, giving more weight to those methods deemed more predictive of ultimate unpaid losses and loss adjustment expenses. The Company does not produce a statistical range or confidence interval of reserve estimates and, since reserving methods with more credibility are given greater weight, the selected best estimate may differ from the mid-point of the various estimates produced by the actuarial methods used.
Cumulative number of reported claims
For most property and casualty lines, claim counts represent the number of claim features on a reported claim where a claim feature is each separate coverage for each claimant affected by the claim event. For example, one car accident that results in two bodily injury claims and one automobile damage liability claim would be counted as three claims within the personal automobile liability triangle. Similarly, a fire that impacts one commercial building may result in multiple claim features due to the potential for claims related to business interruption, structural damage, and loss of the physical contents of the building. Claim features that result in no paid losses are included in the reported claim counts. For some property and casualty lines, such as marine and assumed reinsurance, a claim count represents each reported claim regardless of the number of features. For assumed bordereau business and business written on binders, one claim count is posted for each bordereau received, which could account for multiple claims.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance [1] | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Reserve Line | 1st Year | 2nd Year | 3rd Year | 4th Year | 5th Year | 6th Year | 7th Year | 8th Year | 9th Year | 10th Year | ||||||||||||||||||||||
| Workers' compensation | 14.9 | % | 18.4 | % | 12.0 | % | 8.2 | % | 5.6 | % | 3.8 | % | 2.8 | % | 2.1 | % | 1.6 | % | 1.0 | % | ||||||||||||
| General liability | 2.7 | % | 7.6 | % | 12.7 | % | 16.7 | % | 16.6 | % | 12.3 | % | 9.0 | % | 5.1 | % | 2.7 | % | 3.9 | % | ||||||||||||
| Marine | 23.1 | % | 31.8 | % | 18.0 | % | 7.2 | % | 6.7 | % | 6.0 | % | 2.3 | % | 1.5 | % | 0.8 | % | 0.4 | % | ||||||||||||
| Package business | 36.7 | % | 22.3 | % | 10.0 | % | 9.1 | % | 6.6 | % | 3.9 | % | 2.2 | % | 1.7 | % | 1.3 | % | 1.1 | % | ||||||||||||
| Commercial property | 50.9 | % | 32.1 | % | 7.2 | % | 3.5 | % | 1.2 | % | 0.6 | % | 0.1 | % | 0.1 | % | — | % | — | % | ||||||||||||
| Commercial automobile liability | 14.7 | % | 19.9 | % | 19.6 | % | 16.9 | % | 12.3 | % | 6.0 | % | 3.8 | % | 1.1 | % | 1.0 | % | 0.9 | % | ||||||||||||
| Commercial automobile physical damage | 79.7 | % | 17.1 | % | (0.2 | %) | ||||||||||||||||||||||||||
| Professional liability | 5.0 | % | 16.5 | % | 18.1 | % | 13.2 | % | 10.7 | % | 9.7 | % | 8.5 | % | 3.5 | % | 4.2 | % | 3.7 | % | ||||||||||||
| Bond | 11.7 | % | 24.9 | % | 9.4 | % | 6.8 | % | 0.3 | % | (0.4 | %) | (0.5 | %) | (5.5 | %) | 4.0 | % | — | % | ||||||||||||
| Assumed Reinsurance | 30.4 | % | 35.4 | % | 10.8 | % | 5.5 | % | 4.6 | % | 1.8 | % | 1.3 | % | 1.1 | % | 0.5 | % | 0.3 | % | ||||||||||||
| Personal automobile liability | 33.2 | % | 34.2 | % | 16.4 | % | 8.0 | % | 3.5 | % | 1.4 | % | 0.5 | % | 0.3 | % | 0.2 | % | 0.1 | % | ||||||||||||
| Personal automobile physical damage | 91.3 | % | 6.5 | % | 0.1 | % | ||||||||||||||||||||||||||
| Homeowners | 68.7 | % | 25.7 | % | 1.8 | % | 0.5 | % | 0.7 | % | 0.1 | % | 0.1 | % | — | % | — | % | — | % |
[1]Negative percentages are generally due to salvage, subrogation or other recoveries.
|GROUP LIFE, DISABILITY AND ACCIDENT PRODUCTS
Rollforward of Liabilities for Unpaid Losses and Loss Adjustment Expenses
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Beginning liabilities for unpaid losses and loss adjustment expenses, gross | $ | 8,160 | $ | 8,210 | $ | 8,233 | |||||
| Reinsurance recoverables | 245 | 245 | 237 | ||||||||
| Beginning liabilities for unpaid losses and loss adjustment expenses, net | 7,915 | 7,965 | 7,996 | ||||||||
| Provision for unpaid losses and loss adjustment expenses | |||||||||||
| Current incurral year | 5,145 | 4,853 | 5,021 | ||||||||
| Prior year's discount accretion | 193 | 202 | 201 | ||||||||
| Prior incurral year development [1] | (502) | (381) | (458) | ||||||||
| Total provision for unpaid losses and loss adjustment expenses [2] | 4,836 | 4,674 | 4,764 | ||||||||
| Payments | |||||||||||
| Current incurral year | (2,575) | (2,456) | (2,631) | ||||||||
| Prior incurral years | (2,156) | (2,268) | (2,164) | ||||||||
| Total payments | (4,731) | (4,724) | (4,795) | ||||||||
| Ending liabilities for unpaid losses and loss adjustment expenses, net | 8,020 | 7,915 | 7,965 | ||||||||
| Reinsurance recoverables | 254 | 245 | 245 | ||||||||
| Ending liabilities for unpaid losses and loss adjustment expenses, gross | $ | 8,274 | $ | 8,160 | $ | 8,210 |
*[1]*Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis.
*[2]*Includes unallocated loss adjustment expenses of $182, $185 and $179 for the years ended December 31, 2023, 2022 and 2021, respectively, that are recorded in insurance operating costs and other expenses in the Consolidated Statements of Operations.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Group Life, Disability and Accident Products Reserves, Net of Reinsurance, that are Discounted
| For the years ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Liability for unpaid losses and loss adjustment expenses, at undiscounted amounts | $ | 8,150 | $ | 8,124 | $ | 8,176 | |||||||||||||||||||||||
| Amount of discount | (1,166) | (1,205) | (1,304) | ||||||||||||||||||||||||||
| Carrying value of liability for unpaid losses and loss adjustment expenses | $ | 6,984 | $ | 6,919 | $ | 6,872 | |||||||||||||||||||||||
| Weighted average discount rate | 3.2 | % | 3.2 | % | 3.3 | % | |||||||||||||||||||||||
| Range of discount rate | 2.1 | % | - | 8.0 | % | 2.1 | % | - | 8.0 | % | 2.1 | % | - | 8.0 | % |
Reserves are discounted at rates in effect at the time claims were incurred, ranging from 2.1% for life and disability reserves acquired from Aetna based on interest rates in effect at the acquisition date of November 1, 2017, to 8.0% for the Company’s pre-acquisition reserves for incurral year 1990, and vary by product. Prior year's discount accretion has been calculated as the average reserve balance for the year times the weighted average discount rate.
2023 re-estimates of prior incurral year reserves
Group disability- Prior period reserve estimates decreased by approximately $457 largely driven by group long-term disability claim incidence lower than prior assumptions and strong recoveries on prior incurral year claims.
Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $36 largely driven by continued low incidence in group life premium waiver.
Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $9 driven by lower than previously expected claim incidence.
2022 re-estimates of prior incurral year reserves
Group disability- Prior period reserve estimates decreased by approximately $325 largely driven by group long-term disability claim incidence lower than prior assumptions, strong recoveries on prior incurral year claims and higher estimated claim termination rates.
Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $50 largely driven by continued low incidence in group life premium waiver as well as a reduction in the estimation of high level of mortality losses incurred in fourth quarter 2021.
Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $6 driven by lower-than-previously expected claim incidence.
2021 re-estimates of prior incurral year reserves
Group disability- Prior period reserve estimates decreased by approximately $380 largely driven by group long-term disability claim incidence lower than prior assumptions together with strong recoveries on prior incurral year claims, and by a New York Paid Family Leave risk adjustment benefit.
Group life and accident (including group life premium waiver)- Prior period reserve estimates decreased by approximately $65 largely driven by lower-than-previously expected claim incidence in both group life premium waiver and group accidental loss of life and severe injury benefits.
Supplemental Accident & Health- Prior period reserve estimates decreased by approximately $10 driven by lower-than-expected emergence of prior year claims, especially for voluntary critical Illness and voluntary accident products.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reconciliation of Loss Development to Liability for Unpaid Losses and Loss Adjustment Expenses as of December 31, 2023
| Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | Subtotal | |||||||||||||||||||||||||
| Reserve Line | Cumulative Incurred for Incurral Years Displayed in Triangles | Cumulative Paid for Incurral Years Displayed in Triangles | Unpaid for Incurral Years not Displayed in Triangles | Unpaid Unallocated Loss Adjustment Expenses, Net of Reinsurance | Discount | Unpaid Losses and Loss Adjustment Expenses, Net of Reinsurance | Reinsurance and Other Recoverables | Liability for Unpaid Losses and Loss Adjustment Expenses | ||||||||||||||||||
| Group long-term disability | $ | 14,262 | $ | (8,187) | $ | 1,434 | $ | 200 | $ | (1,089) | $ | 6,620 | $ | 243 | $ | 6,863 | ||||||||||
| Group life and accident, excluding premium waiver | 6,525 | (5,934) | 157 | 5 | (14) | 739 | 5 | 744 | ||||||||||||||||||
| Group short-term disability | 148 | 9 | — | 157 | — | 157 | ||||||||||||||||||||
| Group life premium waiver | 523 | 10 | (63) | 470 | 2 | 472 | ||||||||||||||||||||
| Group supplemental health | 34 | — | — | 34 | 4 | 38 | ||||||||||||||||||||
| Total Group Benefits | $ | 20,787 | $ | (14,121) | $ | 2,296 | $ | 224 | $ | (1,166) | $ | 8,020 | $ | 254 | $ | 8,274 |
The following loss triangles present historical loss development for incurred and paid claims by the year the insured claim occurred, referred to as the incurral year. Triangles are limited to the number of years for which claims incurred typically remain outstanding, not exceeding ten years. Short-tail lines, which represent claims generally expected to be paid within a few years, have three years of claim development displayed.
Changes in reserve development evident in the incurred loss triangles differ from prior accident year development recorded by the Company as shown in the reserve rollforward above as the triangles are presented on an undiscounted basis and exclude ULAE.
Group Long-Term Disability
| Undiscounted Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||||||||
| Incurral Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||||||||||||||||
| 2014 | $ | 1,636 | $ | 1,473 | $ | 1,430 | $ | 1,431 | $ | 1,431 | $ | 1,408 | $ | 1,395 | $ | 1,389 | $ | 1,382 | $ | 1,382 | $ | — | 31,783 | |||||||||||||||
| 2015 | 1,595 | 1,442 | 1,422 | 1,420 | 1,401 | 1,385 | 1,380 | 1,380 | 1,380 | — | 32,750 | |||||||||||||||||||||||||||
| 2016 | 1,651 | 1,481 | 1,468 | 1,437 | 1,417 | 1,409 | 1,401 | 1,400 | — | 33,296 | ||||||||||||||||||||||||||||
| 2017 | 1,597 | 1,413 | 1,358 | 1,316 | 1,304 | 1,296 | 1,289 | — | 30,923 | |||||||||||||||||||||||||||||
| 2018 | 1,647 | 1,387 | 1,309 | 1,277 | 1,276 | 1,271 | — | 28,426 | ||||||||||||||||||||||||||||||
| 2019 | 1,650 | 1,424 | 1,327 | 1,284 | 1,287 | 1 | 27,458 | |||||||||||||||||||||||||||||||
| 2020 | 1,686 | 1,407 | 1,323 | 1,282 | 1 | 25,848 | ||||||||||||||||||||||||||||||||
| 2021 | 1,768 | 1,521 | 1,417 | 5 | 27,071 | |||||||||||||||||||||||||||||||||
| 2022 | 1,842 | 1,566 | 35 | 25,580 | ||||||||||||||||||||||||||||||||||
| 2023 | 1,988 | 1,009 | 17,404 | |||||||||||||||||||||||||||||||||||
| Total | $ | 14,262 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Incurral Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||
| 2014 | $ | 103 | $ | 448 | $ | 675 | $ | 801 | $ | 884 | $ | 960 | $ | 1,025 | $ | 1,079 | $ | 1,122 | $ | 1,164 | ||||||||||||
| 2015 | 108 | 460 | 687 | 806 | 891 | 962 | 1,025 | 1,078 | 1,125 | |||||||||||||||||||||||
| 2016 | 112 | 479 | 705 | 819 | 907 | 981 | 1,043 | 1,100 | ||||||||||||||||||||||||
| 2017 | 109 | 452 | 658 | 757 | 842 | 911 | 970 | |||||||||||||||||||||||||
| 2018 | 105 | 447 | 639 | 743 | 827 | 897 | ||||||||||||||||||||||||||
| 2019 | 101 | 454 | 650 | 751 | 832 | |||||||||||||||||||||||||||
| 2020 | 100 | 458 | 663 | 767 | ||||||||||||||||||||||||||||
| 2021 | 101 | 493 | 720 | |||||||||||||||||||||||||||||
| 2022 | 101 | 496 | ||||||||||||||||||||||||||||||
| 2023 | 116 | |||||||||||||||||||||||||||||||
| Total | $ | 8,187 |
Group Life and Accident, excluding Premium Waiver
| Undiscounted Incurred Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | |||||||||||||||||
| For the years ended December 31, | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Incurral Year | 2021 | 2022 | 2023 | IBNR Reserves | Claims Reported | ||||||||||||
| 2021 | $ | 2,384 | $ | 2,365 | $ | 2,364 | $ | 14 | 69,915 | ||||||||
| 2022 | 2,061 | 2,053 | 26 | 71,604 | |||||||||||||
| 2023 | 2,108 | 407 | 57,414 | ||||||||||||||
| Total | $ | 6,525 |
| Cumulative Paid Losses & Allocated Loss Adjustment Expenses, Net of Reinsurance | |||||||||||
| For the years ended December 31, | |||||||||||
| (Unaudited) | |||||||||||
| Incurral Year | 2021 | 2022 | 2023 | ||||||||
| 2021 | $ | 1,764 | $ | 2,320 | $ | 2,344 | |||||
| 2022 | 1,562 | 2,018 | |||||||||
| 2023 | 1,572 | ||||||||||
| Total | $ | 5,934 |
Group life, disability and accident reserves, including IBNR
The majority of Group Benefits’ reserves are for LTD claimants who are known to be disabled and are currently receiving benefits. A Disabled Life Reserve ("DLR") is calculated for each LTD claim. The DLR for each claim is the expected present value of all estimated future benefit payments and includes estimates of claim recovery, investment yield, and offsets from other income, including offsets from Social Security benefits and workers’ compensation. Estimated future benefit payments represent the monthly income benefit that is paid until recovery, death or expiration of benefits. Claim recoveries are estimated based on claim characteristics such as age and diagnosis and represent an estimate of benefits that will terminate, generally as a result of the claimant returning to work or being deemed able to return to work. The DLR also includes a liability for payments to claimants who have not yet been approved for LTD. In these cases, the present value of future benefits is reduced for the likelihood of claim denial based on Company experience. For claims recently closed due to recovery, a portion of the DLR is retained for the possibility that the claim reopens upon further evidence of disability. In addition, a reserve for estimated unpaid claim expenses is included in the DLR.
For incurral years with IBNR claims, estimates of ultimate losses are made by applying completion factors to the dollar amount of claims reported or expected depending on the market segment. IBNR represents estimated ultimate losses less both DLR and cumulative paid amounts for all reported claims. Completion factors are derived using standard actuarial techniques using triangles that display historical claim count emergence by incurral month. These estimates are reviewed for reasonableness and are adjusted for current trends and other factors expected to cause a change in claim emergence. The IBNR includes an estimate of unpaid claim expenses, including a provision for the cost of initial set-up of the claim once reported.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 11 - Reserve for Unpaid Losses and Loss Adjustment Expenses |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
For all products, including LTD, there is a period generally ranging from two to twelve months, depending on the product and market segment, where emerged claim information for an incurral year is not yet credible enough to be a basis for an IBNR projection. In these cases, the ultimate losses and allocated loss adjustment expenses are estimated using earned premium multiplied by an expected loss ratio.
The Company also records reserves for future death benefits under group term life policies that provide for premiums to be waived in the event the insured is unable to work due to disability and has satisfied an elimination period, which is typically nine months (premium waiver reserves). The death benefit reserve for these group life premium waiver claims is estimated for a known disabled claimant equal to the present value of expected future cash outflows (typically a lump sum face amount payable at death plus claim expenses) with separate estimates for claimant recovery (when no death benefit is payable) and for death before recovery or benefit expiry (when death benefit is payable). The IBNR for premium waiver death benefits is estimated with standard actuarial development methods.
