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 June 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 July 31, 1996, there were outstanding 117,286,616 shares of Common
Stock, $.01 par value per share, of the registrant.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Statements of Income - Second Quarter and Six Months
Ended June 30, 1996 and 1995 3
Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows - Six Months Ended June 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 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Second Quarter Ended Six Months Ended
June 30, June 30,
(In millions, except for per share data) 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Earned premiums $2,403 $2,264 $5,059 $4,688
Net investment income 601 622 1,204 1,183
Net realized capital gains 22 28 41 48
------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 3,026 2,914 6,304 5,919
--------------------------------------------------------------------------------------------------------------------
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 2,042 2,017 4,083 3,850
Amortization of deferred policy acquisition costs 450 399 861 813
Other expenses 355 372 1,067 933
------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS, CLAIMS AND EXPENSES 2,847 2,788 6,011 5,596
-------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 179 126 293 323
Income tax expense 36 20 54 76
Dividends on subsidiary preferred stock -- (1) -- (2)
------------------------------------------------------------------------------------------------------------------------
NET INCOME $143 $105 $239 $245
-------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $1.22 $0.90 $2.04 $2.09
CASH DIVIDENDS DECLARED PER SHARE $0.40 -- $0.80 --
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.
<PAGE>
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
(In millions, except for shares data) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for sale, at fair value (amortized cost of
$30,820 and $30,892) $30,302 $31,168
Equity securities, at fair value (cost $1,308 and $1,192) 1,528 1,342
Policy loans, at cost 3,753 3,380
Other investments, at cost 538 785
- ----------------------------------------------------------------------------------------------------------------------------
Total investments 36,121 36,675
Cash 156 95
Premiums receivable and agents' balances 1,950 1,890
Reinsurance recoverables 11,694 11,801
Deferred policy acquisition costs 3,247 2,945
Deferred income tax 1,466 1,150
Other assets 2,364 2,451
Separate account assets 43,216 36,848
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $100,214 $93,855
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES
Future policy benefits, unpaid claims and claim adjustment expenses
Property and casualty $17,507 $17,536
Life 4,089 3,894
Other policy claims and benefits payable 22,702 22,770
Unearned premiums 2,846 2,766
Short-term debt 500 886
Long-term debt 1,021 1,022
Company obligated manditorily redeemable preferred securities of subsidiary trust
holding solely parent junior subordinated debentures 485 --
Other liabilities 3,462 3,431
Separate account liabilities 43,216 36,848
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 95,828 89,153
-----------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000, issued 118,916,662 and 118,762,331, outstanding
117,278,662 and 117,124,331 shares, par value $.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 16 48
Unrealized gain (loss) on securities, net of tax (189) 245
Retained earnings 2,946 2,802
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 4,386 4,702
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $100,214 $93,855
-----------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THE ABOVE STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
(In millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $239 $245
ADJUSTMENTS TO NET INCOME
Depreciation and amortization 39 38
Gain on sale of securities (41) (48)
Change in receivables, payables and accruals (217) (167)
Accrued and deferred taxes (163) (177)
Increase in liabilities for future policy benefits, unpaid claims and claim
adjustment expenses and unearned premiums 216 462
Increase in deferred policy acquisition costs (311) (245)
Decrease in reinsurance recoverables and other related assets 310 253
Other, net 283 32
- -----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 355 393
-----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of investments (9,173) (6,372)
Sale and maturity of investments 8,977 4,957
Additions to plant, property and equipment (28) (38)
- -----------------------------------------------------------------------------------------------------------------------------
CASH USED FOR INVESTING ACTIVITIES (224) (1,453)
-----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Short-term debt, net (386) 12
Net proceeds from issuance of company obligated manditorily redeemable preferred
securities of subsidiary trust holding solely parent junior subordinated debentures
484 --
Dividends paid (47) --
Investments and advances from affiliated parties -- 145
Net receipts from (disbursements for) investment and universal life-type contracts
credited to (charged from) policyholder accounts (128) 971
Other, net 5 (1)
- -----------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (72) 1,127
- -----------------------------------------------------------------------------------------------------------------------------
---------------- -----------------
Exchange rate effect on cash 2 (10)
- -----------------------------------------------------------------------------------------------------------------------------
Increase in cash 61 57
Cash - beginning of period 95 55
- -----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
CASH - END OF PERIOD $156 $112
-----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
NET CASH PAID DURING THE PERIOD FOR:
Income taxes $163 $150
Interest $70 $48
NONCASH FINANCING ACTIVITIES:
Capital contribution -- $180
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THE ABOVE STATEMENTS.
