SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission file number 0-19277
ITT HARTFORD GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3317783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
HARTFORD PLAZA, HARTFORD, CONNECTICUT 06115-1900
(Address of principal executive offices)
Registrant's telephone number, including area code: (860) 547-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No[ ]
As of October 31, 1996, there were outstanding 117,451,287 shares of
Common Stock, $.01 par value per share, of the registrant.
- 1 -
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Statements of Income - Third Quarter and
Nine Months Ended September 30, 1996 and 1995 3
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Third Quarter Ended Nine Months Ended
September 30, September 30,
(In millions, except for per share data) 1996 1995 1996 1995
- ----------------------------------------------------------------- ------------- ------------- ------------ -------------
(Unaudited) (Unaudited)
REVENUES
<S> <C> <C> <C> <C>
Earned premiums $2,388 $2,402 $7,447 $7,090
Net investment income 631 648 1,835 1,831
Net realized capital gains (losses) (183) 8 (142) 56
- ----------------------------------------------------------------- ------------- ------------- ------------ -------------
TOTAL REVENUES 2,836 3,058 9,140 8,977
============================================================ ============= ============= ============ =============
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 2,878 1,908 6,961 5,758
Amortization of deferred policy acquisition costs 406 504 1,267 1,317
Other expenses 417 423 1,484 1,356
- ----------------------------------------------------------------- ------------- ------------- ------------ -------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 3,701 2,835 9,712 8,431
============================================================ ============= ============= ============ =============
OPERATING INCOME (LOSS) (865) 223 (572) 546
Income tax expense (benefit) (322) 50 (268) 126
Dividends on subsidiary preferred stock -- -- -- (2)
- ----------------------------------------------------------------- ------------- ------------- ------------ -------------
NET INCOME (LOSS) $ (543) $ 173 $ (304) $ 418
============================================================ ============= ============= ============ =============
EARNINGS (LOSS) PER SHARE $(4.63) $1.48 $(2.59) $3.57
CASH DIVIDENDS DECLARED PER SHARE $ 0.40 -- $ 1.20 --
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1) 117.2 117.1 117.2 117.1
================================================================= ============= ============= ============ =============
<FN>
(1) 1995 average common shares outstanding of 117.1 reflects a retroactive presentation of the actual number of shares
outstanding at December 31, 1995.
</FN>
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THE ABOVE STATEMENTS.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
(In millions, except for shares data) 1996 1995
- ------------------------------------------------------------------------------------------ ---------------- -----------------
(Unaudited)
ASSETS
Investments
<S> <C> <C>
Fixed maturities, available for sale, at fair value (amortized cost of
$30,271 and $30,892) $30,179 $31,168
Equity securities, at fair value (cost of $1,503 and $1,192) 1,719 1,342
Policy loans, at cost 3,898 3,380
Other investments, at cost 510 785
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Total investments 36,306 36,675
Cash 160 95
Premiums receivable and agents' balances 1,935 1,890
Reinsurance recoverables 11,665 11,801
Deferred policy acquisition costs 3,370 2,945
Deferred income tax 1,674 1,150
Other assets 2,678 2,451
Separate account assets 46,233 36,848
- ------------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL ASSETS $104,021 $93,855
==================================================================================== ================ =================
LIABILITIES
Future policy benefits, unpaid claims and claim adjustment expenses
Property and casualty $18,491 $17,536
Life 4,123 3,894
Other policy claims and benefits payable 22,513 22,770
Unearned premiums 2,857 2,766
Short-term debt 500 886
Long-term debt 1,023 1,022
Company obligated manditorily redeemable preferred securities of subsidiary trust
holding solely parent junior subordinated debentures 485 --
Other liabilities 3,728 3,431
Separate account liabilities 46,233 36,848
- ------------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL LIABILITIES 99,953 89,153
==================================================================================== ================ =================
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000, issued 118,955,434 and 118,762,331, outstanding
117,317,434 and 117,124,331 shares, par value $0.01 1 1
Common stock of parent company held by a subsidiary - 1,408,170 shares (30) (30)
Treasury stock - 229,830 shares -- --
Capital surplus 1,642 1,636
Cumulative translation adjustments 19 48
Unrealized gain on securities, net of tax 80 245
Retained earnings 2,356 2,802
- ------------------------------------------------------------------------------------------ ---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 4,068 4,702
==================================================================================== ================ =================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $104,021 $93,855
============================================================================== ================ =================
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THE ABOVE STATEMENTS.
</FN>
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
(In millions) 1996 1995
- ------------------------------------------------------------------------------------------ ---------------- -----------------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $(304) $418
ADJUSTMENTS TO NET INCOME
Depreciation and amortization 48 65
Gains (losses) on sale of securities 142 (56)
Change in receivables, payables and accruals (196) (208)
Accrued and deferred taxes (502) (48)
Increase in liabilities for future policy benefits, unpaid claims and claim
adjustment expenses and unearned premiums 1,135 474
Increase in deferred policy acquisition costs (432) (290)
Decrease in reinsurance recoverables and other related assets 280 331
Other, net 379 57
- ----------------------------------------------------------------------------------------- ---------------- -----------------
CASH PROVIDED BY OPERATING ACTIVITIES 550 743
==================================================================================== ================ =================
INVESTING ACTIVITIES
Purchase of investments (12,795) (11,201)
Sale and maturity of investments 12,571 8,869
Additions to plant, property and equipment (39) (57)
- ------------------------------------------------------------------------------------------ ---------------- -----------------
CASH USED FOR INVESTING ACTIVITIES (263) (2,389)
==================================================================================== ================ =================
FINANCING ACTIVITIES
Short-term debt, net (386) (15)
Long-term debt, net -- 27
Net proceeds from issuance of company obligated manditorily redeemable
preferred securities of subsidiary trust holding solely parent junior
subordinated debentures 485 --
Dividends paid (94) --
Investments and advances from affiliated parties -- 74
Net receipts from (disbursements for) investment and universal life-type contracts
credited to (charged from) policyholder accounts (235) 1,586
Other, net 5 --
- ------------------------------------------------------------------------------------------ ---------------- -----------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (225) 1,672
========================================================================================== ================ =================
Exchange rate effect on cash 3 1
- ------------------------------------------------------------------------------------------ ---------------- -----------------
Increase in cash 65 27
Cash - beginning of period 95 55
- ------------------------------------------------------------------------------------------ ---------------- -----------------
CASH - END OF PERIOD $160 $82
==================================================================================== ================ =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -------------------------------------------------
NET CASH PAID DURING THE PERIOD FOR:
Income taxes $190 $184
Interest $107 $72
NONCASH FINANCING ACTIVITIES:
Capital contribution -- $180
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THE ABOVE STATEMENTS.
</FN>
</TABLE>
- 5 -
<PAGE>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT FOR SHARE DATA UNLESS OTHERWISE STATED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of ITT Hartford
Group, Inc. ("ITT Hartford" or the "Company") have been prepared in accordance
with generally accepted accounting principles for interim periods. In the
opinion of management, these statements include all normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented. For a description of accounting policies,
see Note 1 of Notes to Consolidated Financial Statements for the fiscal year
ended December 31, 1995 included in ITT Hartford's 1995 Form 10-K Annual Report.
(B) PROPERTY AND CASUALTY INSURANCE OPERATIONS
Policy acquisition costs, representing commissions, premium taxes and certain
other underwriting expenses, are deferred and amortized over policy terms.
Estimates of future revenues, including net investment income and tax benefits,
are compared to estimates of future costs, including amortization of policy
acquisition costs, to determine if business currently in force is expected to
result in a net loss. No revenue deficiencies have been determined in the
periods presented.