In addition, the Company also records reserves for group term life, accidental loss of life and severe injury, short-term disability, and other group products that have short claim payout periods. For these products, reserves are determined using paid or reported actuarial development methods. The resulting claim triangles produce a completion pattern and estimate of ultimate loss. IBNR for these lines of business equals the estimated ultimate losses and loss adjustment expenses less the amount of paid or reported claims depending on whether the paid or reported development method was used. Estimates are reviewed for reasonableness and are adjusted for current trends or other factors that affect the development pattern.
Cumulative number of reported claims
For group life, disability and accident coverages, claim counts include claims that are approved, pending approval and terminated and exclude denied claims. Due to the nature of the claims, one claimant represents one event.
| Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance | |||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||
| 1st Year | 2nd Year | 3rd Year | 4th Year | 5th Year | 6th Year | 7th Year | 8th Year | 9th Year | 10th Year | ||||||||||||||||||||||||||
| Group long-term disability | 7.5 | % | 26.5 | % | 15.9 | % | 8.2 | % | 6.3 | % | 5.4 | % | 4.6 | % | 3.9 | % | 3.3 | % | 3.0 | % | |||||||||||||||
| Group life and accident, excluding premium waiver | 75.1 | % | 22.8 | % | 1.0 | % |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 12 - Reserve for Future Policy Benefits |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. RESERVE FOR FUTURE POLICY BENEFITS
| Rollforward of Reserve for Future Policy Benefits | ||||||||||||||||||||||||||||||||||||||||||||
| For the year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||
| Payout Annuities | Life Conversions | Paid-up Life | Payout Annuities | Life Conversions | Paid-up Life | Payout Annuities | Life Conversions | Paid-up Life | ||||||||||||||||||||||||||||||||||||
| Present Value of Expected Net Premiums | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, beginning of the period | $ | 47 | $ | 58 | $ | 52 | ||||||||||||||||||||||||||||||||||||||
| Balance, ending of the period | $ | 49 | $ | 47 | $ | 58 | ||||||||||||||||||||||||||||||||||||||
| Present Value of Expected Future Policy Benefits | ||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance at single-A rate | $ | 140 | $ | 112 | $ | 192 | $ | 188 | $ | 152 | $ | 262 | $ | 206 | $ | 167 | $ | 293 | ||||||||||||||||||||||||||
| Beginning adjustment for changes in single-A rate | 4 | (14) | (39) | 47 | 19 | 14 | 59 | 26 | 29 | |||||||||||||||||||||||||||||||||||
| Beginning balance at original discount rate | 136 | 126 | 231 | 141 | 133 | 248 | 147 | 141 | 264 | |||||||||||||||||||||||||||||||||||
| Effect of changes in cash flow assumptions | (2) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Effect of actual variances from expected experience | 1 | 7 | (1) | — | 5 | — | — | 11 | (1) | |||||||||||||||||||||||||||||||||||
| Adjusted beginning balance | 135 | 133 | 230 | 141 | 138 | 248 | 147 | 152 | 263 | |||||||||||||||||||||||||||||||||||
| Interest accrual and other | 7 | 20 | 8 | 8 | 17 | 7 | 7 | 19 | 7 | |||||||||||||||||||||||||||||||||||
| Benefit Payments | (12) | (29) | (21) | (13) | (29) | (24) | (13) | (38) | (22) | |||||||||||||||||||||||||||||||||||
| Ending balance at original discount rate | 130 | 124 | 217 | 136 | 126 | 231 | 141 | 133 | 248 | |||||||||||||||||||||||||||||||||||
| Ending adjustment for changes in single-A rate | 7 | (11) | (32) | 4 | (14) | (39) | 47 | 19 | 14 | |||||||||||||||||||||||||||||||||||
| Ending balance at single-A rate | $ | 137 | $ | 113 | $ | 185 | $ | 140 | $ | 112 | $ | 192 | $ | 188 | $ | 152 | $ | 262 | ||||||||||||||||||||||||||
| Net reserve for future policy benefits | $ | 137 | $ | 64 | $ | 185 | $ | 140 | $ | 65 | $ | 192 | $ | 188 | $ | 94 | $ | 262 | ||||||||||||||||||||||||||
| Weighted-average duration of the reserve for future policy benefits (years) | 9.0 | 12.2 | 6.4 | 9.2 | 11.4 | 6.4 | 9.2 | 15.5 | 8.2 |
| Net Reserve for Future Policy Benefits | ||||||||||||||
| As of December 31, | ||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||
| Payout Annuities | $ | 137 | $ | 140 | $ | 188 | ||||||||
| Life Conversions | 64 | 65 | 94 | |||||||||||
| Paid-up Life | 185 | 192 | 262 | |||||||||||
| Deferred Profit Liability | 20 | 19 | 20 | |||||||||||
| Other | 78 | 86 | 82 | |||||||||||
| Total | $ | 484 | $ | 502 | $ | 646 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 12 - Reserve for Future Policy Benefits |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Undiscounted Expected Future Gross Premiums and Benefit Payments | |||||||||||
| As of December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Payout Annuities [1] | |||||||||||
| Expected future benefit payments | $ | 257 | $ | 272 | $ | 283 | |||||
| Life Conversions | |||||||||||
| Expected future gross premiums | $ | 114 | $ | 120 | $ | 131 | |||||
| Expected future benefit payments | $ | 204 | $ | 212 | $ | 225 | |||||
| Paid-up Life [1] | |||||||||||
| Expected future benefit payments | $ | 281 | $ | 300 | $ | 324 |
[1]Payout Annuities and Paid-up Life have no expected future gross premiums.
| Weighted-Average Interest Rates | |||||||||||
| For the year ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Payout Annuities | |||||||||||
| Interest accretion rate | 5.6 | % | 5.6 | % | 5.6 | % | |||||
| Current discount rate | 5.0 | % | 5.3 | % | 2.8 | % | |||||
| Life Conversions | |||||||||||
| Interest accretion rate | 4.2 | % | 4.1 | % | 4.1 | % | |||||
| Current discount rate | 5.1 | % | 5.3 | % | 2.9 | % | |||||
| Paid-up Life | |||||||||||
| Interest accretion rate | 2.9 | % | 2.9 | % | 2.9 | % | |||||
| Current discount rate | 5.0 | % | 5.2 | % | 2.1 | % |
The Company completed a review of cash flow assumptions in the third quarter 2023, resulting in immaterial changes to the reserve for future policy benefits. For payout annuities, the net effect of updating cash flow assumptions was partially offset by a corresponding impact to the deferred profit liability. Gross premiums and interest accretion recognized on long-duration insurance policies for the years ended December 31, 2023, 2022 and 2021 were immaterial.
13. OTHER POLICYHOLDER FUNDS AND BENEFITS PAYABLE
Other policyholder funds and benefits payable of $638, $658 and $687 as of December 31, 2023, 2022 and 2021, respectively, included universal life long-duration contacts of $223, $232 and $253 as well as policyholder balances related to short-duration contracts of $415, $426, and $434. The universal life long-duration contacts presented in the table below were economically ceded to Prudential as part of the sale of the Company's former individual life business, which closed in 2013.
| Universal Life Long Duration Contracts Rollforward | |||||||||||
| For the year ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Balance, beginning of year | $ | 232 | $ | 253 | $ | 277 | |||||
| Premiums Received | 14 | 15 | 16 | ||||||||
| Policy Charges | (21) | (23) | (23) | ||||||||
| Surrenders and Withdrawals | (6) | (4) | (9) | ||||||||
| Benefit Payments | (6) | (20) | (22) | ||||||||
| Interest Credited | 10 | 11 | 14 | ||||||||
| Balance, End of Year | $ | 223 | $ | 232 | $ | 253 | |||||
| Weighted-average crediting rate | 4.2 | % | 4.2 | % | 4.2 | % | |||||
| Net Amount at Risk [1] | $ | 917 | $ | 987 | $ | 1,086 | |||||
| Cash Surrender Value | $ | 221 | $ | 229 | $ | 250 |
[1]Net amount at risk is defined as the current death benefit in excess of the current account value as of the balance sheet date.
As of December 31, 2023, 2022 and 2021, universal life contracts of $222, $230 and $251, respectively, had crediting rates at their guaranteed minimums ranging from 4%-5%.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 14 - Debt |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. DEBT
The Company’s long-term debt securities are issued by Hartford Financial Services Group, Inc. ("HFSG Holding Company"), are unsecured obligations of HFSG Holding Company, and rank on a parity with all other unsecured and unsubordinated indebtedness of HFSG Holding Company.
Debt is carried net of discount and issuance cost.
Long-term Debt by Issuance
| As of December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Revolving Credit Facilities | $ | — | $ | — | |||||||
| Senior Notes and Debentures | |||||||||||
| 2.8% Notes, due 2029 | 600 | 600 | |||||||||
| 5.95% Notes, due 2036 | 300 | 300 | |||||||||
| 6.625% Notes, due 2040 | 295 | 295 | |||||||||
| 6.1% Notes, due 2041 | 409 | 409 | |||||||||
| 6.625% Notes, due 2042 | 178 | 178 | |||||||||
| 4.3% Notes, due 2043 | 300 | 300 | |||||||||
| 4.4% Notes, due 2048 | 500 | 500 | |||||||||
| 3.6% Notes, due 2049 | 800 | 800 | |||||||||
| 2.9% Notes, due 2051 | 600 | 600 | |||||||||
| Junior Subordinated Debentures | |||||||||||
| 3-Month term SOFR + 0.26161% + 2.125% Notes, due 2067 [1] | 500 | 500 | |||||||||
| Total Notes and Debentures | 4,482 | 4,482 | |||||||||
| Unamortized discount and debt issuance cost [2] | (120) | (125) | |||||||||
| Total Debt | 4,362 | 4,357 | |||||||||
| Less: Current maturities | — | — | |||||||||
| Long-Term Debt | $ | 4,362 | $ | 4,357 |
*[1]*The Company has an interest rate swap agreement expiring February 15, 2027 to effectively convert the variable interest payments for this debenture into fixed interest payments of approximately 4.39%. See Junior Subordinated Debentures section below for further discussion of interest rate terms for the periods ended December 31, 2023 and 2022, respectively.
*[2]*This amount includes unamortized discount of $70 and $72 as of December 31, 2023 and 2022, respectively, on the 6.1% Notes, due 2041.
The effective interest rate on the 6.1% senior notes due 2041 is 7.9%. The effective interest rate on the remaining notes does not differ materially from the stated rate.
Shelf Registrations
On February 22, 2022, the Company filed with the Securities and Exchange Commission an automatic shelf registration statement (Registration No. 333-262879) for the potential offering and sale of debt and equity securities. The registration statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, guarantees, preferred stock, common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act of 1933, the registration
statement went effective immediately upon filing and The Hartford may offer and sell an unlimited amount of securities under the registration statement during the three-year life of the registration statement.
Senior Notes
On September 21, 2021, The Hartford issued $600 of 2.9% senior notes (“2.9% Notes”) due September 15, 2051 for net proceeds of approximately $588, after deducting underwriting discounts and expenses from the offering. Interest is payable semi-annually in arrears on March 15 and September 15, commencing March 15, 2022. The Hartford, at its option, can redeem the 2.9% Notes at any time, in whole or part, at a redemption price equal to the greater of 100% of the principal amount being redeemed or a make-whole amount based on a comparable maturity US Treasury plus 20 basis points, plus any accrued and unpaid interest, except the 2.9% Notes may be redeemed at par within six months of maturity.
Junior Subordinated Debentures
As of December 31, 2023 and 2022, the Company has outstanding $500 of callable junior subordinated debentures with a final maturity on February 12, 2067. Interest is payable quarterly in arrears at a variable rate that resets quarterly.
Prior to July 1, 2023, the Company's $500 junior subordinated debentures due 2067 paid interest at a rate of LIBOR plus 2.125%. The U.K. Financial Conduct Authority ("FCA") ceased publication of U.S. dollar LIBOR on a representative basis immediately after June 30, 2023. Effective July 1, 2023, the interest rate on the $500 junior subordinated debentures due 2067 is determined based on a reference rate of 3-month term Secured Overnight Financing Rate (“SOFR”) plus a spread adjustment of 0.26161% plus 2.125%.
The Company's interest rate swap agreements that converted the LIBOR variable interest payments on the $500 junior subordinated debentures to fixed interest payments of approximately 4.39% were terminated and new interest rate swap agreements expiring February 15, 2027 were entered into that reference SOFR so that interest rate swaps continue to effectively convert the variable interest payments to fixed interest payments of approximately 4.39%.
The $500 junior subordinated debentures due 2067 are unsecured, subordinated and junior in right of payment and upon liquidation to all of the Company’s existing and future senior indebtedness. In addition, the debentures are effectively subordinated to all of the Company’s subsidiaries’ existing and future indebtedness and other liabilities, including obligations to policyholders. The debentures do not limit the Company’s or the Company’s subsidiaries’ ability to incur additional debt, including debt that ranks senior in right of payment and upon liquidation to the debentures.
The Company has the right to defer interest payments for up to a consecutive ten years without giving rise to an event of default. Deferred interest will continue to accrue and will accrue additional interest at the then applicable interest rate. If the Company defers interest payments, the Company generally may
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 14 - Debt |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
not make payments on or redeem or purchase any shares of its capital stock or any of its debt securities or guarantees that rank upon liquidation, dissolution or winding up equally with or junior to the debentures, subject to certain limited exceptions.
The Company may elect to redeem the $500 junior subordinated debentures due 2067 in whole or in part for the principal amount being redeemed plus accrued and unpaid interest to the date of redemption.
In connection with the offering of this debenture, the Company entered into a Replacement Capital Covenant ("RCC") for the benefit of holders of one or more designated series of the Company's indebtedness, initially the Company's 4.3% notes due 2043. Under the terms of the RCC, if the Company redeems the debenture any time prior to February 12, 2047 (or such earlier date on which the RCC terminates by its terms) it can only do so with the proceeds from the sale of certain qualifying replacement securities.
On April 15, 2022, The Hartford redeemed at par $600 aggregate principal amount of its 7.875% junior subordinated debentures due 2042 and recognized, in insurance operating costs and other expenses, a loss on extinguishment of debt of $9, before tax, for unamortized debt issuance costs.
Long-Term Debt
Long-term Debt Maturities (at par value) as of December 31, 2023
| 2024 - Current maturities | $ | — | |||
| 2025 | $ | — | |||
| 2026 | $ | — | |||
| 2027 | $ | — | |||
| 2028 | $ | — | |||
| Thereafter | $ | 4,482 |
Revolving Credit Facility
The Hartford has a $750 senior unsecured revolving credit facility, including $100 available to support letters of credit (the "Credit Facility"), with an expiration date of October 27, 2026. Under the Credit Facility:
-
Revolving loans may be in multiple currencies.
-
U.S. dollar loans will bear interest at a floating rate equivalent to an indexed rate that varies depending on the type of borrowing plus a basis point spread based on The Hartford's credit rating and will mature no later than October 27, 2026.
-
Letters of credit bear a fee based on The Hartford's credit rating and expire no later than October 27, 2027.
The Credit Facility requires the Company to maintain a minimum consolidated net worth financial covenant to $11.25 billion, excluding AOCI, limits the ratio of senior debt to capitalization, excluding AOCI, at 35% and includes other customary covenants. The Credit Facility is for general corporate purposes.
As of December 31, 2023 and 2022, no borrowings were outstanding, no letters of credit were issued under the Credit
Facility and the Company was in compliance with all financial covenants.
Lloyd's Letter of Credit Facility
The Hartford has a committed credit facility agreement with a syndicate of lenders (the"Lloyd's Facility"). The Lloyd's Facility has two tranches, with one tranche extending a $74 commitment and the other tranche extending a £79 million ($101 as of December 31, 2023) commitment. The term of the facility is two years. The purpose of this facility is to issue letters of credit that may be treated as Funds at Lloyd’s ("FAL") to support underwriting capacity provided by the Navigators Corporate Underwriters Limited to the Lloyd’s Syndicate 1221 for the 2023 and 2024 underwriting years of account (and prior open years). As of December 31, 2022, letters of credit with an aggregate face amount of $74 and £79 million, or $95, were outstanding under the Lloyd's Facility.
Among other covenants, the Lloyd's Facility contains financial covenants regarding The Hartford’s consolidated net worth and financial leverage and that limit the amount of letters of credit that can support FAL's, consistent with Lloyd’s requirements. As of December 31, 2023, The Hartford was in compliance with all financial covenants of the facility.
Collateralized Advances with Federal Home Loan Bank of Boston
The Company’s subsidiaries, Hartford Fire Insurance Company (“Hartford Fire”) and Hartford Life and Accident Insurance Company ("HLA"), are members of the Federal Home Loan Bank of Boston ("FHLBB"). Membership allows these subsidiaries access to collateralized advances, which may be short- or long-term with fixed or variable rates. FHLBB membership required the purchase of member stock and requires additional member stock ownership of 3% or 4% of any amount borrowed. The amount of advances that can be taken is limited to a percentage of the fair value of the assets considered eligible collateral, for example, 94% for U.S. government-backed fixed maturities maturing within 3 years and 70% for AA-rated commercial mortgage-backed fixed maturities maturing in 5 years or more. In its consolidated balance sheets, The Hartford presents the liability for advances taken based on use of the funds with advances for general corporate purposes presented in short- or long-term debt and advances to earn incremental investment income presented in other liabilities, consistent with other collateralized financing transactions such as securities lending and repurchase agreements. The Connecticut Department of Insurance permits Hartford Fire and HLA to pledge up to $1.3 billion and $0.7 billion in qualifying assets, respectively, without prior approval, to secure FHLBB advances in 2024. The pledge limit is determined quarterly based on statutory admitted assets and capital and surplus of Hartford Fire and HLA, respectively.