<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") 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) 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. 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 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 3. 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
Information regarding environmental and asbestos claims may be found in the
Environmental and Asbestos Claims section of the Management's Discussions and
Analysis of Financial Condition and Results of Operations ("MD&A").
<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)
MD&A addresses the financial condition of ITT Hartford as of June 30, 1996,
compared with December 31, 1995, and its results of operations for the second
quarter and six months ended June 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 report on
Form 10-Q for the first quarter of 1996. Interim results are not necessarily
indicative of the results which may be expected for any other interim period or
for the full year.
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 second quarter and six months ended June 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 7
North American Property & Casualty 8
Life 9
International 9
Runoff 10
Environmental and Asbestos Claims 10
Investments 11
Capital Resources and Liquidity 14
- --------------------------------------------------------------------------------
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $3,026 $2,914 $6,304 $5,919
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
NET INCOME $ 143 $ 105 $ 239 $ 245
Less: Net realized capital gains, after-tax 16 18 28 31
Allocated Distribution items -- 13 -- 13
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS $ 127 $ 74 $ 211 $ 201
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS PER SHARE [1] $ 1.08 $ 0.63 $ 1.80 $ 1.72
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
<FN>
[1] Second quarter and six months ended June 30, 1995 per share data reflect a
retroactive presentation of the actual number of shares outstanding at
December 31, 1995 of 117.1 million.
</FN>
</TABLE>
Revenues for the second quarter and six months ended June 30, 1996 increased
$112 or 4% from the second quarter of 1995, and $385 or 7% from the six months
ended June 30, 1995, primarily the result of growth in the Life segment. Net
income, excluding the impact of net realized capital gains, after-tax, and
allocated Distribution items, was $127 and $211 for the second quarter and six
months of 1996, respectively, compared with $74 and $201 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 and allocated Distribution
items.
The increase in core earnings of $53, or $.45 per share, for the second quarter
of 1996 over the second quarter of the prior year, was partially due to
increased property & casualty net investment income and growth in earnings on
Life annuities. Additionally, a $26, or $.22 per share, after-tax loss relating
to the settlement of claims against Dow Corning Corporation occurred in the
second quarter of 1995. The increase in core earnings of $10 or 5% for the six
months ended June 30, 1996 compared to the same period in 1995 was adversely
affected by the unusually high catastrophe and severe winter storm losses
totaling $107 after-tax in 1996, compared to $53 after-tax in 1995. Excluding
the impact of these losses, core earnings for the six months of 1996 increased
$64, or 25%, to $318 over the comparable period in 1995.
The effective tax rates for the second quarter and six months ended June 30,
1996 were 20% and 18%, respectively, compared to 16% and 24% for the comparable
periods in 1995. Tax-exempt interest earned on invested assets were the
principal cause of an effective tax rate lower than the 35% U.S. statutory rate.
The increase in the tax rate for the second quarter of 1996 over 1995 was due to
improved operating results in the North American Property & Casualty segment.
The decrease for the six month period was largely due to tax benefits generated
at the 34% Federal tax rate resulting from increased underwriting losses for the
six months ended June 30, 1996 compared to the same period in 1995.
<PAGE>
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 June 30, 1996 presentation.
Below is a summary of core earnings by segment.
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
North American Property & Casualty $ 65 $18 $ 91 $ 95
Life 59 51 113 97
International 17 15 35 30
Runoff (14) (10) (28) (21)
- -----------------------------------------------------------------------------------------------------------------------------------
CORE EARNINGS $127 $74 $211 $201
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The sections that follow analyze each segments' 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 SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $1,609 $1,591 $3,162 $3,157
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
NET INCOME $ 68 $ 30 $ 94 $ 117
Less: Net realized capital gains, after-tax 3 12 3 22
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS $ 65 $ 18 $ 91 $ 95
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS PER SHARE $0.55 $ 0.15 $ 0.78 $ 0.81
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
</TABLE>
Core earnings for the North American Property & Casualty segment were $65 for
the second quarter ended June 30, 1996, an increase of $47, or $.40 per share,
from the comparable period in 1995. This increase was largely due to the Dow
Corning Corporation $26 after-tax, non-recurring charge that occurred in last
year's second quarter. Absent this charge, core earnings for the second quarter
1996 rose 48%, primarily due to an increase of 17% in after-tax, net investment
income and a 17% improvement in catastrophe experience. The decrease in core
earnings for the first six months of 1996 compared to 1995 of $4, or $.03 per
share, reflects adverse first quarter weather-related underwriting results,
partially offset by higher investment income. (For an analysis of investment
income and net realized capital gains, see the Investments 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.