A reconciliation of liabilities for unpaid claims and claim adjustment expenses
and a table depicting the historical development of the liabilities for unpaid
claims and claim adjustment expenses follows:
Sep. 30, 1996 Dec. 31, 1995
----------------------------
(Unaudited)
BEGINNING LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT $17,536 $17,435
EXPENSES-GROSS
Reinsurance recoverables 4,939 5,317
- -------------------------------------------------------------------
BEGINNING LIABILITIES FOR UNPAID
CLAIMS AND CLAIM ADJUSTMENT 12,597 12,118
EXPENSES-NET
ADD PROVISION FOR UNPAID CLAIMS AND
CLAIM ADJUSTMENT EXPENSES
Current year 3,924 5,041
Prior years (1), (2) 925 254
- -------------------------------------------------------------------
TOTAL PROVISION FOR UNPAID CLAIMS AND
CLAIM ADJUSTMENT EXPENSES 4,849 5,295
- -------------------------------------------------------------------
LESS PAYMENTS
Current year 1,719 1,905
Prior years 1,894 3,032
- -------------------------------------------------------------------
TOTAL PAYMENTS 3,613 4,937
- -------------------------------------------------------------------
Foreign currency translation (4) 6
ITT Ercos (3) -- 34
Other reclassifications -- 81
- -------------------------------------------------------------------
ENDING LIABILITIES FOR UNPAID CLAIMS
AND CLAIM ADJUSTMENT EXPENSES-NET 13,829 12,597
Reinsurance recoverables 4,662 4,939
- -------------------------------------------------------------------
ENDING LIABILITIES FOR UNPAID CLAIMS
AND CLAIM ADJUSTMENT EXPENSES-GROSS $18,491 $17,536
- -------------------------------------------------------------------
(1) See Note 4(b) Environmental and Asbestos Claims.
(2) Excludes the effects of foreign exchange adjustments.
(3) Represents beginning balances for liabilities for unpaid claims and claim
adjustment expenses of ITT Ercos, a subsidiary acquired during 1995
(C) EMPLOYEE BENEFIT PLANS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which is effective in 1996 for calendar year end companies. As
permitted by SFAS No. 123, ITT Hartford continues to measure compensation costs
of employee stock option plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 and plans to disclose in the 1996
Form 10-K Annual Report pro forma disclosures of net income and earnings per
share as if the fair value method prescribed by SFAS No. 123 had been applied.
NOTE 2. DEBT
On September 25, 1996, ITT Hartford filed a shelf registration statement for the
offering and sale of Preferred Securities of Hartford Capital II, III and IV,
special purpose Delaware trusts formed by ITT Hartford, and the potential
offering of debt securities, preferred stock, common stock and depositary shares
of ITT Hartford, warrants to purchase securities of ITT Hartford, and stock
purchase contracts and stock purchase units of ITT Hartford. The aggregate
amount of all securities that can be offered under the registration statement
will not exceed $1,750.
On October 30, 1996, Hartford Capital II issued 20,000,000 Series B, 8.35%
Cumulative Quarterly Income Preferred Securities ("Series B Preferred
Securities"). The material terms of the Series B Preferred Securities are
substantially the same as the Series A Preferred Securities described in Note 3
below, except for the rate and maturity date. The proceeds from the sale of the
Series B Preferred Securities were used to acquire $500 of Junior Subordinated
Deferrable Interest Debentures, Series B ("Junior Subordinated Debentures"),
issued by ITT Hartford.
ITT Hartford expects to undertake capital-raising transactions during the
remainder of 1996 and 1997. There can be no assurance, however, as to the timing
of or amount of capital raised by such transactions, which will depend on many
factors, including market conditions and ITT Hartford's need for and intended
use of proceeds from any such transaction. Any such transaction that is a public
offering of securities registered under the Securities Act of 1933 will be made
only by means of a prospectus.
NOTE 3. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUST HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES
On February 28, 1996, Hartford Capital I, a special purpose Delaware trust
formed by ITT Hartford, issued 20,000,000 Series A, 7.7% Cumulative Quarterly
Income Preferred Securities ("Series A Preferred Securities"). The proceeds from
the sale of the Series A Preferred Securities were used to acquire $500 of
Junior Subordinated Deferrable Interest Debentures, Series A ("Junior
Subordinated Debentures"), issued by ITT Hartford. ITT Hartford used the
proceeds from the sale of such debentures for
- 6 -
<PAGE>
the partial repayment of outstanding commercial paper and short-term bank
indebtedness.
Series A Preferred Securities represent undivided beneficial interests in the
assets of Hartford Capital I. ITT Hartford owns all of the beneficial interests
represented by Series A Common Securities of Hartford Capital I. Holders of
Series A Preferred Securities are entitled to receive preferential cumulative
cash distributions accruing from February 28, 1996 and payable quarterly in
arrears commencing March 31, 1996 at the annual rate of 7.7% of the liquidation
amount of $25.00 per Series A Preferred Security. The Series A Preferred
Securities are subject to mandatory redemption upon repayment of the Junior
Subordinated Debentures at maturity or their earlier redemption. Holders of
Series A Preferred Securities have limited voting rights.
The Junior Subordinated Debentures bear interest at the annual rate of 7.7% of
the principal amount, payable quarterly in arrears commencing March 31, 1996,
and mature on February 28, 2016. The Junior Subordinated Debentures are
unsecured and rank junior and subordinate in right of payment to all senior debt
of ITT Hartford and are effectively subordinated to all existing and future
liabilities of its subsidiaries.
ITT Hartford has the right to defer payments of interest on the Junior
Subordinated Debentures by extending the interest payment period for up to 20
consecutive quarters for each deferral period, up to the maturity date. During
any such period, interest will continue to accrue and ITT Hartford may not
declare or pay any cash dividends or distributions on ITT Hartford's common
stock nor make any principal, interest or premium payments on or repurchase any
debt securities that rank pari passu with or junior to the Junior Subordinated
Debentures. In the event of failure to pay interest for 30 consecutive days
(subject to the deferral of any due date in the case of an extension period),
the Junior Subordinated Debentures will become due and payable. ITT Hartford has
guaranteed, on a subordinated basis, all of the Hartford Capital I obligations
under the Series A Preferred Securities, including, to pay the redemption price
and any accumulated and unpaid distributions to the extent of available funds
and upon dissolution, winding up or liquidation, but only to the extent that
Hartford Capital I has funds to make such payments.
NOTE 4. CONTINGENCIES
(A) LITIGATION
ITT Hartford is involved in various legal actions, some of which involve claims
for substantial amounts. In the opinion of management, the ultimate liability
with respect to such lawsuits is not expected to be material to the consolidated
financial position, results of operations or cash flow of ITT Hartford.
(B) ENVIRONMENTAL AND ASBESTOS CLAIMS
Historically, ITT Hartford has found it difficult to estimate ultimate
liabilities related to environmental and asbestos claims due to uncertainties
surrounding these exposures. Within the property and casualty insurance
industry, progress has been made in developing sophisticated, alternative
methodologies utilizing company experience and supplemental databases to assess
environmental and asbestos liabilities. A study which incorporated these
methodologies was initiated in April 1996. The study included a review of
identified environmental and asbestos exposures of the North American Property &
Casualty segment, U.S. exposures of ITT Hartford's International segment and
exposures of the Runoff segment, and covered the Company's Personal, Commercial,
Reinsurance, and Specialty & Other lines of business. The methodology utilized a
ground up analysis of policy, site and exposure level data for a representative
sample of ITT Hartford's claims. The results of the evaluation were extrapolated
against the balance of the claim population to estimate the Company's overall
exposure for reported claims. In addition to estimating liabilities on reported
environmental and asbestos claims, ITT Hartford estimated reserves for claims
incurred but not reported (IBNR). The IBNR reserve was estimated using
information on reporting patterns of known insureds, characteristics of insureds
such as limits exposed, attachment points and number of coverage years involved,
third party costs, and closed claims. Also included in ITT Hartford's analysis
of environmental and asbestos exposures was a review of applicable reinsurance
coverage. Reinsurance coverage applicable to the sample was used to estimate the
reinsurance coverage that applied to the balance of the reported environmental
and asbestos claims and to the IBNR estimates.
Upon completion of the study and assessment of the results in October 1996, the
Company determined that its environmental and asbestos reserves should be
increased, on an undiscounted basis, by $493 (net of reinsurance) and $292 (net
of reinsurance), respectively, as of September 30, 1996.
ITT Hartford believes that the environmental and asbestos reserves reported at
September 30, 1996, are a reasonable estimate of the ultimate remaining
liability for these claims based upon known facts, current assumptions and ITT
Hartford's methodologies. Future social, economic, legal or legislative
developments may continue to expand the original intent of policies and the
scope of coverage. ITT Hartford will continue to evaluate new developments and
methodologies as they become available for use in supplementing the Company's
ongoing analysis and review of its environmental and asbestos exposures. These
future reviews may result in a change in reserves, impacting ITT Hartford's
results of operations in the period in which the reserve estimates are changed.
While the effects of future changes in facts, legal and other issues could have
a material effect on future results of operations, ITT Hartford does not expect
such changes would have a material effect on its liquidity or financial
condition.