As of December 31, 2023 and 2022, there were no advances outstanding under the FHLBB facility.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 15 - Commitments and Contingencies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. COMMITMENTS AND CONTINGENCIES
Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management establishes liabilities for these contingencies at its “best estimate,” or, if no one number within the range of possible losses is more probable than any other, the Company records an estimated liability at the low end of the range of losses.
Litigation
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense reserves. Subject to the uncertainties related to sexual molestation and sexual abuse claims, including those discussed in Note 11, Reserve for Unpaid Losses and Loss Adjustment Expenses, and in the following discussion under the caption “COVID-19 Pandemic Business Income Insurance Litigation” and under the caption “Run-off Asbestos and Environmental Claims,” management expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results of operations or cash flows of The Hartford.
The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. In addition to the matter described below, these actions include putative class actions seeking certification of a state or national class. Such putative class actions have alleged, for example, underpayment of claims or improper sales or underwriting practices in connection with various kinds of insurance policies, such as personal and commercial automobile and property. The Hartford also is involved in individual actions in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims or other allegedly unfair or improper business practices. Like many other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of these actions, and the inherent unpredictability of litigation, the outcome in certain matters could, from time to time, have a material adverse effect on the Company’s results of operations or cash flows in particular quarterly or annual periods.
COVID-19 Pandemic Business Income Insurance Litigation
Like many others in the property and casualty insurance industry, beginning in April 2020, various direct and indirect subsidiaries of the Company (collectively the "Hartford Writing
Companies”), and in some instances the Company itself, have been served as defendants in lawsuits seeking insurance coverage under commercial insurance policies issued by the Hartford Writing Companies for alleged losses resulting from the shutdown or suspension of their businesses due to the spread of COVID-19. More than 300 such lawsuits have been filed, of which more than 60 purport to be filed on behalf of broad nationwide or statewide classes of policyholders. These lawsuits have been filed in state and federal courts in roughly 35 states. Although the allegations vary, the plaintiffs generally seek a declaration of insurance coverage, damages for breach of contract in unspecified amounts, interest, and attorneys' fees. Many of the lawsuits also allege that the insurance claims were denied in bad faith or otherwise in violation of state laws and seek extra-contractual or punitive damages. Some of the lawsuits also allege that the Hartford Writing Companies engaged in unfair business practices by collecting or retaining excess premium.
The Company and its subsidiaries deny the allegations and continue to vigorously defend these suits. The Hartford Writing Companies maintain that they have no coverage obligations with respect to these suits for business income allegedly lost by the plaintiffs due to the COVID-19 pandemic based on the clear terms of the applicable insurance policies. Although the policy terms vary depending, among other things, upon the size, nature, and location of the policyholder’s business, in general, the claims at issue in these lawsuits were denied because the claimant identified no direct physical damage or loss to property at the insured premises, and the governmental orders that led to the complete or partial shutdown of the business were not due to the existence of any direct physical damage or loss in the immediate vicinity of the insured premises and did not prohibit access to the insured premises, as required by the terms of the insurance policies. In addition, the vast majority of the policies at issue expressly exclude from coverage any loss caused directly or indirectly by the presence, growth, proliferation, spread or activity of a virus, subject to a narrow set of exceptions not applicable in connection with this pandemic, and contain a pollution and contamination exclusion that, among other things, expressly excludes from coverage any loss caused by material that threatens human health or welfare.
In addition to the inherent difficulty in predicting litigation outcomes, the COVID-19 pandemic business income coverage lawsuits still present uncertainties and contingencies that are not yet fully known, including whether additional claims or lawsuits could be filed, the extent to which any state or nationwide classes will be certified, and the size and scope of any such classes. The legal theories advocated by plaintiffs vary significantly by case as do the state laws that govern the policy interpretation. These lawsuits are at various stages of litigation: some are in the earliest stages of litigation, some are in discovery, and many have been dismissed through rulings in favor of the Hartford Writing Companies. Moreover, dozens of policyholders have appealed dismissals in favor of the Hartford Writing Companies. The Hartford Writing Companies have received numerous favorable rulings on appeal, with a few adverse appellate rulings to date. The remainder of the Hartford Writing Companies' appeals are at various stages of the
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 15 - Commitments and Contingencies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
appellate process and have not yet been decided. In addition, business income calculations depend upon a wide range of factors that are particular to the circumstances of each individual policyholder and, here, almost none of the plaintiffs have submitted proofs of loss or otherwise quantified or factually supported any allegedly covered loss, and, in any event, the Company’s experience shows that demands for damages often bear little relation to a reasonable estimate of potential loss. Accordingly, management cannot now reasonably estimate the possible loss or range of loss, if any. Nonetheless, despite the high percentage of favorable outcomes to date in both the trial and appellate courts, given the large number of claims and potential claims, the indeterminate amounts sought, and the inherent unpredictability of litigation, it is possible that adverse outcomes, if any, in the aggregate, could have a material adverse effect on the Company’s consolidated operating results or liquidity.
Run-off Asbestos and Environmental Claims
The Company continues to receive A&E claims. Asbestos claims relate primarily to bodily injuries asserted by people who came in contact with asbestos or products containing asbestos. Environmental claims relate primarily to pollution and related clean-up costs.
The vast majority of the Company's exposure to A&E relates to accident years prior to 1986 that are reported in Property & Casualty Other Operations ("Run-off A&E"). In addition, since 1986, the Company has written asbestos and environmental exposures under general liability policies and pollution liability under homeowners policies, which are reported in the Commercial Lines and Personal Lines segments, respectively.
Prior to 1986, the Company wrote several different categories of insurance contracts that may cover A&E claims. First, the Company wrote primary policies providing the first layer of coverage in an insured’s liability program. Second, the Company wrote excess and umbrella policies providing higher layers of coverage for losses that exhaust the limits of underlying coverage. Third, the Company acted as a reinsurer assuming a portion of those risks assumed by other insurers writing primary, excess, umbrella and reinsurance coverages.
Significant uncertainty limits the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid gross losses and expenses related to environmental and asbestos claims. The degree of variability of gross reserve estimates for these exposures is significantly greater than for other more traditional exposures.
In the case of the reserves for asbestos exposures, factors contributing to the high degree of uncertainty include inadequate loss development patterns, plaintiffs’ expanding theories of liability, the risks inherent in major litigation, and inconsistent and emerging legal doctrines with respect to the underlying claims and with respect to the Company's coverage obligations. Furthermore, over time, insurers, including the Company, have experienced significant changes in the rate at which asbestos claims are brought, the claims experience of particular insureds, and the value of claims, making predictions of future exposure from past experience uncertain. Plaintiffs and insureds also have sought to use bankruptcy proceedings, including “pre-
packaged” bankruptcies, to accelerate and increase loss payments by insurers. In addition, some policyholders have asserted new classes of claims for coverages to which an aggregate limit of liability may not apply. Further uncertainties include insolvencies of other carriers, insolvencies of insureds and unanticipated developments pertaining to the Company’s ability to recover reinsurance for A&E claims. Management believes these issues are not likely to be resolved in the near future.
In the case of the reserves for environmental exposures, factors contributing to the high degree of uncertainty include expanding theories of liability and damages against insureds, emerging risks such as per-and polyfluoroalkyl substances ("PFAS"), the risks inherent in major litigation, inconsistent and emerging legal doctrines concerning the existence and scope of coverage for environmental claims, and the scope and level of complexity of the remediation required by regulators.
The reporting pattern for assumed reinsurance claims, including those related to A&E claims, is much longer than for direct claims. In many instances, it takes months or years to determine that the policyholder’s own obligations have been met and how the reinsurance in question may apply to such claims. The delay in reporting reinsurance claims and exposures adds to the uncertainty of estimating the related reserves.
It is also not possible to predict changes in the legal and legislative environment and their effect on the future development of A&E claims.
Given the factors described above, the Company believes the actuarial tools and other techniques it employs to estimate the ultimate cost of claims for more traditional kinds of insurance exposure are less precise in estimating reserves for A&E exposures. For this reason, the Company principally relies on exposure-based analysis to estimate the ultimate costs of these claims, both gross and net of reinsurance, and regularly evaluates new account information in assessing its potential A&E exposures. The Company supplements this exposure-based analysis with evaluations of the Company’s historical direct net loss and expense paid and reported experience, and net loss and expense paid and reported experience by calendar and/or report year, to assess any emerging trends, fluctuations or characteristics suggested by the aggregate paid and reported activity.
While the Company believes that its current Run-off A&E reserves are appropriate, significant uncertainties limit the ability of insurers and reinsurers to estimate the ultimate reserves necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not estimable now, could be material to The Hartford’s consolidated operating results or liquidity.
For its Run-off A&E claims, as of December 31, 2023, the Company reported $248 of net asbestos and environmental reserves, including the benefit of losses ceded to an A&E ADC with NICO. In addition, the Company has recorded a $788 deferred gain within other liabilities for losses economically ceded to NICO but for which the benefit is not recognized in earnings until later periods. While the Company believes that its current run-off A&E reserves are appropriate, significant uncertainties limit our ability to estimate the ultimate reserves
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| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 15 - Commitments and Contingencies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
necessary for unpaid losses and related expenses. The ultimate liabilities, thus, could exceed the currently recorded reserves, and any such additional liability, while not reasonably estimable now, could be material to The Hartford's consolidated operating results or liquidity.
The Company’s A&E ADC reinsurance agreement reinsures substantially all A&E reserve development for 2016 and prior accident years, including Run-off A&E and A&E reserves included in Commercial Lines and Personal Lines. The A&E ADC has a coverage limit of $1.5 billion above the Company’s existing net A&E reserves as of December 31, 2016 of approximately $1.7 billion. As of December 31, 2023, the Company has incurred $1,438 in cumulative adverse development on A&E reserves that have been ceded under the A&E ADC treaty, leaving $62 of coverage available for future adverse net reserve development, if any. Cumulative adverse development of A&E claims for accident years 2016 and prior could ultimately exceed the $1.5 billion treaty limit in which case any adverse development in excess of the treaty limit would be absorbed as a charge to earnings by the Company. In these scenarios, the effect of these charges could be material to the Company’s consolidated operating results or liquidity. For more information on the A&E ADC, refer to Note 11, Reserve for Unpaid Losses and Loss Adjustment Expenses.
Unfunded Commitments
As of December 31, 2023, the Company has outstanding commitments totaling $2.6 billion, of which $1.9 billion is primarily committed to fund limited partnerships and other alternative investments, which may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. The funding of purchase investments in limited partnerships and other alternative investments are at the discretion of the general partner or manager and may be called at any time. Additionally, $313 of the outstanding commitments relate to various funding obligations primarily associated with tax credits and private debt. The remaining outstanding commitments of $376 relate to mortgage loans. Of the $2.6 billion in total outstanding commitments, $84 are related to mortgage loan commitments which the Company can cancel unconditionally.
Guaranty Funds and Other Insurance-related Assessments
In all states, insurers licensed to transact certain classes of insurance are required to become members of a guaranty fund. In most states, in the event of the insolvency of an insurer writing any such class of insurance in the state, a guaranty fund may assess its members to pay covered claims of the insolvent insurers. Assessments are based on each member's proportionate share of written premiums in the state for the classes of insurance in which the insolvent insurer was engaged. Assessments are generally limited for any year to one or two percent of the premiums written per year depending on the state. Some states permit member insurers to recover assessments paid through surcharges on policyholders or through full or partial premium tax offsets, while other states permit recovery of assessments through the rate filing process.
Liabilities for guaranty fund and other insurance-related assessments are accrued when an assessment is probable, when it can be reasonably estimated, and when the event obligating the Company to pay an imposed or probable assessment has occurred. Liabilities for guaranty funds and other insurance-related assessments are not discounted and are included as part of other liabilities in the Consolidated Balance Sheets. As of December 31, 2023 and 2022 the liability balance was $77 and $82, respectively. As of December 31, 2023 and 2022, there were $0 and $1 of premium tax offsets related to guaranty fund or other insurance-related assessments.
Derivative Commitments
Certain of the Company’s derivative agreements contain provisions that are tied to the financial strength ratings, as set by nationally recognized statistical agencies, of the individual legal entity that entered into the derivative agreement. If the legal entity’s financial strength were to fall below certain ratings, the counterparties to the derivative agreements could, in certain instances, terminate the agreements and demand immediate settlement of all outstanding derivative positions traded under each impacted bilateral agreement.
The settlement amount is determined by netting the derivative positions transacted under each agreement. If the termination rights were to be exercised by the counterparties, it could impact the legal entity’s ability to conduct hedging activities by increasing the associated costs and decreasing the willingness of counterparties to transact with the legal entity. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position as of December 31, 2023 was $43 for which the legal entities have posted collateral of $39 in the normal course of business. Based on derivative contractual terms as of December 31, 2023, a downgrade of the current financial strength ratings by either Moody's or S&P would not require additional assets to be posted as collateral. This requirement could change as a result of changes in our hedging activities or to the extent changes in contractual terms are negotiated. The nature of the additional collateral that we would post, if required, would be primarily in the form of U.S. Treasury bills, U.S. Treasury notes and government agency securities.
Guarantees
In the ordinary course of selling businesses or entities to third parties, the Company has agreed to indemnify purchasers for losses arising subsequent to the closing due to breaches of representations and warranties with respect to the business or entity being sold or with respect to covenants and obligations of the Company and/or its subsidiaries. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable. The Company does not expect to make any material payments on these guarantees and is not carrying any material liabilities associated with these guarantees.
The Hartford has guaranteed the timely payment of contractual claims under certain life, accident and health and annuity
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| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 15 - Commitments and Contingencies |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
contracts issued by its former life and annuity business with most of the guaranteed contracts issued between 1990 and 1997 (the "Talcott Guarantees"). Upon the sale of the life and annuity business in May 2018, the purchaser indemnified the Company for any liability arising under the guarantees. The Talcott Guarantees cover contractual obligations only but otherwise have no limitation as to maximum potential future payments.
The liability for credit losses ("LCL") for Talcott Guarantees is calculated for the estimated amount payable under guaranteed contracts multiplied by the probability of default and the amount of loss given a default. The probability of default is assigned by credit rating of the applicable insurance company that issued the contract and is based on historical insurance industry defaults for liabilities with similar durations estimated through multiple economic cycles. Credit ratings are current and forward-looking and consider a variety of economic outcomes. Because annuities represent the majority of the contracts issued, the loss given default factors are based on a historical study of annuity
policyholder recoveries from insolvent estate assets. The Company's exposure is expected to run off over a period that will include more than one economic cycle.
The Company's evaluation of the required LCL for the Talcott Guarantees considers the current economic environment as well as macroeconomic scenarios similar to the approach used to estimate the ACL for mortgage loans. See Note 5 - Investments. In 2021, the LCL decreased from $26 to $25 primarily reflecting a decrease in the estimated amount payable under guaranteed contracts as well as lessening expected impacts of COVID-19 relative to prior assumptions. In 2022, the LCL decreased to $22 primarily reflecting a decrease in the estimated amount payable under guaranteed contracts. During 2023, the LCL decreased to $9 primarily due to an upgrade of Talcott's credit rating, as well as a decrease in the estimated amount payable under guaranteed contracts. The Company has never experienced a loss on financial guarantees similar to the Talcott Guarantees and we believe the risk of loss is remote.
16. EQUITY
Equity Repurchase Program
In July, 2022, the Board of Directors approved a share repurchase authorization for up to $3.0 billion effective from August 1, 2022 to December 31, 2024. As of December 31, 2023, the Company has $1.35 billion remaining for equity repurchases under this share repurchase program. During the year ended December 31, 2023 the Company repurchased $1.4 billion (19.2 million shares) under this repurchase program. The Hartford's $3.0 billion equity repurchase program authorized by its Board of Directors in December 2020 expired on December 31, 2022. During the years ended December 31, 2022 and 2021, the Company repurchased $1.6 billion (22.3 million shares) and $1.7 billion (25.9 million shares), respectively, of common stock under these repurchase programs.
During the period from January 1, 2024 through February 22, 2024, the Company repurchased $200 (2.3 million shares).
The timing of any repurchases of shares under the remaining equity repurchase authorization is dependent upon several factors, including the market price of the Company's securities, the Company's capital position, consideration of the effect of any repurchases on the Company's financial strength or credit ratings, the Company's blackout periods, and other considerations.
As of December 31, 2023, the Company accrued $12 in excise taxes on share repurchases, partially reduced by share issuances, which are reported in other liabilities on the Company's Consolidated Balance Sheets.