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Written premiums $1,435 $1,392 $2,892 $2,822
Underwriting results, before-tax $ (80) $ (133) $ (220) $ (165)
Combined ratio [1] 104.6 109.7 106.8 105.6
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
<FN>
[1] "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 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 second
quarter and six months ended June 30, 1996 increased $43 or 3%, and $70 or 2%,
respectively, over the equivalent prior year periods. Premiums increased in the
Reinsurance and Personal lines but were offset by lower Commercial line results.
Growth in the Reinsurance line was primarily due to an increased level of
renewals and new product development in specialty 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"), is reflected in the
premium volume increase in the Personal line, while intensely competitive market
conditions have adversely affected Commercial product sales.
<PAGE>
Underwriting results, before-tax, for the second quarter ended June 30, 1996 for
the North American Property & Casualty segment were $53 above the prior year's
second quarter, resulting in a 5.1 point decrease in the combined ratio. The
underwriting results for the second quarter of 1995 includes a $40 before-tax
charge relating to the settlement of claims against Dow Corning Corporation
alleging product defects arising from breast implants. Excluding the impact of
this loss, second quarter combined ratio improved by 2.3 points due to better
claim management and lower operating costs. For the six months ended June 30,
1996, underwriting results, before-tax, were $55 below the prior year's second
quarter, resulting in a 1.2 point increase in the combined ratio. The results
for the six months of 1996 reflect $165 before-tax of catastrophe and severe
winter storm losses, an $83 increase over equivalent losses for the six months
ended June 30, 1995. Excluding these losses, underwriting results were $28 or
1.7 point favorable to prior year, reflecting the improved underwriting
performance previously discussed.
LIFE
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 932 $ 804 $2,173 $1,768
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
NET INCOME $ 58 $ 52 $ 112 $ 100
Less: Net realized capital gains, after-tax (1) 1 (1) 3
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS $ 59 $ 51 $ 113 $ 97
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS PER SHARE $0.50 $0.44 $ 0.96 $ 0.83
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
</TABLE>
Life segment revenues for the second quarter and six months ended June 30, 1996
increased $128 or 16%, and $405 or 23%, over the comparable 1995 periods. This
growth was largely due to revenue from increased cost of insurance charges on
existing corporate owned life insurance ("COLI") contracts and fees generated
from a growing block of individual annuity and life business. Furthermore, the
Life segment sold $5 billion of individual annuity contracts during the first
half of 1996.
Core earnings for the Life segment increased $8 or 16% for the second quarter
and $16 or 16% for the first six months of 1996 over the comparable prior year
periods. Strong sales and asset growth in the Individual Annuity division along
with earnings increases in excess of 10% in the Individual Life and Employee
Benefits divisions accounted for the growth.
In August of 1996 Congress passed COLI legislation which provides for a three
year phase out of the interest deduction on loans taken against COLI policies.
It is anticipated that the President will sign this bill. Although there were no
new deposits of leveraged COLI in the first half of 1996, new products,
including variable COLI and other non-qualified deferred compensation vehicles,
are being developed.
INTERNATIONAL
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $399 $385 $789 $730
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
NET INCOME $ 31 $ 21 $ 61 $ 37
Less: Net realized capital gains, after-tax 14 6 26 7
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS $ 17 $ 15 $ 35 $ 30
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS PER SHARE $0.15 $0.13 $0.30 $0.26
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
</TABLE>
International segment revenues for the second quarter and six months ended
June 30, 1996 increased $14 or 4%, and $59 or 8%, respectively, over the
comparable periods in 1995. The increase in the second quarter was due primarily
to improved investment performance. Also, for the first six months of 1996, net
written premiums at Zwolsche Algemeene of $204 increased $22 or 12% over the
same period in 1995, reflecting increased sales of health, motor and life
insurance. The transition from a national health system to private insurance
partly contributed to the growth in health premiums. Motor growth increased due
to both pricing and production, while the growth in the life business was due to
higher unit-linked (main class and mortgage) sales. Additionally, with the
acquisition of ITT Ercos in May 1995, revenues for the second quarter and six
months of 1996 included $20 and $39, respectively, related to this new
subsidiary.
Core earnings in the International segment increased $2 or 13% for the second
quarter and $5 or 17% for the six months ended June 30, 1996 over the same
periods in 1995. An increase in core earnings at ITT London & Edinburgh of $1 or
11% for the second quarter and $4 or 24% for the six months of 1996 over the
prior year periods was due primarily to improved investment income.