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE UNLESS OTHERWISE STATED)
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") addresses the financial condition of ITT Hartford as of
September 30, 1996, compared with December 31, 1995, and its results of
operations for the third quarter and nine months ended September 30, 1996
compared with the equivalent 1995 periods. This discussion should be read in
conjunction with the MD&A included in ITT Hartford's 1995 Form 10-K Annual
Report and in ITT Hartford's reports on Form 10-Q for the first and second
quarters of 1996.
Certain of the statements contained herein (other than statements of historical
fact) are forward-looking statements. Forward-looking statements are made based
upon management's expectations and belief concerning future developments and
their potential effect upon ITT Hartford. There can be no assurance that future
developments will be in accordance with management's expectation or that the
effect of future developments on ITT Hartford will be those anticipated by
management. Actual results could differ materially from those expected by ITT
Hartford, depending on the outcome of certain factors, including those described
with the forward-looking statements.
During December 1995, ITT Corporation ("ITT"), after transferring ownership of
First State Insurance Company ("First State") and Fencourt Reinsurance Company
("Fencourt") to ITT Hartford, distributed the outstanding shares of ITT Hartford
common stock to the shareholders of ITT in what is described herein as the
"Distribution". The third quarter and nine months ended September 30, 1995
financial information included herein reflects the results of ITT Hartford on a
post-Distribution basis, including the operating results of Fencourt and First
State. (For additional information, see "Distribution" under MD&A in the 1995
Form 10-K Annual Report.)
================================================================================
INDEX
================================================================================
Consolidated Results of Operations: Operating Summary 8
North American Property & Casualty 9
Life 10
International 11
Runoff 11
Environmental and Asbestos Claims 12
Investments 14
Capital Resources and Liquidity 17
================================================================================
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 2,836 $ 3,058 $ 9,140 $ 8,977
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (543) $ 173 $ (304) $ 418
Less: Net realized capital gains, after-tax [1] 18 6 46 37
Other charges (693) -- (693) --
Allocated Distribution items -- 12 -- 25
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 132 $ 155 $ 343 $ 356
===================================================================================================================================
<FN>
[1] 1996 excludes the Closed Book GRC net realized capital loss of $137, after-tax. This amount is included in other charges.
</FN>
</TABLE>
Revenues for the third quarter ended September 30, 1996 decreased $222 or
7% from the third quarter of 1995, due primarily to a $(210) before-tax realized
capital loss related to the closed book of guaranteed rate contract business
("Closed Book GRC"). This realized capital loss was offset for the nine months
ended September 30, 1996 by fees generated from a growing block of individual
life and annuity business as well as increased revenues at Zwolsche Algemeene,
resulting in an increase in revenues of $163 or 2% over the comparable period in
1995.
Net income for the third quarter and nine months of 1996 includes other charges
related to environmental and asbestos reserve increases of $(429) in the North
American Property & Casualty segment and $(81) at First State in the Runoff
segment; recognition of losses on Closed Book GRC of $(169) and other, primarily
foreign tax-related items of $(2) in each of the North American Property &
Casualty and Life segments and $(10) in the Runoff segment. Net income,
excluding the impact of net realized capital gains, after-tax, other charges and
allocated Distribution items, was $132 and $343 for the third quarter and nine
months of 1996, respectively, compared with $155 and $356 for the comparable
prior year periods. ITT Hartford defines as "core earnings", after-tax
operational results excluding, as applicable, net realized capital gains or
losses, the cumulative effect of accounting changes, other charges and allocated
Distribution items.
The decrease in core earnings of $23 or 15% for the third quarter and $13 or 4%
for the nine months ended September 30, 1996 over the comparable prior year
periods, was primarily due to the impact of Hurricane Fran in the third quarter
and, for the nine month period, severe winter storm losses experienced in the
first quarter. These decreases were partially offset by strong sales and asset
growth in the Life segment. Excluding the impact of
- 8 -
<PAGE>
catastrophes and severe winter storm losses, core earnings increased $12
or 7% for the third quarter and $76 or 18% for the nine months ended for
September 30, 1996.
The effective tax rates for the third quarter and nine months ended September
30, 1996 were 23% and 22%, respectively, compared to 20% and 23% for the
comparable periods in 1995, excluding the impact of other charges and the Closed
Book GRC realized capital loss. Tax-exempt interest earned on invested assets
was the principal cause of an effective tax rate lower than the 35% U.S.
statutory rate.
SEGMENT RESULTS
ITT Hartford's reporting segments, which reflect the management structure of the
Company, consist of North American Property & Casualty, Life, International and
Runoff. Certain reclassifications have been made to conform historical
information to the September 30, 1996 presentation.
Below is a summary of core earnings by segment.
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
North American Property & Casualty $ 61 $ 84 $ 152 $ 179
Life 67 60 180 157
International 24 28 71 77
Runoff (20) (17) (60) (57)
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 132 $ 155 $ 343 $ 356
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sections that follow analyze each segment's results. Specific topics such as
environmental reserves and investment results are discussed separately following
the segment overviews.
================================================================================
NORTH AMERICAN PROPERTY & CASUALTY
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 1,594 $ 1,589 $ 4,756 $ 4,746
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (371) $ 86 $ (277) $ 203
Less: Net realized capital gains (losses), after-tax (1) 2 2 24
Other charges (431) -- (431) --
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 61 $ 84 $ 152 $ 179
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Core earnings for the North American Property & Casualty segment were $61 for
the third quarter ended September 30, 1996, a decrease of $23, or 27%, from the
comparable period in 1995. This decrease was primarily due to the impact of
Hurricane Fran which generated a $35 after-tax increase in catastrophe losses in
the third quarter of 1996 over the third quarter of 1995. Excluding catastrophe
losses, core earnings for the third quarter of 1996 rose $12 or 12%, primarily
due to an increase of $10 or 8% in after-tax net investment income and improved
adjusted (excluding catastrophe losses) underwriting results. The decrease in
core earnings for the first nine months of 1996 compared to 1995 of $27, or 15%,
reflects an increase in catastrophe and weather related losses of $89,
after-tax, partially offset by a $26 improvement in adjusted underwriting
results and a $41 increase in net investment income. Excluding the effects of
catastrophes and weather related losses, core earnings for the first nine months
of 1996 increased 25% over the comparable period in 1995 due to higher net
investment income and improved underwriting results. (For an analysis of net
investment income and net realized capital gains (losses), see Investment
Results in the Investments section.) Other charges consist primarily of an
increase in environmental and asbestos reserves as discussed in the
Environmental and Asbestos Claims section.
UNDERWRITING RESULTS
Underwriting results represent premiums earned less incurred claims, claim
adjustment expenses and underwriting expenses. The following table displays
written premiums, underwriting results and combined ratios for ITT Hartford's
North American Property & Casualty segment:
- 9 -
<PAGE>
<TABLE>
<CAPTION>
THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Written premiums $ 1,472 $ 1,452 $ 4,364 $ 4,274
Underwriting results, before-tax [1] $ (84) $ (41) $ (304) $ (206)
Combined ratio [1], [2] 105.8 102.6 106.5 104.6
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
[1] 1996 excludes the impact of $660, before-tax, environmental and asbestos charge.
[2] "Combined ratio" is a common industry measurement of property and casualty
underwriting profitability. This ratio is the sum of the ratio of incurred
claims and claim adjustment expenses to premiums earned and the ratio of
underwriting expenses incurred to premiums written.
</FN>
</TABLE>
North American Property & Casualty segment written premiums for the third
quarter and nine months ended September 30, 1996 increased $20 or 1%, and $90 or
2%, respectively, over the equivalent prior year periods. Solid growth continued
in the third quarter in Reinsurance of 20% and AARP Personal lines of 7%, offset
by lower Agency Personal and Commercial lines written premiums. Growth in the
Reinsurance line was primarily due to an increased level of renewals and new
product development in specialty reinsurance lines. The continued expansion into
the over-50 market, as facilitated by ITT Hartford's exclusive arrangement with
the American Association of Retired Persons ("AARP"), was reflected in the
premium volume increase in AARP Personal lines, while intensely competitive
market conditions and underwriting actions have adversely affected Agency
Personal and Commercial product sales.
Underwriting results for the third quarter ended September 30, 1996 for the
North American Property & Casualty segment were $43 below the prior year's third
quarter, resulting in a 3.2 point increase in the combined ratio. These negative
results were primarily attributable to Hurricane Fran which generated a $54
pre-tax increase in catastrophe losses in the third quarter of 1996 over 1995.
Excluding catastrophe experience, the third quarter combined ratio improved by
0.6 points due to continued favorable loss development in casualty lines.