Preferred Stock
The Company has outstanding 13.8 million depositary shares each representing 1/1000th interest in a share of the Company’s 6.0% Series G non-cumulative perpetual preferred stock (“Preferred Stock”) with a liquidation preference of $25,000 per share (equivalent to $25.00 per depositary share). The Preferred Stock is perpetual and has no maturity date.
Dividends are recorded when declared. Dividends are payable, if declared, quarterly in arrears on the 15th day of February, May, August and November of each year. If a dividend is not declared and paid or made payable on all outstanding shares of the Preferred Stock for the latest completed dividend period, no dividends may be paid or declared on The Hartford’s common stock and The Hartford may not purchase, redeem, or otherwise acquire its common stock.
The Preferred Stock is redeemable at the Company’s option in whole or in part, at a redemption price of $25,000 per share, plus unpaid dividends attributable to the current dividend period.
Statutory Results
The U.S. domestic insurance subsidiaries of The Hartford prepare their statutory financial statements in conformity with statutory accounting practices prescribed or permitted by the applicable state insurance department, which vary materially from U.S. GAAP. Prescribed statutory accounting practices include publications of the NAIC, as well as state laws, regulations and general administrative rules. The differences between statutory financial statements and financial statements prepared in accordance with U.S. GAAP vary between domestic and foreign jurisdictions. The principal differences are that statutory financial statements do not reflect deferred policy acquisition costs and limit deferred income taxes, recognize a deferred gain on retroactive reinsurance within a special surplus account rather than as other liabilities, predominately use interest rate and mortality assumptions prescribed by the NAIC for life benefit reserves, generally carry investments in bonds at amortized cost, and present insurance assets and liabilities net of reinsurance. For reporting purposes, statutory capital and surplus is referred to collectively as "statutory capital".
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 16 - Equity |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
U.S. Statutory Net Income
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Group Benefits Insurance Subsidiary | $ | 592 | $ | 378 | $ | 32 | |||||
| Property and Casualty Insurance Subsidiaries | 1,887 | 1,514 | 1,774 | ||||||||
| Total | $ | 2,479 | $ | 1,892 | $ | 1,806 |
U.S. Statutory Capital
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Group Benefits Insurance Subsidiary | $ | 2,748 | $ | 2,571 | ||||
| Property and Casualty Insurance Subsidiaries | 12,549 | 12,111 | ||||||
| Total | $ | 15,297 | $ | 14,682 |
Regulatory Capital Requirements
The Company's U.S. insurance companies' states of domicile impose RBC requirements. The requirements provide a means of measuring the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations based on its size and risk profile. Companies below specific trigger points or ratios are classified within certain levels, each of which requires specified corrective action. All of the Company's operating insurance subsidiaries had RBC ratios in excess of the minimum levels required by the applicable insurance regulations.
Similar to the RBC ratios that are employed by U.S. insurance regulators, regulatory authorities in the international jurisdictions in which the Company operates generally establish minimum solvency requirements for insurance companies. All of the Company's international insurance subsidiaries expect to maintain capital levels in excess of the minimum levels required by the applicable regulatory authorities.
Dividend Restrictions
Dividends to HFSG Holding Company from its insurance subsidiaries are restricted by insurance regulation. The Company’s principal insurance subsidiaries are domiciled in the United States and the United Kingdom.
The payment of dividends by Connecticut-domiciled insurers is limited under the insurance holding company laws of Connecticut. These laws require notice to and approval by the state insurance commissioner for the declaration or payment of any dividend, which, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer’s statutory policyholder surplus as of December 31 of the preceding year or (ii) net income (or net gain from operations, if such company is a life insurance company) for the preceding year, in each case determined under statutory insurance accounting principles. In addition, if any dividend of a Connecticut-domiciled insurer exceeds the insurer’s earned surplus, it requires the prior approval of the Connecticut Insurance Commissioner.
Property casualty insurers domiciled in New York, including NIC and Navigators Specialty Insurance Company ("NSIC"), generally may not, without notice to and approval by the state insurance commissioner, pay dividends out of earned surplus in any twelve‑month period that exceeds the lesser of (i) 10% of the insurer’s statutory policyholders’ surplus as of the most recent financial statement on file, or (ii) 100% of its adjusted net investment income, as defined, for the same twelve month period.
Corporate members of Lloyd's Syndicates may pay dividends to its parent to the extent of available profits that have been distributed from the syndicate in excess of the Funds at Lloyd's capital requirement and subject to restrictions imposed under UK Company Law. The FAL is determined based on the syndicate’s solvency capital requirement ("SCR") of the syndicate under the Solvency II capital adequacy model, the current regulatory framework governing UK domiciled insurers, plus a Lloyd’s specific economic capital assessment. Insurers domiciled in the United Kingdom may pay dividends to its parent out of its statutory profits subject to restrictions imposed under U.K. Company law and Solvency II.
The insurance holding company laws of the other jurisdictions in which The Hartford’s insurance subsidiaries are incorporated (or deemed commercially domiciled) generally contain similar (although in certain instances more restrictive) limitations on the payment of dividends. In addition to statutory limitations on paying dividends, the Company also takes other items into consideration when determining dividends from subsidiaries. These considerations include, but are not limited to, expected earnings and capitalization of the subsidiaries, regulatory capital requirements, liquidity requirements and state deposit requirements of the individual operating company.
In 2023, HFSG Holding Company received $408 of dividends from HLA and $129 from Hartford Funds. In addition, HFSG Holding Company received $1.5 billion of net dividends from P&C subsidiaries in 2023, which excludes $100 of P&C dividends that were subsequently contributed to P&C subsidiaries and $50 of P&C dividends related to interest payments on an intercompany note owed by Hartford Holdings, Inc. ("HHI") to Hartford Fire Insurance Company.
The Company’s property and casualty insurance subsidiaries have regulatory dividend capacity of $1.8 billion for 2024. The HFSG Holding Company expects to receive approximately $1.5 billion of net dividends after considering state deposit and regulatory capital requirements to support growth in certain entities, dividends that are expected to be subsequently contributed to P&C subsidiaries and dividends related to interest on intercompany notes.
HLA has regulatory dividend capacity of $609 in 2024 with approximately $600 of dividends expected in 2024.
There are no current restrictions on HFSG Holding Company's ability to pay dividends to its stockholders.
Restricted Net Assets
As of December 31, 2023, the Company's insurance subsidiaries had net assets of $14.5 billion, determined in accordance with U.S. GAAP, that were restricted from payment to the HFSG Holding Company, without prior regulatory approval.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 17 - Income Taxes |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. INCOME TAXES
Income Tax Expense
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions, as applicable. Income before income taxes included income from domestic operations of $3,042, $2,260 and $2,919 for the years ended December 31, 2023, 2022 and 2021, and income (losses) from foreign operations of $46, $2 and $(14) for the years ended December 31, 2023, 2022 and 2021.
Income Tax Expense
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Income tax expense (benefit) | |||||||||||
| Current - U.S. federal | $ | 582 | $ | 550 | $ | 486 | |||||
| Foreign | — | (1) | 2 | ||||||||
| Total current | 582 | 549 | 488 | ||||||||
| Deferred - U.S. federal | 6 | (124) | 52 | ||||||||
| Foreign | (4) | 18 | (6) | ||||||||
| Total deferred | 2 | (106) | 46 | ||||||||
| Total income tax expense | $ | 584 | $ | 443 | $ | 534 |
Income Tax Rate Reconciliation
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Tax provision at U.S. federal statutory rate | $ | 648 | $ | 474 | $ | 611 | |||||
| Nontaxable net investment income | (41) | (29) | (67) | ||||||||
| Other | (23) | (2) | (10) | ||||||||
| Provision for income taxes | $ | 584 | $ | 443 | $ | 534 |
The current income tax payable of $18 and $56 as of December 31, 2023 and 2022, respectively, is included in other liabilities in the Consolidated Balance Sheets.
Deferred Taxes
Deferred tax assets and liabilities on the consolidated balance sheets represent the tax consequences of differences between the financial reporting and tax basis of assets and liabilities.
The Company predominantly pays non-income state taxes as a percentage of premiums written which are accounted for as policy acquisition costs. State income taxes were $3, $4 and $4 for the years ended December 31, 2023, 2022 and 2021, respectively, and are included in other expenses. The Hartford has not recorded state deferred taxes, including net deferred tax assets from state operating loss carryforwards, because the Company does not expect to earn state taxable income to utilize such state tax benefits.
Deferred Tax Assets (Liabilities)
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| Deferred tax assets | ||||||||
| Loss reserves and tax discount | $ | 517 | $ | 437 | ||||
| Unearned premium reserve and other underwriting related reserves | 483 | 442 | ||||||
| Employee benefits | 172 | 167 | ||||||
| Net unrealized losses on investments | 387 | 668 | ||||||
| Net operating loss carryover | 45 | 37 | ||||||
| Other | 1 | 19 | ||||||
| Total deferred tax assets | 1,605 | 1,770 | ||||||
| Valuation allowance | (12) | (27) | ||||||
| Deferred tax assets, net of valuation allowance | 1,593 | 1,743 | ||||||
| Deferred tax liabilities | ||||||||
| Deferred acquisition costs | (163) | (146) | ||||||
| Investment-related items | (110) | (48) | ||||||
| Other depreciable and amortizable assets | (147) | (112) | ||||||
| Total deferred tax liabilities | (420) | (306) | ||||||
| Net deferred tax asset | $ | 1,173 | $ | 1,437 |
As of December 31, 2023, the Company has a deferred tax asset for foreign net operating losses ("NOLs") of $45 partially offset by a valuation allowance of $12. While the foreign NOLs do not expire, this assessment reflects uncertainty in the Company's ability to generate sufficient taxable income in the near term in those specific jurisdictions.
Management has assessed the need for a valuation allowance against its deferred tax assets based on tax character and jurisdiction. In making the assessment, management considered future taxable temporary difference reversals, future taxable income exclusive of reversing temporary differences, the ability to hold assets to recovery, and carryovers, taxable income in open carry back years and other tax planning strategies which management views as prudent and feasible.
Uncertain Tax Positions
Rollforward of Unrecognized Tax Benefits
| For the years ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Balance, beginning of period | $ | 22 | $ | 16 | $ | 15 | |||||||||||
| Gross increases - tax positions in current period | 5 | 6 | 6 | ||||||||||||||
| Lapse of statute of limitations | (1) | — | (5) | ||||||||||||||
| Balance, end of period | $ | 26 | $ | 22 | $ | 16 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 17 - Income Taxes |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The entire amount of unrecognized tax benefits, if recognized, would affect the effective tax rate in the period of the release. The Company believes it is reasonably possible approximately $4 of its currently unrecognized tax benefits associated with R&D credits claimed on the Company's 2020 tax return may be recognized by the end of 2024 as a result of a lapse in the applicable statute of limitations. In 2021, the Company recognized $5 of its previously unrecognized tax benefits associated with dividends from segregated asset accounts of the life and annuity business sold in 2018. This liability was subject to a tax indemnification agreement and a corresponding receivable included in other assets has been taken down upon lapse of the statute of limitations.
Other Tax Matters
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”) which is generally effective for years beginning after December 31, 2022. Notably, the bill created a 15% corporate alternative minimum tax (“CAMT”) on corporations with three-year average financial statement income over $1 billion. The Internal Revenue Service has issued some preliminary guidance and is expected to release more detailed proposed regulations in the coming year. The Company has made certain interpretations and assumptions to comply with the CAMT. While the Company's financial statement income is over
$1 billion, it is not expected the Company would have a CAMT liability. If CAMT is paid in the future, the amount would be indefinitely available as a credit carryforward that would reduce tax in future years and would be treated as a temporary item reflected within deferred taxes.
The federal income tax audits for the Company have been completed through 2013. The acquired Navigators group is currently under IRS audit for the pre-acquisition 2019 tax period. The statute of limitations is closed through the 2019 tax year with the exception of NOL carryforwards utilized in open tax years and the Navigators pre-acquisition 2019 tax period. Management believes that adequate provision has been made in the Company's Consolidated Financial Statements for any potential adjustments that may result from tax examinations and other tax-related matters for all open tax years.
The Company classifies interest and penalties (if applicable) as income tax expense in the Consolidated Financial Statements. The Company recognized net interest expense of $2 and $1 in the years ended December 31, 2023 and 2022 and net interest income of $1 for the year ended December 31, 2021, respectively. The Company does not believe it would be subject to any penalties in any open tax years and, therefore, has not recorded any accrual for penalties.
18. CHANGES IN AND RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Changes in AOCI, Net of Tax for the Year Ended December 31, 2023
| Changes in | |||||||||||||||||||||||
| Net Unrealized Gain (Loss) on Fixed Maturities, AFS | Unrealized Losses on Fixed Maturities with ACL | Net Gain (Loss) on Cash Flow Hedging Instruments | Foreign Currency Translation Adjustments | Liability for Future Policy Benefits Adjustments | Pension and Other Postretirement Plan Adjustments | AOCI, net of tax | |||||||||||||||||
| Beginning balance | $ | (2,594) | $ | (7) | $ | 40 | $ | 31 | $ | 35 | $ | (1,346) | $ | (3,841) | |||||||||
| OCI before reclassifications | 1,275 | (5) | (25) | 8 | (13) | (148) | 1,092 | ||||||||||||||||
| Amounts reclassified from AOCI | 133 | 4 | 1 | — | — | 27 | 165 | ||||||||||||||||
| OCI, before tax | 1,408 | (1) | (24) | 8 | (13) | (121) | 1,257 | ||||||||||||||||
| Income tax benefit (expense) | (296) | — | 5 | (2) | 3 | 25 | (265) | ||||||||||||||||
| OCI, net of tax | 1,112 | (1) | (19) | 6 | (10) | (96) | 992 | ||||||||||||||||
| Ending balance | $ | (1,482) | $ | (8) | $ | 21 | $ | 37 | $ | 25 | $ | (1,442) | $ | (2,849) | |||||||||
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 18 - Accumulated Other Comprehensive Income (Loss) |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Changes in AOCI, Net of Tax for the Year Ended December 31, 2022
| Changes in | |||||||||||||||||||||||
| Net Unrealized Gain (Loss) on Fixed Maturities, AFS | Unrealized Losses on Fixed Maturities with ACL | Net Gain (Loss) on Cash Flow Hedging Instruments | Foreign Currency Translation Adjustments | Liability for Future Policy Benefits Adjustments | Pension and Other Postretirement Plan Adjustments | AOCI, net of tax | |||||||||||||||||
| Beginning balance | $ | 1,631 | $ | (2) | $ | 6 | $ | 41 | $ | (59) | $ | (1,489) | $ | 128 | |||||||||
| OCI before reclassifications | (5,630) | (6) | 56 | (13) | 119 | 119 | (5,355) | ||||||||||||||||
| Amounts reclassified from AOCI | 282 | — | (13) | — | — | 62 | 331 | ||||||||||||||||
| OCI, before tax | (5,348) | (6) | 43 | (13) | 119 | 181 | (5,024) | ||||||||||||||||
| Income tax benefit (expense) | 1,123 | 1 | (9) | 3 | (25) | (38) | 1,055 | ||||||||||||||||
| OCI, net of tax | (4,225) | (5) | 34 | (10) | 94 | 143 | (3,969) | ||||||||||||||||
| Ending balance | $ | (2,594) | $ | (7) | $ | 40 | $ | 31 | $ | 35 | $ | (1,346) | $ | (3,841) |
Changes in AOCI, Net of Tax for the Year ended December 31, 2021
| Changes in | ||||||||||||||||||||||||||||||||||||||||||||
| Net Unrealized Gain (Loss) on Fixed Maturities, AFS | Unrealized Losses on Fixed Maturities with ACL | Net Gain (Loss) on Cash Flow Hedging Instruments | Foreign Currency Translation Adjustments | Liability for Future Policy Benefits Adjustments | Pension and Other Postretirement Plan Adjustments | AOCI, net of tax | ||||||||||||||||||||||||||||||||||||||
| Beginning balance | $ | 2,834 | $ | (2) | $ | 12 | $ | 43 | $ | — | $ | (1,717) | $ | 1,170 | ||||||||||||||||||||||||||||||
| Cumulative effect of accounting changes, net of tax [1] | 21 | — | — | — | (86) | — | (65) | |||||||||||||||||||||||||||||||||||||
| Adjusted balance, beginning of period | 2,855 | (2) | 12 | 43 | (86) | (1,717) | 1,105 | |||||||||||||||||||||||||||||||||||||
| OCI before reclassifications | (1,315) | — | 28 | (3) | 33 | 219 | (1,038) | |||||||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | (234) | — | (36) | — | — | 70 | (200) | |||||||||||||||||||||||||||||||||||||
| OCI, before tax | (1,549) | — | (8) | (3) | 33 | 289 | (1,238) | |||||||||||||||||||||||||||||||||||||
| Income tax benefit (expense) | 325 | — | 2 | 1 | (6) | (61) | 261 | |||||||||||||||||||||||||||||||||||||
| OCI, net of tax | (1,224) | — | (6) | (2) | 27 | 228 | (977) | |||||||||||||||||||||||||||||||||||||
| Ending balance | $ | 1,631 | $ | (2) | $ | 6 | $ | 41 | $ | (59) | $ | (1,489) | $ | 128 |
[1] Includes adjustments of $21 for elimination of shadow reserves and ($86) for updating discount rate assumptions for future policy benefit reserves. Refer to Note 1 - Basis of Presentation and Significant Accounting Policies.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 18 - Accumulated Other Comprehensive Income (Loss) |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Reclassifications from AOCI
| AOCI | Amount Reclassified from AOCI | Affected Line Item in the Consolidated Statement of Operations | ||||||||||||
| For the year ended December 31, 2023 | For the year ended December 31, 2022 | For the year ended December 31, 2021 | ||||||||||||
| Net Unrealized Gain on Fixed Maturities, AFS | ||||||||||||||
| Fixed maturities, AFS | $ | (133) | $ | (282) | $ | 234 | Net realized gains (losses) | |||||||
| (133) | (282) | 234 | Total before tax | |||||||||||
| (28) | (59) | 49 | Income tax expense | |||||||||||
| $ | (105) | $ | (223) | $ | 185 | Net income | ||||||||
| Unrealized Loss on Fixed Maturities with ACL | ||||||||||||||
| Fixed maturities, AFS | $ | (4) | $ | — | $ | — | Net realized gains (losses) | |||||||
| (4) | — | — | Total before tax | |||||||||||
| (1) | — | — | Income tax expense | |||||||||||
| $ | (3) | $ | — | $ | — | Net income | ||||||||
| Net Gains (Losses) on Cash Flow Hedging Instruments | ||||||||||||||
| Interest rate swaps | $ | (26) | $ | 6 | $ | 41 | Net investment income | |||||||
| Interest rate swaps | 15 | (2) | (10) | Interest expense | ||||||||||
| Foreign currency swaps | 10 | 9 | 5 | Net investment income | ||||||||||
| (1) | 13 | 36 | Total before tax | |||||||||||
| — | 3 | 8 | Income tax expense | |||||||||||
| $ | (1) | $ | 10 | $ | 28 | Net income | ||||||||
| Pension and Other Postretirement Plan Adjustments | ||||||||||||||
| Amortization of prior service credit | $ | 7 | $ | 7 | $ | 7 | Insurance operating costs and other expenses | |||||||
| Amortization of actuarial loss | (34) | (69) | (77) | Insurance operating costs and other expenses | ||||||||||
| (27) | (62) | (70) | Total before tax | |||||||||||
| — | (13) | (15) | Income tax expense | |||||||||||
| (27) | (49) | (55) | Net income | |||||||||||
| Total amounts reclassified from AOCI | $ | (136) | $ | (262) | $ | 158 | Net income |
19. EMPLOYEE BENEFIT PLANS
Investment and Savings Plan
Substantially all U.S. employees of the Company are eligible to participate in The Hartford Investment and Savings Plan under which designated contributions may be invested in a variety of investments, including up to 10% in a fund consisting largely of common stock of The Hartford. The Company's contributions include a non-elective contribution of 2.0% of eligible compensation and a dollar-for-dollar matching contribution of up to 6.0% of eligible compensation contributed by the employee. The Company also maintains a non-qualified savings plan, The Hartford Excess Savings Plan, with the dollar-for-dollar matching contributions related to employee compensation in excess of the amount of eligible compensation that can be contributed under the tax-qualified Investment and Savings
Plan. An employee's eligible compensation includes overtime and bonuses but for the Investment and Savings Plan and Excess Savings Plan combined, is limited to $1 annually. The total cost to The Hartford for these plans was approximately $163, $142 and $147 for the years ended December 31, 2023, 2022 and 2021, respectively.