<PAGE>
RUNOFF
<TABLE>
<CAPTION>
OPERATING SUMMARY SECOND QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 86 $134 $180 $264
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
NET LOSS $(14) $(11) $(28) $(22)
Less: Net realized capital loss, after-tax -- (1) -- (1)
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
CORE EARNINGS $(14) $(10) $(28) $(21)
- --------------------------------------------------------------------------- ------------- ------------- ------------- -------------
</TABLE>
Runoff segment revenues for the second quarter and six months ended June 30,
1996 decreased $48 or 36%, and $84 or 32%, over the comparable 1995 periods.
This decrease was due primarily to the closed book of guaranteed rate contract
business ("Closed Book GRC"). Closed Book GRC includes Life products with fixed
or indexed rates that are guaranteed for a specific period. Revenues for Closed
Book GRC decreased $37 or 40% for the second quarter and $76 or 39% for the
first six months of 1996 over the comparable prior year periods, the result of
lower investment earnings on mortgage-backed securities reflecting prepayments
experienced in excess of assumed levels. This book of business has also been
affected by the interest rate rise in 1994 when the duration of assets
lengthened relative to that of the liabilities. The Company is considering
portfolio management strategies which may accelerate the recognition of the
Closed Book GRC loss. This loss was disclosed in the Company's 1995 Form 10-K
Annual Report.
- --------------------------------------------------------------------------------
Runoff segment core earnings decreased $4 or 40% for the second quarter and $7
or 33% for the six months of 1996 over the comparable prior year periods. These
results reflect the net losses of Closed Book GRC of $(15) and $(13) for the
second quarters and $(30) and $(26) for the six months ended June 30, 1996 and
1995, respectively, which were driven by the same factors affecting revenues.
ENVIRONMENTAL AND ASBESTOS CLAIMS
ITT Hartford continues to receive claims asserting damages from environmental
and related clean-up costs, and injuries from asbestos and asbestos-related
products 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, deviations from past experience
significantly impact 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.
Future social, economic, legal or legislative developments may continue to
expand the original intent of policies and the scope of coverage. These
developments may occur such that the need for additional reserves may arise,
adversely affecting future operating results. Due to the uncertainties described
above, we have been unable to meaningfully quantify a range of such reserve
increases.
Within the property and casualty insurance industry, recent progress has been
made in developing sophisticated, alternative methodologies utilizing
supplemental databases to assess environmental and asbestos-related liabilities.
ITT Hartford, utilizing both outside consultants and internal staff, has
initiated the development of its own database for potential use in supplementing
its current analysis of these exposures.
In light of the extensive claim settlement process with 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.
Reserve activity for both reported and unreported pollution and asbestos claims,
including reserves for legal defense costs, were as follows:
<TABLE>
<CAPTION>
POLLUTION AND ASBESTOS CLAIMS
LOSS AND LOSS ADJUSTMENT EXPENSES
JUNE 30, DEC. 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Beginning liability $1,336 $ 1,334
Loss and loss expenses incurred 105 163
Loss and loss expenses paid (83) (161)
- ------------------------------------- ----------- -----------
Ending liability [1] $1,358 $ 1,336
- ------------------------------------- ----------- -----------
<FN>
[1] The June 30, 1996 and December 31, 1995 ending reserves include $927 and
$926 for pollution, respectively, and $431 and $410, respectively, for asbestos.
Gross of reinsurance, the ending June 30, 1996 and December 31, 1995 reserves
for pollution and asbestos were $1,721 and $1,619 and $1,707 and $1,568,
respectively.
</FN>
</TABLE>
<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 $11.8 billion at June 30, 1996, and were comprised of fixed
maturities of $10.5 billion and other investments of $1.3 billion, primarily
equity securities. The table below summarizes fixed maturity holdings by type.
FIXED MATURITIES BY TYPE
- ---------------------------------------------------------
(Unaudited) JUNE 30, DECEMBER 31,
1996 1995
- -------------- --------------------- --------------------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------- ----------- -------- ------------ --------
Corporate $1,815 17.2% $2,427 22.8%
CMO 806 7.7% 1,462 13.7%
Municipals-
tax exempt 6,543 62.2% 5,171 48.5%
Gov't/Gov't
agencies-US 65 0.6% 249 2.3%
ABS 121 1.2% 239 2.2%
Gov't/Gov't
220 2.1% 255 2.4%
agencies-For.