For the nine months ended September 30, 1996, underwriting results were $98
below the same period last year, resulting in a 1.9 point increase in the
combined ratio. The results for the nine months of 1996 reflect $240 before-tax
of catastrophe and severe winter storm losses, a $137 increase over equivalent
losses for the nine months ended September 30, 1995. Excluding these losses,
underwriting results were favorable to the prior year comparable period by $39
or 1.3 points, reflecting the improved underwriting performance previously
discussed.
================================================================================
LIFE
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
-------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 993 $ 983 $ 3,166 $ 2,751
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 70 $ 54 $ 182 $ 154
Less: Net realized capital gains (losses), after-tax 5 (6) 4 (3)
Other charges (2) -- (2) --
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 67 $ 60 $ 180 $ 157
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Revenues for the third quarter were essentially flat due to a decline in
Specialty Insurance Operation division revenues related to its leveraged
corporate owned life insurance ("COLI") business. The Company attributes this
decline to the COLI legislation recently passed by Congress which provides for a
three year phase out of the interest deduction on loans taken against COLI
policies. Revenues for the nine months ended September 30, 1996 increased $415
or 15%, over the comparable 1995 period. This growth was largely due to fees
generated from a growing block of individual annuity and life business.
Furthermore, the Life segment sold over $7.4 billion of individual annuity
contracts during the first nine months of 1996, compared to $5.1 billion for the
first nine months of the prior year.
Core earnings for the Life segment increased $7 or 12% for the third quarter and
$23 or 15% for the first nine months of 1996 over the comparable prior year
periods. Strong sales and asset growth in the Individual Life and Individual
Annuity divisions along with earnings increases in excess of 10% in the
Individual Life, the Employee Benefits and the Specialty Insurance Operation
divisions accounted for this growth.
- 10 -
<PAGE>
================================================================================
INTERNATIONAL
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 389 $ 376 $ 1,178 $ 1,106
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 38 $ 38 $ 111 $ 94
Less: Net realized capital gains, after-tax 14 10 40 17
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ 24 $ 28 $ 71 $ 77
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
International segment revenues for the third quarter and nine months ended
September 30, 1996 increased $13 or 3%, and $72 or 7%, respectively, over the
comparable periods in 1995. The increase in the third quarter was due primarily
to improved investment performance. For the first nine months of 1996, revenues
at Zwolsche Algemeene of $340 increased $50 or 17% over the same period in 1995,
reflecting increased sales of health, motor and life insurance and improved
investment performance. (For analysis of net investment income and net realized
capital gains, see Investment Results in the Investments section.) The transfer
from the national health system of some medical coverages to private insurance
partly contributed to the growth in health premiums. Motor growth increased due
to both pricing and policy growth, while the growth in the life business was due
to higher unit-linked (savings, pensions and mortgage) sales.
Additionally, with the acquisition of ITT Ercos in May 1995, revenues for the
third quarter and nine months of 1996 included $18 and $57, respectively,
related to this new subsidiary. In the United Kingdom, ITT London & Edinburgh
revenues were down for the quarter and year to date September 30, 1996 $14 or 5%
and $33 or 4%, respectively, due to heightened competition.
Core earnings in the International segment decreased $4 or 14% for the third
quarter and $6 or 8% for the nine months ended September 30, 1996 over the same
periods in 1995. A decrease in core earnings at ITT London & Edinburgh of $1 or
6% for the third quarter and $4 or 8% for the nine months of 1996 over the prior
year periods was due primarily to heightened competition in the United Kingdom.
This offset improved results in Zwolsche Algemeene for the third quarter of $1
or 14%.
================================================================================
RUNOFF
================================================================================
<TABLE>
<CAPTION>
OPERATING SUMMARY THIRD QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ (140) $ 110 $ 40 $ 374
- -----------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (280) $ (17) $ (320) $ (58)
Less: Net realized capital losses, after-tax [1] -- -- -- (1)
Other charges (260) -- (260) --
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $ (20) $ (17) $ (60) $ (57)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
[1] 1996 excludes the Closed Book GRC net realized capital loss of $137 after-tax. This amount is included in other charges.
</FN>
</TABLE>
Runoff segment revenues for the third quarter and nine months ended
September 30, 1996 decreased $250 or 227%, and $334 or 89%, over the comparable
1995 periods. This decrease was due primarily to a $(210) before-tax realized
capital loss related to Closed Book GRC.
Prior to 1996, Closed Book GRC was reported as a component of the Asset
Management Services division of the Life segment. Closed Book GRC is now
reported as a component of the Runoff segment and had no new or renewal business
as of the end of 1995. The majority of products included in Closed Book GRC are
guaranteed investment contracts with guaranteed fixed or indexed rates for a
specific period. Closed Book GRC results have been negatively affected by lower
investment rates and earnings on mortgage backed securities due to prepayments
experienced in excess of assumed levels in years prior to 1995. Closed Book GRC
was also affected by the interest rate rise in 1994 when the duration of its
assets lengthened relative to that of the liabilities. Due to the reduced
investment earnings and duration mismatch, the portfolio had insufficient assets
to fund fully its liability commitments. During the third quarter of 1996, the
Life segment transferred assets in the amount of $200 to the Runoff segment to
adequately fund Closed Book GRC so that future cash infusions would be minimal.
Although the Closed Book GRC asset portfolio as a whole is duration matched with
its liabilities, certain investments continue to have a longer maturity than
their corresponding liabilities and will need to be liquidated prior to maturity
in order to meet the specific liability commitments. To protect the existing
value of these investments, the Company entered into various hedge transactions
in late September 1996 which substantially eliminated further fluctuation in
fair value of the investments due to interest rate changes.
ITT Hartford's accounting policy is to record an other than temporary impairment
charge on a security if it is determined that the Company is unable to recover
all amounts due under the
- 11 -
<PAGE>
contractual obligations of the security. In addition, the Company has
established specific criteria to be used in the impairment evaluation of an
individual portfolio of assets. Specifically, if the asset portfolio is
supporting a runoff operation, is forced to be liquidated prior to maturity to
meet liability commitments, and has a fair value below amortized cost, which
will not materially fluctuate as a result of future interest rate changes, then
an other than temporary impairment has been determined to have occurred. Once an
impairment charge has been recorded, ITT Hartford continues to review the
impaired securities for appropriate valuation.
With the initiation of the hedge transactions, which eliminated the possibility
that the fair value of the Closed Book GRC investments would recover to their
current amortized cost, an other than temporary impairment loss of $(82)
after-tax was determined to have occurred and was recorded in September 1996.
Also, during the third quarter of 1996, Closed Book GRC had asset sales
resulting in proceeds of approximately $500 and a realized loss of $(55)
after-tax. The asset sales were the result of current liquidity needs in
addition to taking advantage of favorable market conditions for certain
securities. Other charges of $(32) after-tax were also incurred in the third
quarter.
During 1995, Closed Book GRC incurred a $(68) after-tax loss from
operations. In addition, prior to the above actions, the level of the 1995 loss
was expected to decline by 10% to 25% in 1996 and 1997 with the losses having
run off in their entirety by the year 2000. As a result of the above actions, it
is now expected that the comparable 1996 after-tax loss will be in the range of
$(51) to $(55), while after-tax losses in 1997 and 1998 will be reduced to the
range of $(10) to $(20) per year. Losses from Closed Book GRC in years
subsequent to 1998 are expected to be minimal.
Other charges primarily consist of $169 of charges in the Closed Book GRC (as
discussed previously) and an increase in environmental and asbestos reserves at
First State of $81 as discussed in the Environmental and Asbestos Claims
section.
Runoff segment core earnings decreased $3 or 18% for the third quarter and $3 or
5% for the nine months of 1996 over the comparable prior year periods. These
results reflect the net losses of Closed Book GRC of $(14) and $(17) for the
third quarters and $(44) and $(43) for the nine months ended September 30, 1996
and 1995, respectively.