Additionally, The Hartford has established defined contribution pension plans for certain employees of the Company’s international subsidiaries. The cost to The Hartford for each of the years ended December 31, 2023, 2022 and 2021 for these plans was $3.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Postretirement Benefit Plans
Defined Benefit Pension Plan- The Company maintains The Hartford Retirement Plan for U.S. Employees, a U.S. qualified defined benefit pension plan (“U.S. Pension Plan”) that covers substantially all U.S. employees hired prior to January 1, 2013. The Company also maintains non-qualified pension plans to provide retirement benefits previously accrued that are in excess of Internal Revenue Code limitations, as well as a Canadian defined benefit pension plan. Together, the non-qualified and Canadian defined benefit plan are referred to as "Other Pension Plans".
The U.S. Pension Plan includes two benefit formulas, both of which are frozen: a final average pay formula (for which all accruals ceased as of December 31, 2008) and a cash balance formula for which benefit accruals ceased as of December 31, 2012, although interest will continue to accrue to existing cash balance formula account balances. Employees who were participants as of December 31, 2012 continue to earn vesting credit with respect to their frozen accrued benefits if they continue to work. The interest crediting rate on the cash balance plan is the greater of the average annual yield on 10-year U.S. Treasury Securities published in December of the prior calendar year or 3.3%. The Hartford Excess Pension Plan I and The Hartford Excess Pension Plan II, the Company's non-qualified excess pension benefit plans for certain highly compensated employees, are also frozen.
Group Retiree Health Plan- The Company provides certain health care and life insurance benefits for eligible retired employees. The Company’s contribution for health care benefits are a function of the retiree’s date of retirement and years of service. In addition, the plan has a defined dollar cap for certain retirees which limits average Company contributions. The Hartford has prefunded a portion of the health care obligations where such prefunding can be accomplished on a tax effective basis. Beginning January 1, 2017, for retirees 65 and older who were participating in the Retiree PPO Medical Plan, the Company funds the cost of medical and dental health care benefits through contributions to a Health Reimbursement Account and covered individuals can access a variety of insurance plans from a health care exchange. Effective January 1, 2002, Company-subsidized retiree medical, retiree dental and retiree life insurance benefits were eliminated for employees with original hire dates with the Company on or after January 1, 2002. The Company also amended its postretirement medical, dental and life insurance coverage plans to no longer provide subsidized coverage for employees who retired on or after January 1, 2014.
Assumptions
Pursuant to accounting principles related to the Company’s pension and other postretirement obligations to employees
under its various benefit plans, the Company is required to make a significant number of assumptions in order to calculate the related liabilities and expenses each period. The two economic assumptions that have the most impact on pension and other postretirement expense under the defined benefit pension plans and group retiree health plan are the discount rate and the expected long-term rate of return on plan assets. The yield curve used to determine the discount rate is based on yields of high-quality fixed income investments grouped by duration, using the above mean average for each duration group. Based on all available market and industry information, it was determined that 5.15% and 5.13% were the appropriate discount rates as of December 31, 2023 to calculate the Company’s U.S. Pension Plan and other postretirement obligations, respectively.
The expected long-term rate of return considers both current market yields and forecasted investment returns expected to be achieved by the plan’s investment strategy over the remaining life of the plan. The Company also considers the plan's funded status, the investment volatility, duration and total returns for various time periods related to the characteristics of the pension obligation, which are influenced by the Company's workforce demographics. For the pension plan, the Company has assumed an allocation of approximately 81% in fixed income securities and 19% in non-fixed income securities (global equities and limited partnerships) in its assumed expected long-term rate of return for the year ended December 31, 2023, whereas the Company anticipated an allocation of 73% in fixed income securities and 27% in non-fixed income securities to derive an expected long-term rate of return for the year ended December 31, 2022. For the other postretirement plans, the Company has assumed an allocation of 100% in fixed income securities in its assumptions for the year ended December 31, 2023, whereas the Company anticipated an allocation of 75% in fixed income securities and 25% in non-fixed income securities to derive an expected long-term rate of return for the year ended December 31, 2022. Based upon these analyses, management determined the long-term rate of return assumption to be 6.10% and 4.50% for the Company's U.S. Pension Plan and other postretirement obligations, respectively, for the year ended December 31, 2023 and 5.10% and 4.80% for the Company's U.S. Pension Plan and other postretirement obligations, respectively, for the year ended December 31, 2022. To determine the Company's 2024 expense, the Company has assumed an allocation of 81% in fixed income securities and 19% in non-fixed income securities for the pension plan and an allocation of 100% in fixed income securities for the postretirement plans, contributing to an expected long-term rate of return on plan assets of 5.90% and 4.50% for the Company's U.S. Pension Plan and other postretirement obligations, respectively.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assumptions Used in Calculating the Benefit Obligations and the Net Amount Recognized
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Weighted Average Assumptions used to determine benefit obligations | |||||||||||
| Discount rate: | |||||||||||
| U.S. Pension Plan | 5.15 | % | 5.43 | % | 2.91 | % | |||||
| Other Pension Plans | 5.14 | % | 5.40 | % | 2.83 | % | |||||
| Other postretirement benefits | 5.13 | % | 5.39 | % | 2.72 | % | |||||
| Interest crediting rate on cash balance plan | 4.36 | % | 3.89 | % | 3.30 | % | |||||
| Weighted Average Assumptions used to determine net periodic benefit costs: | |||||||||||
| Discount rate: | |||||||||||
| U.S. Pension Plan | 5.43 | % | 2.91 | % | 2.66 | % | |||||
| Other Pension Plans | 5.40 | % | 2.83 | % | 2.52 | % | |||||
| Other postretirement benefits | 5.39 | % | 2.72 | % | 2.36 | % | |||||
| Expected long-term rate of return on plan assets: | |||||||||||
| U.S. Pension Plan | 6.10 | % | 5.10 | % | 5.40 | % | |||||
| Other Pension Plans | 4.40 | % | 3.30 | % | 2.90 | % | |||||
| Other postretirement benefits | 4.50 | % | 4.80 | % | 4.90 | % | |||||
| Assumed Health Care Cost Trend Rates | |||||||||||
| Pre-65 health care cost trend rate | 8.00 | % | 7.00 | % | 7.00 | % | |||||
| Post-65 health care cost trend rate | N/A | N/A | N/A | ||||||||
| Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) | 4.50 | % | 4.50 | % | 4.50 | % | |||||
| Year that the rate reaches the ultimate trend rate | 2038 | 2032 | 2032 | ||||||||
Obligations and Funded Status
The following tables set forth a reconciliation of beginning and ending balances of the benefit obligation and fair value of plan assets, as well as the funded status of the Company's defined benefit pension and postretirement health care and life
insurance benefit plans. Information is presented for the qualified U.S. Pension Plan, Other Pension Plans (including non-qualified plans and the Canadian pension plan) and other postretirement benefits.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Obligations and Funded Status
| U.S. Pension Plan | Other Pension Plans | Total Pension Plans | Other Postretirement Benefits | ||||||||||||||||||||||||||||||||
| For the years ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Change in Benefit Obligation | |||||||||||||||||||||||||||||||||||
| Benefit obligation — beginning of year | $ | 3,156 | $ | 4,210 | $ | 334 | $ | 439 | $ | 3,490 | $ | 4,649 | $ | 143 | $ | 197 | |||||||||||||||||||
| Service cost | 3 | 4 | — | — | 3 | 4 | — | — | |||||||||||||||||||||||||||
| Interest cost | 163 | 101 | 17 | 10 | 180 | 111 | 7 | 4 | |||||||||||||||||||||||||||
| Plan participants’ contributions | — | — | — | — | — | — | 8 | 10 | |||||||||||||||||||||||||||
| Actuarial loss (gain) | 38 | 14 | 2 | 4 | 40 | 18 | 3 | (5) | |||||||||||||||||||||||||||
| Changes in assumptions | 100 | (985) | 8 | (92) | 108 | (1,077) | 3 | (33) | |||||||||||||||||||||||||||
| Benefits paid [1] | (191) | (188) | (27) | (27) | (218) | (215) | (26) | (30) | |||||||||||||||||||||||||||
| Benefit obligation — end of year [2] | $ | 3,269 | $ | 3,156 | $ | 334 | $ | 334 | $ | 3,603 | $ | 3,490 | $ | 138 | $ | 143 | |||||||||||||||||||
| Change in Plan Assets | |||||||||||||||||||||||||||||||||||
| Fair value of plan assets — beginning of year | $ | 3,513 | $ | 4,467 | $ | 11 | $ | 15 | $ | 3,524 | $ | 4,482 | $ | 30 | $ | 51 | |||||||||||||||||||
| Actual return on plan assets | 254 | (742) | — | (3) | 254 | (745) | 1 | (6) | |||||||||||||||||||||||||||
| Employer contributions [3] | — | — | 1 | — | 1 | — | 5 | 5 | |||||||||||||||||||||||||||
| Plan participants' contributions [3] | — | — | — | — | — | — | 8 | 10 | |||||||||||||||||||||||||||
| Benefits paid [1] | (191) | (188) | (1) | (1) | (192) | (189) | (26) | (30) | |||||||||||||||||||||||||||
| Expenses paid | (14) | (24) | — | — | (14) | (24) | — | — | |||||||||||||||||||||||||||
| Fair value of plan assets — end of year | $ | 3,562 | $ | 3,513 | $ | 11 | $ | 11 | $ | 3,573 | $ | 3,524 | $ | 18 | $ | 30 | |||||||||||||||||||
| Funded status — end of year | $ | 293 | $ | 357 | $ | (323) | $ | (323) | $ | (30) | $ | 34 | $ | (120) | $ | (113) | |||||||||||||||||||
| Amounts Recognized in the Consolidated Balance Sheets | |||||||||||||||||||||||||||||||||||
| Other assets | $ | 293 | $ | 357 | $ | — | $ | — | $ | 293 | $ | 357 | $ | — | $ | — | |||||||||||||||||||
| Other liabilities | $ | — | $ | — | $ | (323) | $ | (323) | $ | (323) | $ | (323) | $ | (120) | $ | (113) | |||||||||||||||||||
*[1]*Other postretirement benefits paid represent payments from plan assets for non-key employee postretirement medical benefits, Company assets and plan participants' contributions.
*[2]*As of December 31, 2023 and 2022, the Accumulated Benefit Obligation is equal to the Projected Benefit Obligation.
*[3]*Employer and plan participants' contributions for the Other Postretirement Benefits represent funding from Company and plan participant assets.
Changes in assumptions for the U.S. Pension Plan in 2023 primarily included a $88 increase in the benefit obligation for pension benefits as a result of a decrease in the discount rate from 5.43% as of the December 31, 2022 valuation to 5.15% as of the December 31, 2023 valuation. Changes in assumptions in 2022 included a $997 decrease in the benefit obligation for pension benefits as a result of an increase in the discount rate from 2.91% as of the December 31, 2021 valuation to 5.43% as of the December 31, 2022 valuation.
Changes in assumptions for the Other Pension Plans in 2023 primarily included a $7 increase in the benefit obligation for pension benefits as a result of a decrease in the discount rate from 5.40% as of the December 31, 2022 valuation to 5.14% as of the December 31, 2023 valuation. Changes in assumptions in 2022 included a $92 decrease in the benefit obligation for pension benefits as a result of an increase in the discount rate from 2.83% as of the December 31, 2021 valuation to 5.40% as of the December 31, 2022 valuation.
Included in the benefit obligation for the U.S. Pension Plan in the table above, the cash balance plan pension benefit obligation was $357 and $338 as of December 31, 2023 and 2022, respectively.
The fair value of assets for total pension plans, and hence the funded status, presented in the table above excludes assets of $198 and $170 as of December 31, 2023 and 2022, respectively, held in rabbi trusts and designated for the Other Pension Plans. The Company contributed $3 to the rabbi trusts in 2023. The assets do not qualify as plan assets; however, the assets are available to pay benefits for certain retired, terminated and active participants. Such assets are available to the Company’s general creditors in the event of insolvency. The rabbi trusts' assets consist of equity and fixed income investments. To the extent the fair value of these rabbi trusts were included in the table above, total pension plan assets would have been $3,771 and $3,694 as of December 31, 2023 and 2022, respectively, and the funded status of total pension plans would have been $168 and $204 as of December 31, 2023 and 2022, respectively.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tables below present an aggregate view of net periodic cost (benefit) and components of other comprehensive income and AOCI for pension plans that includes both the U.S. Pension Plan and Other Pension Plans. Net periodic cost (benefit) is recognized in insurance operating costs and other expenses in the Consolidated Statement of Operations.
Net Periodic Cost (Benefit)
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||
| Service cost | $ | 3 | $ | 4 | $ | 4 | $ | — | $ | — | $ | — | ||||||||
| Interest cost | 180 | 111 | 96 | 7 | 4 | 3 | ||||||||||||||
| Expected return on plan assets | (235) | (202) | (205) | (1) | (2) | (3) | ||||||||||||||
| Amortization of prior service credit | — | — | — | (7) | (7) | (7) | ||||||||||||||
| Amortization of actuarial loss | 29 | 62 | 69 | 5 | 7 | 8 | ||||||||||||||
| Net periodic cost (benefit) | $ | (23) | $ | (25) | $ | (36) | $ | 4 | $ | 2 | $ | 1 |
Amounts Recognized in Other Comprehensive Income (Loss)
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
| For the years ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||
| Amortization of actuarial loss | $ | 29 | $ | 62 | $ | 69 | $ | 5 | $ | 7 | $ | 8 | ||||||||
| Amortization of prior service credit | — | — | — | (7) | (7) | (7) | ||||||||||||||
| Net actuarial gain (loss) | (142) | 89 | 214 | (6) | 30 | 5 | ||||||||||||||
| Prior service cost (credit) | — | — | — | — | — | — | ||||||||||||||
| Total | $ | (113) | $ | 151 | $ | 283 | $ | (8) | $ | 30 | $ | 6 |
Amounts in Accumulated Other Comprehensive Income (Loss), Before Tax, not yet Recognized as Components of Net Periodic Benefit Cost
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||
| As of December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||
| Net loss | $ | (1,777) | $ | (1,664) | $ | (1,815) | $ | (88) | $ | (87) | $ | (124) | ||||||||
| Prior service credit | — | — | — | 40 | 47 | 54 | ||||||||||||||
| Total | $ | (1,777) | $ | (1,664) | $ | (1,815) | $ | (48) | $ | (40) | $ | (70) |
Actuarial net losses in AOCI that exceed 10% of the greater of the benefit obligation or the market-related value of plan assets are amortized to expense over the average future life expectancy of plan participants.
Pension Plan Assets
Investment Strategy and Target Allocation
The overall investment strategy of the U.S. Pension Plan is to produce total investment returns that provide sufficient funding for present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. With respect to asset management, the oversight responsibility of the U.S. Pension Plan rests with The Hartford’s Pension Investment Committee composed of individuals whose responsibilities include establishing overall objectives and the
setting of investment policy; selecting appropriate investment options and ranges; selecting qualified service providers such as investment managers and investment consultants; reviewing the asset allocation mix and asset allocation targets on a regular basis; and monitoring performance to determine whether or not the rate of return objectives are being met and that policy and guidelines are being followed. The Pension Investment Committee has adopted a de-risking glide path that reduces the target allocation to equity securities and limited partnerships and increases the allocation to fixed income securities over time in response to improvement in the funded status of the U.S. Pension Plan. The Company believes that the asset allocation decision will be the single most important factor determining the long-term performance of the U.S. Pension Plan.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Target Asset Allocation Ranges
| Pension Plans | Other Postretirement Plans | |||||||||||||
| Minimum | Maximum | Minimum | Maximum | |||||||||||
| Equity securities | — | % | 20 | % | — | % | — | % | ||||||
| Fixed income securities | 75 | % | 95 | % | 100 | % | 100 | % | ||||||
| Limited partnerships | — | % | 25 | % | — | % | — | % |
Divergent market performance among different asset classes and changes in the context of the glide path may, from time to time, cause the asset allocation to deviate from the desired asset allocation ranges. The asset allocation mix is reviewed on a periodic basis. If it is determined that an asset allocation mix rebalancing is required, future portfolio additions and
withdrawals will be used first, as necessary, to bring the allocation within tactical ranges, before shifting assets across portfolios.
The U.S. Pension Plan invests in multiple asset classes reflecting the current needs, investment preferences, risk tolerances and the desired degree of diversification of the U.S. Pension Plan. These asset classes include publicly traded fixed income securities and equities, private fixed income securities, commercial mortgage loans and limited partnerships. Investment portfolios are primarily managed by affiliated managers.
In addition, the Company uses U.S. Treasury bond futures contracts and U.S. Treasury STRIPS, in addition to certain other investments, in a duration overlay program to adjust the duration of U.S. Pension Plan assets to better match the duration of the benefit obligation.
Pension Plan Assets at Fair Value
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||
| Short-term investments: | $ | 187 | $ | — | $ | — | $ | 187 | $ | 155 | $ | — | $ | — | $ | 155 | |||||||||||||
| Fixed Income Securities: | |||||||||||||||||||||||||||||
| Corporate | — | 1,643 | 36 | 1,679 | — | 1,791 | 31 | 1,822 | |||||||||||||||||||||
| RMBS | — | 111 | — | 111 | — | 115 | — | 115 | |||||||||||||||||||||
| U.S. Treasuries | — | 271 | — | 271 | — | 165 | — | 165 | |||||||||||||||||||||
| Foreign government | — | 11 | 10 | 21 | — | 25 | 1 | 26 | |||||||||||||||||||||
| CMBS | — | 49 | 1 | 50 | — | 57 | 1 | 58 | |||||||||||||||||||||
| Other fixed income [1] | — | 160 | — | 160 | — | 139 | — | 139 | |||||||||||||||||||||
| Mortgage Loans | — | — | 143 | 143 | — | — | 165 | 165 | |||||||||||||||||||||
| Equity Securities: | |||||||||||||||||||||||||||||
| Domestic | 11 | 23 | — | 34 | 8 | — | — | 8 | |||||||||||||||||||||
| International | — | 45 | — | 45 | — | 7 | — | 7 | |||||||||||||||||||||
| Total pension plan assets at fair value, in the fair value hierarchy [2] | 198 | 2,313 | 190 | 2,701 | 163 | 2,299 | 198 | 2,660 | |||||||||||||||||||||
| Other Investments, at net asset value [3]: | |||||||||||||||||||||||||||||
| Limited partnerships | 826 | 818 | |||||||||||||||||||||||||||
| Total pension plan assets at fair value | $ | 198 | $ | 2,313 | $ | 190 | $ | 3,527 | $ | 163 | $ | 2,299 | $ | 198 | $ | 3,478 |
*[1]*Includes ABS, municipal bonds and CLOs.
*[2]*Excludes $46 and $46 as of December 31, 2023 and 2022, respectively, of investment receivables net of investment payables that are excluded from this disclosure requirement because they are trade receivables in the ordinary course of business where the carrying amount approximates fair value.
*[3]*Investments that are measured at net asset value per share or an equivalent and have not been classified in the fair value hierarchy.
The tables below provide fair value level 3 roll forwards for the U.S. Pension Plan Assets for which significant unobservable inputs ("Level 3") are used in the fair value measurement on a recurring basis. The U.S. Pension Plan classifies the fair value of financial instruments within Level 3 if there are no observable markets for the instruments or, in the absence of active markets,
if one or more of the significant inputs used to determine fair value are based on the U.S. Pension Plan’s own assumptions. Therefore, the gains and losses in the tables below include changes in fair value due to both observable and unobservable factors.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Pension Plan Asset Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||
| Assets | Corporate | Foreign government | Mortgage loans | Other [1] | Totals | ||||||||||||||||||
| Fair Value as of January 1, 2023 | $ | 31 | $ | 1 | $ | 165 | $ | 1 | $ | 198 | |||||||||||||
| Realized gains (losses), net | — | — | (3) | — | (3) | ||||||||||||||||||
| Changes in unrealized gains (losses), net | 2 | (1) | 8 | — | 9 | ||||||||||||||||||
| Purchases | — | 10 | 3 | — | 13 | ||||||||||||||||||
| Settlements | — | — | — | — | — | ||||||||||||||||||
| Sales | — | — | (30) | — | (30) | ||||||||||||||||||
| Transfers into Level 3 [2] | 5 | — | — | — | 5 | ||||||||||||||||||
| Transfers out of Level 3 [2] | (2) | — | — | — | (2) | ||||||||||||||||||
| Fair Value as of December 31, 2023 | $ | 36 | $ | 10 | $ | 143 | $ | 1 | $ | 190 | |||||||||||||
| Fair Value as of January 1, 2022 | $ | 42 | $ | 2 | $ | 202 | $ | 5 | $ | 251 | |||||||||||||
| Realized gains, net | — | — | — | — | — | ||||||||||||||||||
| Changes in unrealized gains (losses), net | (10) | — | (25) | — | (35) | ||||||||||||||||||
| Purchases | 1 | — | 4 | — | 5 | ||||||||||||||||||
| Settlements | — | — | — | — | — | ||||||||||||||||||
| Sales | (2) | — | (16) | — | (18) | ||||||||||||||||||
| Transfers into Level 3 [2] | 3 | — | — | — | 3 | ||||||||||||||||||
| Transfers out of Level 3 [2] | (3) | (1) | — | (4) | (8) | ||||||||||||||||||
| Fair Value as of December 31, 2022 | $ | 31 | $ | 1 | $ | 165 | $ | 1 | $ | 198 |
[1]**"Other" includes CMBS.
*[2]*Transfers into and/or (out of) Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing.
There was less than $1 in Company common stock included in the U.S. Pension Plan’s assets as of December 31, 2023 and 2022 as part of a passive indexing strategy.
Other Postretirement Plan Assets at Fair Value
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||
| Asset Category | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||
| Short-term investments | $ | 16 | $ | — | $ | — | $ | 16 | $ | 25 | $ | — | $ | — | $ | 25 | |||||||||||||
| Fixed Income Securities: | |||||||||||||||||||||||||||||
| RMBS | — | — | — | — | — | 1 | — | 1 | |||||||||||||||||||||
| U.S. Treasuries | — | 2 | — | 2 | — | 4 | — | 4 | |||||||||||||||||||||
| Total other postretirement plan assets at fair value | $ | 16 | $ | 2 | $ | — | $ | 18 | $ | 25 | $ | 5 | $ | — | $ | 30 |
There was no Company common stock included in the other postretirement benefit plan assets as of December 31, 2023 and 2022.
Concentration of Risk
In order to minimize risk, the Pension Plan maintains a listing of permissible and prohibited investments. In addition, the Pension Plan has certain concentration limits and investment quality requirements imposed on permissible investment options. Permissible investments include U.S. equity, international equity, limited partnership and fixed income investments including derivative instruments. Permissible derivative instruments include futures contracts, options, swaps, currency forwards,
caps or floors and may be used to control risk or enhance return but will not be used for leverage purposes.
Securities specifically prohibited from purchase include, but are not limited to: shares or fixed income instruments issued by The Hartford (other than equity securities purchased on the open market as part of a passively managed strategy), short sales of any type within long-only portfolios, non-derivative securities involving the use of margin, leveraged floaters and inverse floaters, including money market obligations, natural resource real properties such as oil, gas or timber and precious metals.
Other than U.S. government and certain U.S. government agencies backed by the full faith and credit of the U.S.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 19 - Employee Benefit Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
government, the Pension Plan does not have any material exposure to any concentration risk of a single issuer.
Expected Employer Contributions
The Company does not have a 2024 required minimum funding contribution for the U.S. qualified defined benefit pension plan. The Company has not determined whether, and to what extent, contributions may be made to the U.S. qualified defined benefit pension plan in 2024. The Company will monitor the funded status of the U.S. qualified defined benefit pension plan during 2024 to make this determination.
Benefit Payments
Amounts of Benefits Expected to be Paid over the next Ten Years from Pension and other Postretirement Plans as of December 31, 2023
| Pension Benefits | Other Postretirement Benefits | |||||||
| 2024 | $ | 242 | $ | 17 | ||||
| 2025 | 251 | 14 | ||||||
| 2026 | 258 | 13 | ||||||
| 2027 | 263 | 12 | ||||||
| 2028 | 256 | 12 | ||||||
| 2029 - 2033 | 1,307 | 50 | ||||||
| Total | $ | 2,577 | $ | 118 |
20. STOCK COMPENSATION PLANS
The Company's stock-based compensation plans are described below. Shares issued in satisfaction of stock-based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares purchased in the open market. In 2023, 2022 and 2021, the Company issued shares from treasury in satisfaction of stock-based compensation.
The Hartford measures stock compensation at the grant date based on the estimated fair value of the award and recognizes expense on a straight-line basis, net of estimated forfeitures, over the requisite service period. Stock-based compensation expense, included in insurance operating costs and other expenses in the consolidated statement of operations, was as follows:
Stock-Based Compensation Expense
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Stock-based compensation plans expense | $ | 125 | $ | 131 | $ | 128 | |||||
| Income tax benefit | (22) | (22) | (22) | ||||||||
| Excess tax benefit on awards vested, exercised and expired | (12) | (12) | (6) | ||||||||
| Total stock-based compensation plans expense, net of tax | $ | 91 | $ | 97 | $ | 100 |
The Company did not capitalize any cost of stock-based compensation. As of December 31, 2023, the total compensation cost related to non-vested awards not yet recognized was $64, which is expected to be recognized over a weighted average period of 2 years.
Stock Plan
Future stock-based awards may be granted under The Hartford's 2020 Stock Incentive Plan (the "Stock Incentive Plan") other than the Subsidiary Stock Plan and the Employee
Stock Purchase Plan described below. The Stock Incentive Plan provides for awards to be granted in the form of non-qualified or incentive stock options qualifying under Section 422 of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock or restricted stock units, or any other form of stock-based award. The maximum number of shares, subject to adjustments set forth in the 2020 Stock Plan, that may be issued to Company employees and third-party service providers during the 10-year duration of the Stock Incentive Plan is the sum of 11,250,000 shares, any shares forfeited subsequent to February 29, 2020, plus any shares used for tax withholding purposes. If any award under an earlier incentive stock plan is forfeited, terminated, surrendered, exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax withholding) or for the net issuance of a lesser number of shares than the number subject to the award, the shares of stock subject to such award (or the relevant portion thereof) shall be available for awards under the Stock Incentive Plan and such shares shall be added to the maximum limit. As of December 31, 2023, there were 6,884,152 shares available for future issuance.
The fair values of awards granted under the Stock Incentive Plan are measured as of the grant date and expensed ratably over the awards’ vesting periods, generally three years. For stock awards to retirement-eligible employees, the Company recognizes the expense over a period shorter than the stated vesting period because the employees receive accelerated vesting upon retirement and, therefore, the vesting period is considered non-substantive.
Stock Option Awards
Under the Stock Incentive Plan, options granted have an exercise price at least equal to the closing stock price on the New York Stock Exchange for the Company’s common stock on the date of grant, and an option’s maximum term is not to exceed 10 years. Options generally become exercisable over a
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 20 - Stock Compensation Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
period of three years commencing one year from the date of grant.
The Company uses a hybrid lattice/Monte-Carlo based option valuation model (the “Plan Valuation Model”) that incorporates the possibility of early exercise of options into the valuation. The Plan Valuation Model also incorporates the Company’s historical termination and exercise experience to determine the option value.
The Plan Valuation Model incorporates ranges of assumptions for inputs, and those ranges are disclosed below. The term structure of volatility is generally constructed utilizing implied volatilities from exchange-traded options, historical volatility of
the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the Plan Valuation Model, and accommodates variations in employee preference and risk-tolerance by segregating the grantee pool into a series of behavioral cohorts and conducting a fair valuation for each cohort individually. The expected term of options granted is derived from the output of the option Plan Valuation Model and represents, in a mathematical sense, the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Constant Maturity Treasury yield curve in effect at the time of grant.
Stock Options Valuation Assumptions
| For the years ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Expected dividend yield | 2.0% | 2.3% | 2.8% | ||||||||||||||||||||||||||
| Expected annualized spot volatility | 24.5 | % | - | 26.0% | 28.3 | % | - | 29.6% | 34.1 | % | - | 43.0% | |||||||||||||||||
| Weighted average annualized volatility | 25.4% | 28.8% | 39.4% | ||||||||||||||||||||||||||
| Risk-free spot rate | 3.8 | % | - | 5.1% | (0.04) | % | - | 2.0% | 0.03 | % | - | 1.4% | |||||||||||||||||
| Expected term | 6.7 years | 6.4 years | 6.4 years |
Non-qualified Stock Option Activity Under the Stock Incentive Plan
| Number of Options (in thousands) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value | |||||||||||
| For the year ended December 31, 2023 | ||||||||||||||
| Outstanding at beginning of year | 6,596 | $ | 51.58 | |||||||||||
| Granted | 593 | $ | 78.28 | |||||||||||
| Exercised | (1,118) | $ | 42.20 | |||||||||||
| Forfeited | — | $ | — | |||||||||||
| Expired | — | $ | — | |||||||||||
| Outstanding at end of year | 6,071 | $ | 55.92 | 5.7 | $ | 148 | ||||||||
| Outstanding, fully vested and expected to vest | 6,033 | $ | 55.83 | 5.7 | $ | 148 | ||||||||
| Exercisable at end of year | 4,790 | $ | 52.00 | 4.9 | $ | 136 |
Aggregate intrinsic value represents the value of the Company's closing stock price on the last trading day of the period in excess of the exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value. The weighted average grant-date fair value per share of options granted during the years ended December 31, 2023, 2022, and 2021 was $21.09, $16.56 and $14.88, respectively. For the years ended December 31, 2023, 2022, and 2021, The Hartford received $47, $26, and $45, respectively, in cash from exercised stock options. The Hartford recognized tax benefits of $3, $3, and $4 on stock options exercised for the years ended December 31, 2023, 2022, and 2021, respectively. The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $35, $24, and $28, respectively.
Share Awards
Share awards granted under the Stock Incentive Plan and outstanding include restricted stock units and performance shares. Performance shares become payable within a range of 0% to 200% of the number of shares initially granted based upon the attainment of specific performance goals achieved at the end of a performance period of three years and, for the 2021 grant year, is subject to a modifier that will either increase or decrease final performance by 10% based upon results against predetermined year-end 2023 representation goals for women and people of color in executive level roles.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 20 - Stock Compensation Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Performance share awards that are not dependent on market conditions are valued equal to the closing stock price on the New York Stock Exchange for the Company’s common stock on the date of grant. Stock compensation expense for these performance share awards without market conditions is based on a current estimate of the number of awards expected to vest based on the performance level achieved and, therefore, may change during the performance period as new estimates of performance are available.