================================================================================
ENVIRONMENTAL AND ASBESTOS CLAIMS
================================================================================
ITT Hartford continues to receive claims asserting damages from environmental
exposures and for injuries from asbestos and asbestos-related products, both of
which affect the North American Property & Casualty, International and Runoff
segments. Environmental claims relate primarily to pollution and related
clean-up costs. With regard to these claims, uncertainty exists which impacts
the ability of insurers and reinsurers to estimate the ultimate reserves for
unpaid losses and related settlement expenses. ITT Hartford finds that
conventional reserving techniques cannot estimate the ultimate cost of these
claims because of inadequate development patterns and inconsistent emerging
legal doctrine. For the majority of environmental claims and many types of
asbestos claims, unlike any other type of contractual claim, there is almost no
agreement or consistent precedent to determine what, if any, coverage exists or
which, if any, policy years and insurers or reinsurers may be liable. Further
uncertainty arises with environmental claims since claims are often made under
policies, the existence of which may be in dispute, the terms of which may have
changed over many years, which may or may not provide for legal defense costs,
and which may or may not contain environmental exclusion clauses that may be
absolute or allow for fortuitous events. Courts in different jurisdictions have
reached disparate conclusions on similar issues and in certain situations have
broadened the interpretation of policy coverage and liability issues. In light
of the extensive claim settlement process for environmental and asbestos claims,
involving comprehensive fact gathering, subject matter expertise and intensive
litigation, ITT Hartford established an environmental claims facility in 1992 to
defend itself aggressively against unwarranted claims and to minimize costs.
Within the property and casualty insurance industry, progress has been made in
developing sophisticated, alternative methodologies utilizing company experience
and supplemental databases to assess environmental and asbestos liabilities.
Consistent with ITT Hartford's practice of using the best techniques to estimate
the Company's environmental and asbestos exposures, a study was initiated in
April 1996. ITT Hartford, utilizing internal staff supplemented by outside legal
and actuarial consultants, completed the study in October 1996.
The study included a review of identified environmental and asbestos exposures
of North American Property & Casualty, U.S. exposures of ITT Hartford's
International segment and exposures of the Runoff segment, and covered the
Company's Personal, Commercial, Reinsurance, and Specialty & Other lines of
business. The methodology utilized a ground up analysis of policy, site and
exposure level data for a representative sample of ITT Hartford's claims. The
results of the evaluation were extrapolated against the balance of the claim
population to estimate the Company's overall exposure for reported claims.
In addition to estimating liabilities on reported environmental and asbestos
claims, ITT Hartford estimated reserves for claims incurred but not reported
("IBNR"). The IBNR reserve was estimated using information on reporting patterns
of known insureds, characteristics of insureds such as limits exposed,
attachment points and number of coverage years involved, third party costs, and
closed claims.
Included in ITT Hartford's analysis of environmental and asbestos exposures was
a review of applicable reinsurance coverage. Reinsurance coverage applicable to
the sample was used to estimate the reinsurance coverage that applied to the
balance of the reported environmental and asbestos claims and to the IBNR
estimates.
- 12 -
<PAGE>
An international actuarial firm reviewed ITT Hartford's approach and concluded
that the way the Company studied its exposures, the thoroughness of its analysis
and the way ITT Hartford came to its estimates was reasonable and comprehensive.
Upon completion of the study and assessment of the results in October 1996, ITT
Hartford determined that its environmental and asbestos reserves should be
increased, on an undiscounted basis, by $493 (net of reinsurance) and $292 (net
of reinsurance), respectively, as of September 30, 1996. Reserve activity for
both reported and unreported environmental and asbestos claims, including
reserves for legal defense costs, was as follows (net of reinsurance):
<TABLE>
<CAPTION>
ENVIRONMENTAL AND ASBESTOS CLAIMS
CLAIMS AND CLAIM ADJUSTMENT EXPENSES
SEPTEMBER 30, 1996 DECEMBER 31, 1995
---------------------------------------------------- ---------------------
(Unaudited)
Environmental Asbestos Total Total [1]
-------------------- ----------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Beginning liability $ 926 $ 410 $ 1,336 $ 1,334
Claims and claim adjustment expenses incurred 604 336 940 163
Claims and claim adjustment expenses paid (96) (34) (130) (161)
- ----------------------------------------------------- ---- --------------- ---- ------------ --- --------- --- ------- -------------
Ending liability $ 1,434 $ 712 $ 2,146 $ 1,336
- ----------------------------------------------------- ---- --------------- ---- ------------ --- --------- --- ------- -------------
<FN>
[1] Prior to December 31, 1995, claims were not split between environmental and
asbestos exposures.
</FN>
</TABLE>
ITT Hartford's pretax operating earnings have been impacted over the last three
years by incurred environmental and asbestos claims and claim adjustment
expenses as follows: $163 in 1995, $145 in 1994 and $160 in 1993 with all years
reported net of reinsurance.
ITT Hartford believes that the environmental and asbestos reserves reported at
September 30, 1996, are a reasonable estimate of the ultimate remaining
liability for these claims based upon known facts, current assumptions and ITT
Hartford's methodologies. Future social, economic, legal or legislative
developments may alter the original intent of policies and the scope of
coverage. ITT Hartford will continue to evaluate new developments and
methodologies as they become available for use in supplementing the Company's
ongoing analysis and review of its environmental and asbestos exposures. These
future reviews may result in a change in reserves, impacting ITT Hartford's
results of operations in the period in which the reserve estimates are changed.
While the effects of future changes in facts, legal and other issues could have
a material effect on future results of operations, ITT Hartford does not expect
such changes would have a material effect on its liquidity or financial
condition.
- 13 -
<PAGE>
================================================================================
INVESTMENTS
================================================================================
An important element of the financial results of ITT Hartford is return on
invested assets. ITT Hartford's investment activities are divided between the
reportable segments of North American Property & Casualty, Life, International,
and Runoff. The investment portfolios for these operations are managed based on
the underlying characteristics and nature of their respective policy
liabilities.
Please refer to ITT Hartford's 1995 Form 10-K Annual Report for a description of
the Company's investment objectives and policies.
NORTH AMERICAN PROPERTY & CASUALTY
Invested assets were $12.0 billion at September 30, 1996, and were comprised of
fixed maturities of $10.6 billion and other investments of $1.4 billion,
primarily equity securities. The table below summarizes fixed maturity holdings
by type.
FIXED MATURITIES BY TYPE
- ---------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- -------------- --------------------- --------------------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------- ----------- -------- ------------ --------
Corporate $1,791 16.9% $2,427 22.8%
CMO 674 6.3% 1,462 13.7%
Municipals-
tax exempt 6,856 64.7% 5,171 48.5%
Gov't/Gov't
agencies-US 11 0.1% 249 2.3%
ABS 126 1.2% 239 2.2%
Gov't/Gov't
agencies-For. 237 2.2% 255 2.4%
MBS - Agency 211 2.0% 244 2.3%
Commercial
MBS 39 0.4% 14 0.1%
Municipals-
taxable 69 0.7% 75 0.7%
Redeemable
Pref'd stock 47 0.4% -- --
Short-terms 542 5.1% 531 5.0%
- -------------- ----------- -------- ------------ --------
TOTAL FIXED
MATURITIES $10,603 100.0% $10,667 100.0%
- -------------- ----------- -------- ------------ --------
This segment maintains a high quality fixed maturity portfolio. At September 30,
1996, less than 5% of the fixed maturity portfolio was invested in below
investment-grade securities. The table below summarizes fixed maturity holdings
by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- --------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- ------------- --------------------- --------------------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------- ----------- --------- ----------- --------
AAA $4,058 38.3% $4,570 42.8%
AA 2,407 22.7% 2,137 20.0%
A 1,532 14.5% 1,862 17.5%
BBB 621 5.9% 649 6.1%
Gov't 767 7.2% 252 2.4%
BB & below 461 4.3% 459 4.3%
Not rated 215 2.0% 207 1.9%
Short-term 542 5.1% 531 5.0%
- ------------- ----------- --------- ----------- --------
TOTAL FIXED
MATURITIES $10,603 100.0% $10,667 100.0%
- ------------- ----------- --------- ----------- --------
The average duration of the September 30, 1996 fixed maturity portfolio was 5.1
years. Duration is defined as the market price sensitivity of the portfolio to
parallel shifts in the yield curve.
The North American Property & Casualty segment uses a minimal amount of
derivatives in managing its investments and, as of September 30, 1996, had no
open derivatives positions. As of December 31, 1995, this segment had open
derivatives with a notional amount of $14.
INVESTMENT RESULTS
The table below summarizes the North American Property & Casualty segment's
results.
THIRD QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
- -------------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- -------------------------- ------- ------- ------- -------
Net Investment Income
Before-tax $162 $167 $489 $480
Net Investment Income
After-tax (1) $133 $122 $392 $351
Yield on Average Invested
Assets Before-tax (2) 5.5% 5.9% 5.6% 5.8%
Yield on Average Invested
Assets After-tax (1) 4.5% 4.3% 4.5% 4.2%
Net Realized Capital Gains
(Losses) Before-tax $(2) $3 $2 $36
- ----------------------------------------------------------
(1) Due to the significant holdings in tax-exempt
investments an after-tax net investment income and
after-tax yield is also included.