Other performance share awards or portions thereof have a market condition based upon the Company's total stockholder
return relative to a pre-determined group of peer companies as of December 31 at the end of the three year performance period. Stock compensation expense for these performance share awards is based on the number of awards expected to vest as estimated at the grant date and, therefore, does not change for changes in estimated performance. The Company uses a risk neutral Monte-Carlo Plan Valuation Model that incorporates time to maturity, implied volatilities of the Company and the peer companies, and correlations between the Company and the peer companies and interest rates.
Assumptions for Total Stockholder Return Performance Shares
| For the years ended December 31, | |||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||||||||||||||
| Volatility of common stock | 33.0% | 35.9% | 37.3% | ||||||||||||||||||||||||||
| Average volatility of peer companies | 26.0 | % | - | 41.0% | 27.0 | % | - | 46.0% | 27.0 | % | - | 49.0% | |||||||||||||||||
| Average correlation coefficient of peer companies | 52.0% | 68.0% | 67.0% | ||||||||||||||||||||||||||
| Risk-free spot rate | 4.4% | 1.8% | 0.2% | ||||||||||||||||||||||||||
| Term | 3.0 years | 3.0 years | 3.0 years |
Total Share Awards
Non-vested Share Award Activity Under the Stock Incentive Plan
| Restricted Stock Units | Performance Shares | |||||||||||||
| Number of Shares (in thousands) | Weighted-Average Grant-Date Fair Value | Number of Shares (in thousands) | Weighted-Average Grant date Fair Value | |||||||||||
| Non-vested shares | For the year ended December 31, 2023 | |||||||||||||
| Non-vested at beginning of year | 3,517 | $ | 58.28 | 711 | $ | 63.04 | ||||||||
| Granted | 1,019 | $ | 77.72 | 268 | $ | 85.69 | ||||||||
| Performance based adjustment, net | 389 | $ | 56.09 | |||||||||||
| Vested | (1,177) | $ | 54.58 | (777) | $ | 56.09 | ||||||||
| Forfeited | (100) | $ | 66.72 | (8) | $ | 72.05 | ||||||||
| Non-vested at end of year | 3,259 | $ | 65.44 | 583 | $ | 77.97 |
In addition to the non-vested shares presented in the above table, there are related non-vested dividend equivalent shares. The number of non-vested dividend equivalent shares related to restricted stock units was 155 thousand and 182 thousand as of December 31, 2023 and 2022, respectively, and the number of non-vested dividend equivalent shares related to performance shares was 18 thousand and 25 thousand as of December 31, 2023 and 2022, respectively. The dividend equivalent shares are subject to the same vesting terms as the restricted stock units and performance shares.
The weighted average grant-date fair value per share of restricted stock units granted during the years ended December 31, 2023, 2022, and 2021 was $77.72, $69.32 and $52.13, respectively. The weighted average grant-date fair value per share of performance shares granted during the years ended December 31, 2023, 2022, and 2021 was $85.69, $71.54 and $56.09, respectively.
The total fair value of shares vested during the years ended December 31, 2023, 2022 and 2021 was $154, $134 and $105, respectively, based on actual or estimated performance factors. The Company did not make cash payments in settlement of stock compensation during the years ended December 31, 2023, 2022 and 2021.
Subsidiary Stock Plan
The Hartford has a subsidiary stock-based compensation plan similar to the Stock Incentive Plan, except that it awards non-public subsidiary stock as compensation. The Company recognized stock-based compensation plan expense of $12, $13 and $11 in the years ended December 31, 2023, 2022 and 2021, respectively, for the subsidiary stock plan. Upon employee vesting of subsidiary stock, the Company recognizes a noncontrolling equity interest. Employees are restricted from selling vested subsidiary stock to anyone other than the Company and the Company has discretion on the amount of stock to repurchase. Therefore, the subsidiary stock is classified
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 20 - Stock Compensation Plans |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
as equity because it is not mandatorily redeemable. For the years ended December 31, 2023, 2022 and 2021, the Company repurchased $11, $10 and $16, respectively, in subsidiary stock.
Employee Stock Purchase Plan
The Company sponsors The Hartford Employee Stock Purchase Plan ("ESPP"). Under this plan, eligible employees of The Hartford purchase common stock of the Company at a discount rate of 5% of the market price per share on the last trading day of the offering period. Accordingly, the plan is a non-compensatory plan. Employees purchase a variable number of
shares of stock through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 15,400,000 shares of stock to eligible employees under the ESPP. As of December 31, 2023, there were 3,155,609 shares available for future issuance. During the years ended December 31, 2023, 2022 and 2021, 194,561 shares, 194,504 shares, and 199,173 shares were sold, respectively. For the years ended December 31, 2023, 2022 and 2021, The Hartford received $13, $13 and $13, respectively, in cash from sales under this plan.
21. LEASES
The Hartford has operating leases for real estate and equipment. The right-of-use asset as of December 31, 2023 and 2022 was $141 and $135, respectively, and is included in property and equipment, net, in the Consolidated Balance Sheets. The lease liability as of December 31, 2023 and 2022 was $144 and $136, respectively, and is included in other liabilities in the Consolidated Balance Sheets. Variable lease costs include changes in interest rates on variable rate leases primarily for automobiles. During the years ended December 31, 2023, 2022 and 2021, variable lease costs of $0, $6 and $4, respectively, were reported in restructuring and other costs for lease terminations under Hartford Next (see Note 23 - Restructuring and Other Costs for more information), and were excluded from components of lease expense.
Components of Lease Expense
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Operating lease cost | $ | 36 | $ | 40 | $ | 45 | |||||
| Variable lease cost | (2) | — | 2 | ||||||||
| Sublease income | (4) | (4) | (3) | ||||||||
| Total lease costs included in insurance operating costs and other expenses | $ | 30 | $ | 36 | $ | 44 |
Supplemental Operating Lease Information
| For the years ended December 31, | |||||||||||
| 2023 | 2022 | 2021 | |||||||||
| Operating cash flows for operating leases (for the twelve months ended) | $ | 37 | $ | 56 | $ | 46 | |||||
| Right-of-use asset obtained in exchange for new operating lease liabilities | 40 | 6 | 3 | ||||||||
| Weighted-average remaining lease term in years for operating leases | 7 years | 6 years | 6 years | ||||||||
| Weighted-average discount rate for operating leases | 4.0 | % | 3.0 | % | 3.0 | % |
Maturities of Operating Lease Liabilities as of December 31, 2023
| Operating Leases | |||||
| 2024 | $ | 33 | |||
| 2025 | 26 | ||||
| 2026 | 22 | ||||
| 2027 | 20 | ||||
| 2028 | 16 | ||||
| Thereafter | 49 | ||||
| Total lease payments | 166 | ||||
| Less: Discount on lease payments to present value | 22 | ||||
| Total lease liability | $ | 144 |
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 22 - Business Dispositions |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. BUSINESS DISPOSITIONS
Sale of Continental Europe Operations
On December 29, 2021, the Company completed the sale of its Continental Europe Operations for approximately $11, net of transaction costs. The complete sale of the Continental Europe Operations consists of multiple arrangements designed as a single transaction. The Continental Europe Operations are included in the Commercial Lines segment. Revenues and earnings are not material to the Company's consolidated results of operations for the year ended December 31, 2021.
The sale resulted in a loss of approximately $21, before tax, for the year ended December 31, 2021, which was recorded within net realized gains (losses) in the Consolidated Statements of Operations. The Company also recorded a related income tax benefit on the sale of $5 for after tax losses of $16 for the year ended December 31, 2021.
Total consideration less costs to sell of $11 is subject to change based on how the ultimate amounts required to settle claims on 2020 and prior accident years, as determined at the end of 2024, compare with recorded reserves as currently estimated. The contingent consideration has been estimated at its fair value of $0 and could result in an increase or decrease in consideration depending on how ultimate losses develop. Any change in the estimated fair value of contingent consideration in a future period would increase or decrease the estimated loss on sale in that period.
Major Classes of Assets and Liabilities Transferred by the Company to the Buyer in Connection with the Sale
| Carrying Value as of Closing | ||||||||
| Assets | ||||||||
| Investments and cash | $ | 150 | ||||||
| Reinsurance recoverables and other | 13 | |||||||
| Total assets held for sale | 163 | |||||||
| Liabilities | ||||||||
| Unpaid losses and loss adjustment expenses | 81 | |||||||
| Unearned premiums | 19 | |||||||
| Other liabilities | 52 | |||||||
| Total liabilities held for sale | $ | 152 |
23. RESTRUCTURING AND OTHER COSTS
In recognition of the need to become more cost efficient and competitive along with enhancing the experience we provide to agents and customers, on July 30, 2020 the Company announced an operational transformation and cost reduction plan it refers to as Hartford Next. Hartford Next is intended to reduce annual insurance operating costs and other expenses through reduction of the Company's headcount, investment in information technology ("IT") to further enhance our capabilities, and other activities. The activities have been substantially completed as of December 31, 2023.
Termination benefits related to workforce reductions and professional fees are included within restructuring and other costs in the Consolidated Statement of Operations and unpaid restructuring costs are included in other liabilities in the Company's Consolidated Balance Sheets. For the years ended December 31, 2023, and December 31, 2022, the severance benefits accrual was reduced by $6, and $7 respectively, due to more recent experience of higher than expected voluntary attrition.
Subsequent to December 31, 2023, the Company expects to incur additional costs including, amortization of right of use assets and other lease exit costs, other IT costs to retire applications, and other expenses. Total restructuring and other costs are expected to be approximately $126, before tax, and will be recognized in Corporate for segment reporting.
|
| Index to Consolidated Financial Statements and Schedules | ||||||||
| Table of Contents | Note 23 - Restructuring and Other Costs |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
| Restructuring and Other Costs, Before Tax | |||||||||||||||||||||||
| Incurred in the Year Ended December 31, 2021 | Incurred in the Year Ended December 31, 2022 | Incurred in the Year Ended December 31, 2023 | Cumulative Incurred in the Year Ended December 31, 2023 | Total Amount Expected to be Incurred | |||||||||||||||||||
| Severance benefits | $ | (25) | $ | (7) | $ | (6) | $ | 35 | $ | 35 | |||||||||||||
| IT costs | 9 | 8 | 5 | 25 | 25 | ||||||||||||||||||
| Professional fees and other expenses | 17 | 12 | 7 | 64 | 66 | ||||||||||||||||||
| Total restructuring and other costs, before tax | $ | 1 | $ | 13 | $ | 6 | $ | 124 | $ | 126 |
| Accrued Restructuring and Other Costs | ||||||||||||||||||||
| Year Ended December 31, 2023 | ||||||||||||||||||||
| Severance Benefits and Related Costs | IT Costs | Professional Fees and Other | Total Restructuring and Other Costs Liability | |||||||||||||||||
| Balance, beginning of period | $ | 7 | $ | — | $ | — | $ | 7 | ||||||||||||
| Incurred | (6) | 5 | 7 | 6 | ||||||||||||||||
| Payments | (1) | (5) | (7) | (13) | ||||||||||||||||
| Balance, end of period | $ | — | $ | — | $ | — | $ | — |
| Accrued Restructuring and Other Costs | ||||||||||||||||||||
| Year Ended December 31, 2022 | ||||||||||||||||||||
| Severance Benefits and Related Costs | IT Costs | Professional Fees and Other | Total Restructuring and Other Costs Liability | |||||||||||||||||
| Balance, beginning of period | $ | 18 | $ | — | $ | — | $ | 18 | ||||||||||||
| Incurred | (7) | 8 | 12 | 13 | ||||||||||||||||
| Payments | (4) | (8) | (12) | (24) | ||||||||||||||||
| Balance, end of period | $ | 7 | $ | — | $ | — | $ | 7 |
24. QUARTERLY RESULTS (UNAUDITED)
On January 1, 2023, the Company adopted the FASB's long-duration targeted improvements ("LDTI") guidance, which was applied on a modified retrospective basis as of January 1, 2021.
Impacted prior periods have been restated to reflect the adoption of LDTI. For additional information, refer to Note 1 - Basis of Presentation and Significant Accounting Policies.
Current and Historical Quarterly Results of the Company
| Three months ended | |||||||||||||||||||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Revenues | $ | 5,910 | $ | 5,393 | $ | 6,049 | $ | 5,373 | $ | 6,168 | $ | 5,580 | $ | 6,400 | $ | 6,016 | |||||||||||||||||||
| Benefits, losses and expenses | $ | 5,257 | $ | 4,852 | $ | 5,377 | $ | 4,819 | $ | 5,355 | $ | 5,148 | $ | 5,450 | $ | 5,281 | |||||||||||||||||||
| Net income | $ | 535 | $ | 443 | $ | 547 | $ | 444 | $ | 651 | $ | 340 | $ | 771 | $ | 592 | |||||||||||||||||||
| Less: Preferred stock dividends | 5 | 5 | 5 | 5 | 6 | 6 | 5 | 5 | |||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 530 | $ | 438 | $ | 542 | $ | 439 | $ | 645 | $ | 334 | $ | 766 | $ | 587 | |||||||||||||||||||
| Net income available to common stockholders per common share | |||||||||||||||||||||||||||||||||||
| Basic | $ | 1.69 | $ | 1.32 | $ | 1.75 | $ | 1.34 | $ | 2.12 | $ | 1.04 | $ | 2.55 | $ | 1.85 | |||||||||||||||||||
| Diluted | $ | 1.66 | $ | 1.30 | $ | 1.73 | $ | 1.32 | $ | 2.09 | $ | 1.02 | $ | 2.51 | $ | 1.82 | |||||||||||||||||||
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule I. Summary of Investments - Other Investments in Affiliates
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE I
SUMMARY OF INVESTMENTS — OTHER THAN INVESTMENTS IN AFFILIATES
(in millions)
| As of December 31, 2023 | |||||||||||
| Type of Investment | Cost | Fair Value | Amount at which shown on Balance Sheet | ||||||||
| Fixed Maturities | |||||||||||
| Bonds and notes | |||||||||||
| U.S. government and government agencies and authorities (guaranteed and sponsored) | $ | 5,174 | $ | 4,776 | $ | 4,776 | |||||
| States, municipalities and political subdivisions | 6,207 | 6,039 | 6,039 | ||||||||
| Foreign governments | 583 | 562 | 562 | ||||||||
| Public utilities | 2,155 | 2,029 | 2,029 | ||||||||
| All other corporate bonds | 16,536 | 15,837 | 15,837 | ||||||||
| All other mortgage-backed and asset-backed securities | 11,071 | 10,575 | 10,575 | ||||||||
| Total fixed maturities, available-for-sale | 41,726 | 39,818 | 39,818 | ||||||||
| Fixed maturities, at fair value using fair value option | 350 | 327 | 327 | ||||||||
| Equity Securities [1] | |||||||||||
| Common stocks | |||||||||||
| Industrial, miscellaneous and all other | 384 | 385 | 385 | ||||||||
| Non-redeemable preferred stocks | 527 | 479 | 479 | ||||||||
| Total equity securities [1] | 911 | 864 | 864 | ||||||||
| Mortgage loans [2] | 6,138 | 5,584 | 6,087 | ||||||||
| Other investments | 221 | 191 | 191 | ||||||||
| Short-term investments | 3,850 | 3,850 | 3,850 | ||||||||
| Limited partnerships and other alternative investments [3] | 4,785 | 4,785 | |||||||||
| Total investments | $ | 57,981 | $ | 55,922 |
*[1]*Cost of equity securities represents original cost.
*[2]*Cost of mortgage loans excludes the allowance for credit losses ("ACL") of $51. For further information, refer to Schedule V - Valuation and Qualifying Accounts.
*[3]*Cost of limited partnerships and other alternative investments is presented as the carrying value, which is primarily accounted for under the equity method.
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule II. Condensed Financial Information of the Hartford Financial Services Group, Inc.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF THE HARTFORD FINANCIAL SERVICES GROUP, INC.