(2) Represents annualized net investment income
(excluding net realized capital gains(losses)) divided
by average invested assets at cost (fixed maturities at
amortized cost).
- ----------------------------------------------------------
For the third quarter ended September 30, 1996, before-tax net investment income
was $162 compared to $167 in 1995, a decrease of 3%, while after-tax net
investment income increased 9%. For the nine months ended September 30, 1996,
before-tax net investment income was $489 compared to $480 in 1995, an increase
of 2%, while after-tax net investment income increased 12%. For the third
quarter ended September 30, 1996, before-tax yields on average invested assets
decreased to 5.5% from 5.9% in 1995, while the after-tax yields increased from
4.3% to 4.5%. For the nine months ended September 30, 1996, before-tax yields on
average invested assets decreased to 5.6% from 5.8% in 1995, while the after-tax
yields increased from 4.2% to 4.5%. The third quarter and year to date increases
in after-tax net investment income and after-tax yields were primarily due to
the investment strategy to increase tax-exempt municipal bonds by $2.7 billion
and continued strategy to increase common equity exposure.
There were net realized capital losses of $(2) for the third quarter ended
September 30, 1996 down from $3 in 1995; and, for the nine months ended
September 30, 1996, there were net realized capital gains of $2 down from $36 in
1995. The reductions for the third quarter and nine months were primarily the
result of the sale of lower yielding taxable bonds at realized losses, of which
the proceeds were allocated to the higher yielding after-tax municipal market.
Net realized capital gains, generated in the equity portfolios, were used to
help offset the losses incurred.
- 14 -
<PAGE>
LIFE
Invested assets, excluding separate accounts, totaled $15.8 billion at September
30, 1996 and were comprised of $11.6 billion of fixed maturities, $3.9 billion
of policy loans, and other investments of $287. The table below summarizes fixed
maturity holdings by type.
FIXED MATURITIES BY TYPE
- -------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
(Unaudited) 1996 1995
- ------------ --------------------- --------------------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- ------------ ------------ -------- ----------- --------
Corporate $6,111 52.8% $5,146 45.0%
CMO 1,390 12.0% 2,071 18.1%
Gov't/Gov't
agencies-US 29 0.2% 260 2.3%
ABS 2,045 17.6% 1,782 15.6%
Gov't/Gov't
agencies-For. 332 2.9% 223 1.9%
MBS-Agency 597 5.2% 673 5.9%
Commercial
MBS 733 6.3% 348 3.0%
Municipals-
taxable 145 1.3% 130 1.1%
Short-terms 194 1.7% 817 7.1%
- ------------ ------------ -------- ----------- --------
TOTAL FIXED
MATURITIES $11,576 100.0% $11,450 100.0%
- ------------ ------------ -------- ----------- --------
The Life segment continued to maintain a high quality fixed maturity portfolio.
As of September 30, 1996, less than .5% of the fixed maturity portfolio was
invested in below investment-grade securities. The table below summarizes fixed
maturity holdings by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- --------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- ------------- -------------------- ---------------------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------ ----------- --------- ----------- --------
AAA $3,639 31.4% $3,688 32.2%
AA 1,419 12.3% 1,502 13.1%
A 4,163 36.0% 3,651 31.9%
BBB 1,844 15.9% 1,276 11.1%
Gov't 281 2.4% 523 4.6%
BB & below 36 0.3% 29 0.3%
Not rated -- -- 54 0.5%
Short-term 194 1.7% 727 6.3%
- ------------ ----------- --------- ----------- --------
TOTAL
FIXED $11,576 100.0% $11,450 100.0%
MATURITIES
- ------------ ----------- --------- ----------- --------
The average duration of the September 30, 1996 fixed maturity portfolio was 4.1
years. Duration is defined as the market price sensitivity of the portfolio to
parallel shifts in the yield curve.
INVESTMENT RESULTS
The table below summarizes the Life segment's results.
THIRD QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
- --------------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- --------------------------- ------- ------- ------- -------
Net Investment Income
Before-tax $352 $327 $953 $854
Yield on Average Invested
Assets Before-tax (1) 9.0% 8.4% 8.2% 8.1%
Net Realized Capital Gains
(Losses)Before-tax $8 $(9) $7 $(5)
- -----------------------------------------------------------
(1) Represents annualized net investment income
(excluding net realized capital gains(losses))
divided by average invested assets at cost (fixed
maturities at amortized cost).
- -----------------------------------------------------------
For the third quarter ended September 30, 1996, net investment income totaled
$352 compared to $327 in 1995, an increase of 8%. For the nine months ended
September 30, 1996, net investment income was $953 compared to $854 in 1995, an
increase of 12%. The third quarter and year to date increase in net investment
income was primarily due to an increase in policy loans, new business cash flow
invested in fixed maturities and asset mix.
For the third quarter ended September 30, 1996, before-tax yields increased to
9.0% from 8.4% in 1995. The increase in before-tax yields is primarily due to
the increase in policy loan yields; excluding policy loans, the yield decreased
to 7.2% from 7.3% in 1995. For the nine months ended September 30, 1996,
before-tax yields on average invested assets increased to 8.2% from 8.1% in
1995.
There were net realized capital gains of $8 for the third quarter ended
September 30, 1996 up from net realized capital losses of $(9) in 1995; and, for
the nine months ended September 30, 1996, there were net realized capital gains
of $7 up from $(5) in 1995.
ASSET AND LIABILITY MANAGEMENT STRATEGIES
The Life segment employs several risk management tools to quantify and manage
interest rate risk arising from its investments and interest sensitive
liabilities. Management monitors the changes in present value between assets and
liabilities resulting from various interest rate scenarios using integrated
asset/liability measurement systems and a proprietary system that simulates the
impacts of parallel and non-parallel yield curve shifts. Based on this current
and prospective information, management implements risk reducing techniques to
improve the match between assets and liabilities.
The Life segment's asset/liability policy is to maintain individual portfolios
of assets with durations that fall within target ranges of specific liabilities.
To complement invested assets, derivatives are used, those traded both
over-the-counter and on national exchanges, to hedge interest rate, price and
foreign exchange rate risk; to manage liquidity risk; and to control transaction
costs. Derivative instruments include interest rate swaps, foreign currency and
coupon swaps, futures contracts and options, including caps and floors.
Derivatives are used for non-speculative purposes and are related to, and
correlated with, specific instruments. Life management endorses the use of
derivatives and recognizes their contribution to improving the segment's
interest rate risk management, product development, portfolio management and
liability management efforts. Derivative transactions are quantified based on
notional amounts. Notional amounts are not reflective of credit risk, but
establish the basis upon which to calculate amounts to be paid or received. As
of September 30, 1996 and December 31, 1995, the Life segment had derivatives
with an aggregate notional amount of $3.3 billion and $4 billion, respectively
outstanding for asset/liability management purposes.
- 15 -
<PAGE>
INTERNATIONAL
Invested assets, excluding separate accounts, were $3.0 billion at September 30,
1996 and were comprised of fixed maturities of $2.5 billion and other
investments of $496. Minimal use is made of derivatives which, if purchased, are
used for hedging market and foreign exchange risk. The table below summarizes
fixed maturity holdings by type.
FIXED MATURITIES BY TYPE
- ---------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- -------------- ----------- --------- ----------- --------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------- ----------- --------- ----------- --------
Corporate $488 19.7% $261 10.8%
Gov't/Gov't
agencies-US 113 4.6% 57 2.4%
Gov't/Gov't
agencies-For. 1,326 53.7% 1,203 49.8%
Short-terms 544 22.0% 893 37.0%
- -------------- ----------- --------- ----------- --------
TOTAL FIXED
MATURITIES $2,471 100.0% $2,414 100.0%
- -------------- ----------- --------- ----------- --------
As of September 30, 1996, the fixed maturity portfolio consisted of 100%
investment grade securities with no security rated lower than A. The table below
summarizes fixed maturity holdings by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- --------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- ------------- ------------ -------- ----------- --------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------- ------------ -------- ----------- --------
AAA $1,806 73.1% $1,428 59.2%
AA 117 4.7% 89 3.8%
A 4 0.2% 4 --
Short-term 544 22.0% 893 37.0%
- ------------- ------------ -------- ----------- --------
TOTAL FIXED
MATURITIES $2,471 100.0% $2,414 100.0%
- ------------- ------------ -------- ----------- --------
INVESTMENT RESULTS
The table below summarizes the International segment's results.
THIRD QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
- --------------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- --------------------------- ------- ------- ------- -------
Net Investment Income
Before-tax $48 $44 $145 $125
Yield on Average Invested
Assets Before-tax (1) 6.6% 7.0% 6.8% 6.7%
Net Realized Capital Gains
Before-tax $21 $14 $60 $25
- -----------------------------------------------------------
(1) Represents annualized net investment income
(excluding net realized capital gains) divided by
average invested assets at cost (fixed maturities at
amortized cost).
- -----------------------------------------------------------
For the third quarter ended September 30, 1996, net investment income totaled
$48 compared to $44 in 1995, an increase of 9%. For the nine months ended
September 30, 1996, net investment income totaled $145 compared to $125 in 1995,
an increase of 16%. The third quarter and nine months increase in net investment
income was primarily due to increased operating cash flow, a shift in asset
allocation to long-term bonds from short-term bonds, and the acquisition of ITT
Ercos.
For the third quarter ended September 30, 1996, before-tax yields decreased to
6.6% from 7.0% in 1995. For the nine months ended September 30, 1996 and 1995,
before-tax yields on average invested assets were 6.8% and 6.7%, respectively.
The decline in yields for the third quarter resulted from the investment of cash
from investment activities and insurance operations at lower rates of interest.
For the third quarter ended September 30, 1996, net realized capital gains
increased to $21 from $14 in 1995; and, for the nine months ended September 30,
1996, to $60 from $25 in 1995, primarily the result of an increase in both fixed
maturity and equity gains.
RUNOFF
Invested assets were $5.6 billion at September 30, 1996, and were mostly
comprised of fixed maturities. The Runoff segment uses derivatives related to
the Closed Book GRC. As of September 30, 1996 and December 31, 1995, Runoff had
derivatives with an aggregate notional amount of $7.8 billion and $5.6 billion,
respectively, for asset/liability management purposes. The Company entered into
various hedge transactions with a notional amount of $3.5 billion in late
September 1996 which substantially eliminated further fluctuation in fair value
of the investments due to interest rate changes. (For additional information,
see "Asset and Liability Management Strategies" under the Life section of
Investments.) The table below summarizes fixed maturity holdings by type.
FIXED MATURITIES BY TYPE
- ---------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- -------------- ----------- -------- ------------ --------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------- ----------- -------- ------------ --------
Corporate $2,361 42.8% $2,587 39.0%
CMO 1,261 22.8% 1,691 25.5%
Gov't/Gov't
agencies-US 365 6.6% 362 5.4%
ABS 660 11.9% 649 9.8%
Gov't/Gov't
agencies-For. 94 1.7% 145 2.2%
MBS - Agency 56 1.0% 218 3.3%
Commercial
MBS 145 2.6% 77 1.1%
Municipals-
taxable 84 1.5% 87 1.3%
Short-terms 503 9.1% 821 12.4%
- -------------- ----------- -------- ------------ --------
TOTAL FIXED
MATURITIES $5,529 100.0% $6,637 100.0%
- -------------- ----------- -------- ------------ --------
The Runoff segment maintains a greater than 99% investment grade fixed maturity
portfolio. The table below summarizes fixed maturity holdings by credit quality.
FIXED MATURITIES BY CREDIT QUALITY
- ---------------------------------------------------------
(Unaudited) SEPTEMBER 30, DECEMBER 31,
1996 1995
- ------------- ------------ -------- ----------- --------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------- ------------ -------- ----------- --------
AAA $2,026 36.6% $2,804 42.2%
AA 714 12.9% 691 10.4%
A 1,690 30.6% 1,525 23.0%
BBB 306 5.5% 357 5.4%
Gov't 270 4.9% 272 4.1%
BB & below 18 0.3% 12 0.2%
Not rated 2 -- 65 1.0%
Short-term 503 9.2% 911 13.7%
- ------------- ----------- -------- ------------ --------
TOTAL FIXED
MATURITIES $5,529 100.0% $6,637 100.0%
- ------------- ----------- -------- ------------ --------
- 16 -
<PAGE>
INVESTMENT RESULTS
The table below summarizes the Runoff segment's results.
THIRD QUARTER NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
- --------------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- --------------------------- ------- ------- ------- -------
Net Investment Income
Before-tax $69 $110 $248 $372
Yield on Average Invested
Assets Before-tax (1) 4.6% 5.8% 5.2% 5.9%
Net Realized Capital (Losses)
Before-tax $(210) -- $(211) --
- -----------------------------------------------------------
(1) Represents annualized net investment income
(excluding net realized capital gains (losses))
divided by average invested assets at cost (fixed
maturities at amortized cost).
- -----------------------------------------------------------
For the third quarter ended September 30, 1996, net investment income totaled
$69 compared to $110 in 1995, a decrease of 37%. For the nine months ended
September 30, 1996, net investment income totaled $248 compared to $372 in 1995,
a decrease of 33%. For the third quarter ended September 30, 1996, before-tax
yields decreased to 4.6% from 5.8% in 1995. For the nine months ended September
30, 1996, before-tax yields on average invested assets decreased to 5.2% from
5.9% in 1995. For the third quarter and nine months ended September 30, 1996,
net realized capital losses were $(210) and $(211), respectively.
Net investment income decreased primarily due to asset run off in the Closed
Book GRC. The decrease in yield was primarily the result of sales and maturities
of higher yielding securities in the Closed Book GRC. Net realized capital
losses resulted from losses taken in the Closed Book GRC. (For additional
information see the Runoff section.)
================================================================================
CAPITAL RESOURCES AND LIQUIDITY
================================================================================
Capital resources and liquidity represent the overall financial strength of
ITT Hartford and its ability to generate strong cash flows from each of the
business segments and borrow funds at competitive rates to meet operating and
growth needs. The capital structure of ITT Hartford consists of debt and equity,
summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------- ----------------
(Unaudited)
<S> <C> <C>
Short-term debt $ 500 $ 886
Long-term debt 1,023 1,022
- --------------------------------------------------------------------------------------------- ----------------- ----------------
SUB-TOTAL 1,523 1,908
Cumulative quarterly income preferred securities [1] 485 --
- --------------------------------------------------------------------------------------------- ----------------- ----------------
TOTAL DEBT [2] $2,008 $1,908
------------------------------------------------------------------------------------------ ----------------- ----------------
Equity excluding unrealized gain, net of tax $3,988 $4,457
Unrealized gain, net of tax 80 245
- --------------------------------------------------------------------------------------------- ----------------- ----------------
TOTAL STOCKHOLDERS' EQUITY $4,068 $4,702
------------------------------------------------------------------------------------------ ----------------- ----------------
TOTAL CAPITALIZATION EXCLUDING UNREALIZED GAIN, NET OF TAX $5,996 $6,365
------------------------------------------------------------------------------------------ ----------------- ----------------
Debt to equity excluding unrealized gain, net of tax [2] 50.4% 42.8%
Debt to capitalization excluding unrealized gain, net of tax [2] 33.5% 30.0%
- --------------------------------------------------------------------------------------------- ----------------- ----------------
<FN>
[1] Represents Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Parent Junior
Subordinated Debentures.
[2] Debt at September 30, 1996 includes cumulative quarterly income preferred
securities.
</FN>
</TABLE>
CAPITALIZATION
ITT Hartford's total capitalization, excluding unrealized gain, net of tax,
decreased by $369 as of September 30, 1996 compared to December 31, 1995. This
change primarily was the result of a $(304) net loss for the nine months ended
September 30, 1996 and additional net borrowings totaling $115 partially offset
by dividends declared of $142 on ITT Hartford common stock.
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES
On February 28, 1996, Hartford Capital I issued 20,000,000 Series A, 7.7%
Cumulative Quarterly Income Preferred Securities. The proceeds from the sale of
these securities were used to acquire $500 of Junior Subordinated Deferrable
Interest Debentures from ITT Hartford. ITT Hartford used the proceeds from the
sale of such debentures for the partial repayment of outstanding commercial
paper and short-term bank indebtedness. For additional information, see Note 2
of Notes to Consolidated Financial Statements.
On October 30, 1996, Hartford Capital II issued 20,000,000, 8.35% Series B
Preferred Securities. The material terms of the Series B Preferred Securities
are substantially the same as the Series A Preferred Securities described above,
except for the rate and maturity date. The proceeds from the sale of the Series
B Preferred Securities were used to acquire $500 of Junior Subordinated
Debentures, issued by ITT Hartford.