(Registrant)
(in millions)
| As of December 31, | ||||||||
| Condensed Balance Sheets | 2023 | 2022 | ||||||
| Assets | ||||||||
| Fixed maturities, available-for-sale, at fair value (amortized cost of $29 and $126) | $ | 24 | $ | 120 | ||||
| Short-term investments | 1,040 | 832 | ||||||
| Cash | — | — | ||||||
| Investment in affiliates | 20,261 | 18,610 | ||||||
| Deferred income taxes | 439 | 395 | ||||||
| Unamortized issue costs | 2 | 2 | ||||||
| Investment income due and accrued | — | 1 | ||||||
| Other assets | 400 | 466 | ||||||
| Total assets | $ | 22,166 | $ | 20,426 | ||||
| Liabilities | ||||||||
| Net payable to affiliates | $ | 1,918 | $ | 1,863 | ||||
| Long-term debt | 4,362 | 4,357 | ||||||
| Other liabilities | 559 | 530 | ||||||
| Total liabilities | 6,839 | 6,750 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock | $ | 334 | $ | 334 | ||||
| Common stock | 3 | 3 | ||||||
| Additional paid-in capital | 648 | 1,895 | ||||||
| Retained Earnings | 19,007 | 17,058 | ||||||
| Treasury Stock | (1,816) | (1,773) | ||||||
| Accumulated other comprehensive income (loss), net of tax | (2,849) | (3,841) | ||||||
| Total stockholders’ equity | 15,327 | 13,676 | ||||||
| Total liabilities and stockholders’ equity | $ | 22,166 | $ | 20,426 |
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule II. Condensed Financial Information of the Hartford Financial Services Group, Inc.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF THE HARTFORD FINANCIAL SERVICES GROUP, INC. (continued)
(Registrant)
(in millions)
| For the years ended December 31, | |||||||||||
| Condensed Statements of Operations and Comprehensive Income (Loss) | 2023 | 2022 | 2021 | ||||||||
| Net investment income | $ | 33 | $ | 13 | $ | 2 | |||||
| Net realized gains (losses) | — | — | (1) | ||||||||
| Total revenues | 33 | 13 | 1 | ||||||||
| Interest expense | 199 | 213 | 234 | ||||||||
| Loss on extinguishment of debt | — | 9 | — | ||||||||
| Other expense (income) | 7 | (8) | (2) | ||||||||
| Total expenses | 206 | 214 | 232 | ||||||||
| Loss before income taxes and earnings of subsidiaries | (173) | (201) | (231) | ||||||||
| Income tax benefit | (67) | (61) | (51) | ||||||||
| Loss before earnings of subsidiaries | (106) | (140) | (180) | ||||||||
| Earnings of subsidiaries | 2,610 | 1,959 | 2,551 | ||||||||
| Net income | 2,504 | 1,819 | 2,371 | ||||||||
| Other comprehensive income (loss) - parent company: | |||||||||||
| Change in net gain or loss on cash-flow hedging instruments | (7) | 45 | 24 | ||||||||
| Change in net unrealized gain or loss on fixed maturities | 1 | (4) | (1) | ||||||||
| Change in pension and other postretirement plan adjustments | (89) | 119 | 224 | ||||||||
| Other comprehensive income (loss), net of taxes before other comprehensive income of subsidiaries | (95) | 160 | 247 | ||||||||
| Other comprehensive income (loss) of subsidiaries | 1,087 | (4,129) | (1,224) | ||||||||
| Total other comprehensive income (loss) | 992 | (3,969) | (977) | ||||||||
| Total comprehensive income (loss) | $ | 3,496 | $ | (2,150) | $ | 1,394 |
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule II. Condensed Financial Information of the Hartford Financial Services Group, Inc.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF THE HARTFORD FINANCIAL SERVICES GROUP, INC. (continued)
(Registrant)
(in millions)
| For the years ended December 31, | |||||||||||
| Condensed Statements of Cash Flows | 2023 | 2022 | 2021 | ||||||||
| Operating Activities | |||||||||||
| Net income | $ | 2,504 | $ | 1,819 | $ | 2,371 | |||||
| Loss on extinguishment of debt | — | 9 | — | ||||||||
| Dividends received from subsidiaries | 1,594 | 1,780 | 1,277 | ||||||||
| Equity in net income of subsidiaries | (2,610) | (1,959) | (2,551) | ||||||||
| Net realized losses (gains) | — | — | 1 | ||||||||
| Change in operating assets and liabilities | 75 | 61 | 36 | ||||||||
| Cash provided by operating activities | 1,563 | 1,710 | 1,134 | ||||||||
| Investing Activities | |||||||||||
| Net proceeds from (payments for) short-term investments | (208) | 899 | (54) | ||||||||
| Proceeds from the sale/maturity/prepayment of: | |||||||||||
| Fixed maturities, available-for-sale | 97 | 47 | 25 | ||||||||
| Payments for the purchase of: | |||||||||||
| Fixed maturities, available-for-sale | — | — | (74) | ||||||||
| Equity securities, at fair value | — | (5) | — | ||||||||
| Net payments for derivatives | (8) | 55 | 38 | ||||||||
| Capital returned from (contributions to) subsidiaries | 503 | (6) | 530 | ||||||||
| Cash provided by investing activities | 384 | 990 | 465 | ||||||||
| Financing Activities | |||||||||||
| Proceeds from issuance of debt | — | — | 588 | ||||||||
| Repayments of debt | — | (600) | — | ||||||||
| Treasury stock acquired | (1,400) | (1,550) | (1,702) | ||||||||
| Net issuance (return of) shares under incentive and stock compensation plans | 6 | (19) | 25 | ||||||||
| Dividends paid on common shares | (532) | (510) | (489) | ||||||||
| Dividends paid on preferred shares | (21) | (21) | (21) | ||||||||
| Cash used for financing activities | (1,947) | (2,700) | (1,599) | ||||||||
| Net increase (decrease) in cash | — | — | — | ||||||||
| Cash — beginning of period | — | — | — | ||||||||
| Cash — end of period | $ | — | $ | — | $ | — | |||||
| Supplemental Disclosure of Cash Flow Information | |||||||||||
| Interest Paid | $ | 209 | $ | 212 | $ | 214 |
The condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto.
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule III. Supplementary Insurance Information
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(in millions)
| Segment | Deferred Policy Acquisition Costs | Unpaid Losses and Loss Adjustment Expenses | Reserve for Future Policy Benefits | Unearned Premiums | Other Policyholder Funds and Benefits Payable | ||||||||||||
| As of December 31, 2023 | |||||||||||||||||
| Commercial Lines | $ | 976 | $ | 29,181 | $ | — | $ | 6,977 | $ | — | |||||||
| Personal Lines | 102 | 2,068 | — | 1,582 | — | ||||||||||||
| Property & Casualty Other Operations | — | 2,795 | — | 2 | — | ||||||||||||
| Group Benefits | 35 | 8,274 | 312 | 38 | 408 | ||||||||||||
| Hartford Funds | — | — | — | — | — | ||||||||||||
| Corporate | — | — | 172 | — | 230 | ||||||||||||
| Consolidated | $ | 1,113 | $ | 42,318 | $ | 484 | $ | 8,599 | $ | 638 | |||||||
| As of December 31, 2022 | |||||||||||||||||
| Commercial Lines | $ | 865 | $ | 28,454 | $ | — | $ | 6,306 | $ | — | |||||||
| Personal Lines | 101 | 1,857 | — | 1,471 | — | ||||||||||||
| Property & Casualty Other Operations | — | 2,772 | — | 2 | — | ||||||||||||
| Group Benefits | 32 | 8,160 | 319 | 36 | 419 | ||||||||||||
| Hartford Funds | — | — | — | — | — | ||||||||||||
| Corporate | — | — | 183 | — | 239 | ||||||||||||
| Consolidated | $ | 998 | $ | 41,243 | $ | 502 | $ | 7,815 | $ | 658 |
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule III. Supplementary Insurance Information
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(in millions)
| Segment | Earned Premiums, Fee Income and Other | Net Investment Income | Benefits, Losses and Loss Adjustment Expenses | Amortization of Deferred Policy Acquisition Costs | Insurance Operating Costs and Other Expenses [1] | Net Written Premiums [2] | ||||||||||||||
| For the year December 31, 2023 | ||||||||||||||||||||
| Commercial Lines | $ | 11,683 | $ | 1,532 | $ | 6,786 | $ | 1,779 | $ | 1,907 | $ | 12,279 | ||||||||
| Personal Lines | 3,198 | 171 | 2,538 | 231 | 638 | 3,198 | ||||||||||||||
| Property & Casualty Other Operations | — | 69 | 224 | — | 4 | — | ||||||||||||||
| Group Benefits | 6,515 | 469 | 4,683 | 34 | 1,554 | — | ||||||||||||||
| Hartford Funds | 973 | 17 | — | — | 781 | — | ||||||||||||||
| Corporate | 41 | 47 | 7 | — | 273 | — | ||||||||||||||
| Consolidated | $ | 22,410 | $ | 2,305 | $ | 14,238 | $ | 2,044 | $ | 5,157 | $ | 15,477 | ||||||||
| For the year December 31, 2022 | ||||||||||||||||||||
| Commercial Lines | $ | 10,609 | $ | 1,415 | $ | 6,169 | $ | 1,563 | $ | 1,857 | $ | 11,158 | ||||||||
| Personal Lines | 3,052 | 140 | 2,164 | 228 | 652 | 2,961 | ||||||||||||||
| Property & Casualty Other Operations | — | 63 | 280 | — | 9 | — | ||||||||||||||
| Group Benefits | 6,057 | 524 | 4,517 | 33 | 1,507 | — | ||||||||||||||
| Hartford Funds | 1,044 | 9 | — | — | 826 | — | ||||||||||||||
| Corporate | 50 | 26 | 8 | — | 287 | — | ||||||||||||||
| Consolidated | $ | 20,812 | $ | 2,177 | $ | 13,138 | $ | 1,824 | $ | 5,138 | $ | 14,119 | ||||||||
| For the year December 31, 2021 | ||||||||||||||||||||
| Commercial Lines | $ | 9,586 | $ | 1,502 | $ | 6,044 | $ | 1,398 | $ | 1,747 | $ | 10,041 | ||||||||
| Personal Lines | 3,066 | 157 | 1,864 | 230 | 678 | 2,908 | ||||||||||||||
| Property & Casualty Other Operations | — | 75 | 202 | — | 9 | — | ||||||||||||||
| Group Benefits | 5,687 | 550 | 4,602 | 40 | 1,413 | — | ||||||||||||||
| Hartford Funds | 1,189 | 5 | — | — | 925 | — | ||||||||||||||
| Corporate | 40 | 24 | 8 | — | 325 | — | ||||||||||||||
| Consolidated | $ | 19,568 | $ | 2,313 | $ | 12,720 | $ | 1,668 | $ | 5,097 | $ | 12,949 |
*[1]*Includes interest expense, loss on extinguishment of debt, restructuring and other costs, loss on reinsurance transaction and amortization of intangible assets.
*[2]*Excludes life insurance pursuant to Regulation S-X.
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule IV. Reinsurance
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE IV
REINSURANCE
(in millions)
| Gross Amount | Ceded Amount | Assumed From Other Companies | Net Amount | Percentage of Amount Assumed to Net | |||||||||||||
| For the year ended December 31, 2023 | |||||||||||||||||
| Life insurance in-force | $ | 1,275,984 | $ | 33,009 | $ | 23,605 | $ | 1,266,580 | 2 | % | |||||||
| Insurance revenues | |||||||||||||||||
| Property and casualty insurance | $ | 15,514 | $ | 1,612 | $ | 826 | $ | 14,728 | 6 | % | |||||||
| Life insurance and annuities | 2,540 | 33 | 76 | 2,583 | 3 | % | |||||||||||
| Accident and health insurance | 3,905 | 71 | 98 | 3,932 | 2 | % | |||||||||||
| Total insurance revenues | $ | 21,959 | $ | 1,716 | $ | 1,000 | $ | 21,243 | 5 | % | |||||||
| For the year ended December 31, 2022 | |||||||||||||||||
| Life insurance in-force | $ | 1,147,723 | $ | 23,330 | $ | 22,511 | $ | 1,146,904 | 2 | % | |||||||
| Insurance revenues | |||||||||||||||||
| Property and casualty insurance | $ | 14,328 | $ | 1,462 | $ | 654 | $ | 13,520 | 5 | % | |||||||
| Life insurance and annuities | 2,341 | 25 | 77 | 2,393 | 3 | % | |||||||||||
| Accident and health insurance | 3,647 | 81 | 98 | 3,664 | 3 | % | |||||||||||
| Total insurance revenues | $ | 20,316 | $ | 1,568 | $ | 829 | $ | 19,577 | 4 | % | |||||||
| For the year ended December 31, 2021 | |||||||||||||||||
| Life insurance in-force | $ | 1,112,333 | $ | 22,814 | $ | 21,230 | $ | 1,110,749 | 2 | % | |||||||
| Insurance revenues | |||||||||||||||||
| Property and casualty insurance | $ | 13,204 | $ | 1,277 | $ | 568 | $ | 12,495 | 5 | % | |||||||
| Life insurance and annuities | 2,367 | 25 | 46 | 2,388 | 2 | % | |||||||||||
| Accident and health insurance | 3,296 | 79 | 82 | 3,299 | 2 | % | |||||||||||
| Total insurance revenues | $ | 18,867 | $ | 1,381 | $ | 696 | $ | 18,182 | 4 | % |
|
| Table of Contents | Index to Consolidated Financial Statements and Schedules |
Part IV - Schedule V. Valuation and Qualifying Accounts
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
| Balance January 1, | Increase (decrease) in Costs and Expenses | Write-offs/ Payments/ Other | Balance December 31, | ||||||||||||||
| 2023 | |||||||||||||||||
| ACL on fixed maturities, available-for-sale | $ | 12 | $ | 14 | $ | (5) | $ | 21 | |||||||||
| ACL on mortgage loans | $ | 36 | $ | 15 | $ | — | $ | 51 | |||||||||
| ACL on premiums receivable and agents' balances | $ | 109 | $ | 50 | $ | (50) | $ | 109 | |||||||||
| Allowance for uncollectible reinsurance | $ | 105 | $ | 14 | $ | (16) | $ | 103 | |||||||||
| Valuation allowance for deferred taxes | $ | 27 | $ | — | $ | (15) | $ | 12 | |||||||||
| 2022 | |||||||||||||||||
| ACL on fixed maturities, available-for-sale | $ | 1 | $ | 18 | $ | (7) | $ | 12 | |||||||||
| ACL on mortgage loans | $ | 29 | $ | 7 | $ | — | $ | 36 | |||||||||
| ACL on premiums receivable and agents' balances | $ | 105 | $ | 51 | $ | (47) | $ | 109 | |||||||||
| Allowance for uncollectible reinsurance | $ | 99 | $ | 3 | $ | 3 | $ | 105 | |||||||||
| Valuation allowance for deferred taxes | $ | 7 | $ | 20 | $ | — | $ | 27 | |||||||||
| 2021 | |||||||||||||||||
| ACL on fixed maturities, available-for-sale | $ | 23 | $ | (4) | $ | (18) | $ | 1 | |||||||||
| ACL on mortgage loans | $ | 38 | $ | (9) | $ | — | $ | 29 | |||||||||
| ACL on premiums receivable and agents' balances | $ | 152 | $ | 4 | $ | (51) | $ | 105 | |||||||||
| Allowance for uncollectible reinsurance | $ | 108 | $ | 3 | $ | (12) | $ | 99 | |||||||||
| Valuation allowance for deferred taxes | $ | 4 | $ | 9 | $ | (6) | $ | 7 |
|
| Table of Contents |
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
FORM 10-K
EXHIBITS INDEX
The exhibits attached to this Form 10-K are those that are required by Item 601 of Regulation S-K.
|
| Table of Contents |
|
| Table of Contents |
| * | Management contract, compensatory plan or arrangement. | |||||||
| ** | Filed with the Securities and Exchange Commission as an exhibit to this report. | |||||||
| † | Certain portions of this exhibit have been omitted pursuant to the Securities and Exchange Commission Order Granting Confidential Treatment Under the Securities Exchange Act of 1934, dated August 7, 2017 | |||||||
| †† | Certain portions of this exhibit have been omitted pursuant to Section (b)(10)(iv) of Item 601 of Regulation S-K. The registrant agrees to furnish a copy of this exhibit to the Securities and Exchange Commission upon request. | |||||||
|
| Table of Contents |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| THE HARTFORD FINANCIAL SERVICES GROUP, INC. | ||||||||||||||
| By: | /s/ Allison G. Niderno | |||||||||||||
| Allison G. Niderno | ||||||||||||||
| Senior Vice President and Controller | ||||||||||||||
| (Chief accounting officer and duly authorized signatory) |
Date: February 23, 2024
|
| Table of Contents |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||||||||
| /s/ Christopher J. Swift | Chairman, Chief Executive Officer and Director | February 23, 2024 | ||||||||||||||||||
| Christopher J. Swift | (Principal Executive Officer) | |||||||||||||||||||
| /s/ Beth A. Costello | Executive Vice President and Chief Financial Officer | February 23, 2024 | ||||||||||||||||||
| Beth A. Costello | (Principal Financial Officer) | |||||||||||||||||||
| /s/ Allison G. Niderno | Senior Vice President and Controller | February 23, 2024 | ||||||||||||||||||
| Allison G. Niderno | (Principal Accounting Officer) | |||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Larry D. De Shon | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Carlos Dominguez | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Trevor Fetter | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Donna James | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Edmund Reese | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Teresa W. Roseborough | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Virginia P. Ruesterholz | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Matthew E. Winter | ||||||||||||||||||||
| * | Director | February 23, 2024 | ||||||||||||||||||
| Greig Woodring | ||||||||||||||||||||
| *By: | /s/ David C. Robinson | |||||||||||||||||||
| David C. Robinson | ||||||||||||||||||||
| As Attorney-in-Fact |