- 17 -
<PAGE>
DIVIDENDS
On July 18, 1996, ITT Hartford declared a dividend on its common stock of $0.40
per share payable on October 1, 1996 to all shareholders of record as of August
30, 1996. Also, on October 17, 1996, a dividend was declared on ITT Hartford
common stock of $0.40 per share payable on January 2, 1997 to all shareholders
of record on November 30, 1996.
FINANCIAL RATINGS
The following table summarizes ITT Hartford's significant U.S. member companies'
financial ratings from the major independent rating organizations as of
September 30, 1996:
A.M. Duff & Standard
Best Phelps & Poor's Moody's
--------- ---------- ----------- ------------
Hartford Fire A+ AA AA Aa2
Hartford Life A+ AA+ AA Aa2
Hartford Life &
Accident A+ AA+ AA Not Rated
ITT Hartford Life
& Annuity A+ AA+ AA Not Rated
- -------------------- --------- ---------- ----------- ------------
On September 24, 1996, Standard & Poor's announced that it had reduced the
claims-paying ability ratings of the ITT Hartford group of companies from AA+ to
AA. In announcing the rating change, Standard & Poor's stated that the action
was based primarily on increased concern with the overall strength of ITT
Hartford's consolidated capital, partially offset by a superior business
position within the markets that ITT Hartford operates. It noted that the rating
action assumed continued significant capital raising initiatives by ITT Hartford
over the next year and said that these initiatives, in combination with
continued improvement in operating earnings, excluding any unusual charges,
should allow the group to improve its overall capital position.
On October 18, 1996, Moody's Investors Service announced that it was reviewing
for possible downgrade various ratings of ITT Hartford and its subsidiaries,
including the financial strength ratings of ITT Hartford's insurance
subsidiaries, and the ratings assigned to the quarterly income preferred
securities of Hartford Capital I and the preferred stock of Hartford Capital II.
Moody's stated that the review was prompted by ITT Hartford's announcement that
it was taking the charges relating to its environmental and asbestos reserves
and Closed Book GRC referred to in Runoff section, and that its review would
focus on ITT Hartford's exposure to environmental and asbestos losses, its
appetite for financial leverage and its strategic complexion over the
intermediate term.
Financial ratings from A.M. Best and Duff & Phelps were reaffirmed for ITT
Hartford's significant U.S. member companies as of October 18, 1996.
ITT Hartford expects to undertake capital-raising transactions during the
remainder of 1996 and 1997. There can be no assurance, however, as to the timing
of or amount of capital raised by such transactions, which will depend on many
factors, including market conditions and ITT Hartford's need for and intended
use of proceeds from any such transaction. Any such transaction that is a public
offering of securities registered under the Securities Act of 1933 will be made
only by means of a prospectus.
CASH FLOW
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------------------
(Unaudited)
Cash provided by operating activities $ 550 $ 743
Cash used for investing activities $ (263) $ (2,389)
Cash provided by (used for) financing
activities $ (225) $ 1,672
Cash -- end of period $ 160 $ 82
- ------------------------------------------------------------------
The changes in cash from both investing and financing activities between years
were primarily due to investment-type contracts written in the Life segment
offset by increases in investment-type contract maturities resulting in $(235)
for the nine months ended September 30, 1996 compared with $1,586 in the prior
year's nine months. These funds, along with cash reserves, were invested in
securities. Operating cash flows have been more than adequate to meet the
liquidity requirements of ITT Hartford.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITT Hartford is a defendant in various lawsuits arising out of its
business. In the opinion of management, the ultimate liability with respect to
such lawsuits is not expected to be material to the consolidated financial
position, results of operations or cash flow of ITT Hartford.
ITT Hartford is involved in claim litigation arising in the ordinary course of
business and accounts for such activity through the establishment of policy
reserves. As further discussed in the MD&A under the Environmental and Asbestos
Claims section, ITT Hartford continues to receive environmental and asbestos
claims which involve significant uncertainty regarding policy coverage issues.
Regarding these claims, ITT Hartford continually reviews its overall reserve
levels, reserving methodologies and reinsurance coverages.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibits Index.
(b) Reports on Form 8-K - None.
- 19 -
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
ITT Hartford Group, Inc.
(Registrant)
/s/ James J. Westervelt
---------------------------------------------
James J. Westervelt
Senior Vice President and Group Controller
(Chief Accounting Officer)
OCTOBER 31, 1996
- 20 -
<PAGE>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
EXHBITS INDEX
EXHIBIT #
11.01 Computation of Earnings Per Share is filed herewith.
12.01 Computation of Ratios of Earnings to Combined Fixed Charges
and Earnings to Combined Fixed Charges and Preferred Stock
Dividends is filed herewith.
27 Financial Data Schedule is filed herewith.
- 21 -
<PAGE>
EXHIBIT 11.01
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share data)
Third Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- --------------------------------------------------------------- ------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ (543) $ 173 $ (304) $ 418
Weighted average common shares outstanding (1) 117.2 117.1 117.2 117.1
Earnings (loss) per share $ (4.63) $ 1.48 $ (2.59) $ 3.57
- --------------------------------------------------------------- ------------- ------------- ------------- -------------
<FN>
(1) 1995 average common shares outstanding of 117.1 reflects a retroactive presentation of the actual number of
shares outstanding at December 31, 1995.
</FN>
</TABLE>
- 22 -
<PAGE>
EXHIBIT 12.01
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
($ in millions) Nine Months Ended
September 30,
1996 1995
- ---------------------------------------------------------------------- ---------------- ---------------
(Unaudited)
EARNINGS
<S> <C> <C>
OPERATING INCOME $(572) $546
ADD:
FIXED CHARGES
Interest expense 110 70
Interest factor attributable to rentals (1) 26 36
- ---------------------------------------------------------------------- ---------------- ---------------
TOTAL FIXED CHARGES 136 106
----------------------------------------------------------------- ---------------- ---------------
EARNINGS, AS DEFINED $(436) $652
- ---------------------------------------------------------------------- ---------------- ---------------
FIXED CHARGES
Fixed charges above $136 $106
Dividends on subsidiary preferred stock -- 3
- ---------------------------------------------------------------------- ---------------- ---------------
TOTAL FIXED CHARGES AND PREFERRED DIVIDEND REQUIREMENTS $136 $109
- ---------------------------------------------------------------------- ---------------- ---------------
RATIOS
Earnings, as defined, to combined fixed charges (3.2) 6.2
- ---------------------------------------------------------------------- ---------------- ---------------
Earnings, as defined, to combined fixed charges and preferred
stock dividend requirements (3.2) 6.0
- ---------------------------------------------------------------------- ---------------- ---------------
<FN>
(1) The interest factor attributable to rentals was computed by calculating
the estimated present value of all long-term rental commitments and applying the
approximate weighted average interest rate inherent in the lease obligations and
adding thereto the interest element assumed in short-term cancelable and
contingent rentals excluded from the commitment data but included in rental
expense.
</FN>
</TABLE>
- 23 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 30,179
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,719
<MORTGAGE> 45
<REAL-ESTATE> 67
<TOTAL-INVEST> 36,306
<CASH> 160
<RECOVER-REINSURE> 11,665
<DEFERRED-ACQUISITION> 3,370
<TOTAL-ASSETS> 104,021
<POLICY-LOSSES> 22,614
<UNEARNED-PREMIUMS> 2,857
<POLICY-OTHER> 22,513
<POLICY-HOLDER-FUNDS> 46,233
<NOTES-PAYABLE> 1,523
485 <F1>
0
<COMMON> 1
<OTHER-SE> 4,067
<TOTAL-LIABILITY-AND-EQUITY> 104,021
7,447
<INVESTMENT-INCOME> 1,835
<INVESTMENT-GAINS> (142)
<OTHER-INCOME> 0
<BENEFITS> 6,961
<UNDERWRITING-AMORTIZATION> 1,267
<UNDERWRITING-OTHER> 1,376
<INCOME-PRETAX> (572)
<INCOME-TAX> (268)
<INCOME-CONTINUING> (304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (304)
<EPS-PRIMARY> (2.59)
<EPS-DILUTED> (2.59)
<RESERVE-OPEN> 12,597
<PROVISION-CURRENT> 3,924
<PROVISION-PRIOR> 921
<PAYMENTS-CURRENT> 1,719
<PAYMENTS-PRIOR> 1,894
<RESERVE-CLOSE> 13,829
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>REPRESENTS COMPANY OBLIGATED MANDITORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES.
</FN>
<PAGE>
</TABLE>