MBS - Agency 218 2.1% 244 2.3%
Commercial
MBS 24 0.2% 14 0.1%
Municipals-
taxable 69 0.6% 75 0.7%
Redeemable
Pref'd 29 0.3% -- --
stock
Short-terms 607 5.8% 531 5.0%
- -------------- ----------- -------- ------------ --------
TOTAL FIXED
MATURITIES $10,517 100.0% $10,667 100.0%
- -------------- ----------- -------- ------------ --------
This segment maintains a high quality fixed maturity portfolio. At June 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) JUNE 30, DECEMBER 31,
1996 1995
- ------------- --------------------- --------------------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------- ----------- --------- ----------- --------
AAA $4,558 43.2% $4,570 42.8%
AA 2,356 22.4% 2,137 20.0%
A 1,607 15.3% 1,862 17.5%
BBB 536 5.1% 649 6.1%
Gov't 220 2.1% 252 2.4%
BB & below 469 4.5% 459 4.3%
Not rated 164 1.6% 207 1.9%
Short-term 607 5.8% 531 5.0%
- ------------- ----------- --------- ----------- --------
TOTAL FIXED
MATURITIES $10,517 100.0% $10,667 100.0%
- ------------- ----------- --------- ----------- --------
The North American Property & Casualty segment uses a minimal amount of
derivatives in managing its investments and, as of June 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.
SECOND SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
- -------------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- -------------------------- ------- ------- ------- -------
Net Investment Income $166 $155 $327 $313
Yield on Average
Invested 5.7% 5.6% 5.6% 5.7%
Assets Before-tax (1)
Yield on Average
Invested 4.6% 4.1% 4.5% 4.2%
Assets After-tax (2)
Net Realized Capital $4 $17 $4 $33
Gains
- ----------------------------------------------------------
(1) Represents annualized net investment income
(excluding net realized capital gains) divided by
average invested assets at cost (fixed maturities at
amortized cost).
(2) Due to the significant holdings in tax-exempt
investments an after-tax yield is also included.
- ----------------------------------------------------------
For the second quarter ended June 30, 1996, net investment income was $166
compared to $155 in 1995, an increase of 7%. For the six months ended June 30,
1996, net investment income was $327 compared to $313 in 1995, an increase of
4%. For the six months ended June 30, 1996, before-tax yields on average
invested assets decreased to 5.6% from 5.7% in 1995, while the after-tax yields
increased to 4.5%. The increases in net investment income and after-tax yields
were primarily due to the transition from lower yielding real estate and
corporate bonds to tax-exempt municipal bonds.
NET REALIZED CAPITAL GAINS
There were net realized capital gains of $4 for the second quarter ended June
30, 1996 down from $17 in 1995; and, for the six months ended June 30, 1996,
there were net realized capital gains of $4 down from $33 in 1995. The reduction
was 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.
LIFE
Invested assets, excluding separate accounts, totaled $15.4 billion at June 30,
1996 and were comprised of $11.4 billion of fixed maturities, $3.8 billion of
policy loans, and other investments of $238. The table below summarizes fixed
maturity holdings by type.
<PAGE>
FIXED MATURITIES BY TYPE
---------------------------------------------------------
JUNE 30, DECEMBER 31,
(Unaudited) 1996 1995
- ------------ --------------------- --------------------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- ------------ ------------ -------- ----------- --------
Corporate $5,627 49.4% $5,146 45.0%
CMO 1,748 15.4% 2,071 18.1%
Gov't/Gov't
160 1.4% 260 2.3%
agencies-US
ABS 1,840 16.2% 1,782 15.6%
Gov't/Gov't
262 2.3% 223 1.9%
agencies-For.
MBS - 749 6.6% 673 5.9%
Agency
Commercial
MBS 622 5.5% 348 3.0%
Municipals-
taxable 123 1.1% 130 1.1%
Short-terms 242 2.1% 817 7.1%
- ------------ ------------ -------- ----------- --------
TOTAL
FIXED $11,373 100.0% $11,450 100.0%
MATURITIES
- ------------ ------------ -------- ----------- --------
The Life segment continued to maintain a high quality fixed maturity portfolio.
As of June 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) JUNE 30, DECEMBER 31,
1996 1995
- ------------- -------------------- ---------------------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------ ----------- --------- ----------- --------
AAA $2,978 26.2% $3,688 32.2%
AA 1,650 14.5% 1,502 13.1%
A 3,987 35.0% 3,651 31.9%
BBB 1,716 15.1% 1,276 11.1%
Gov't 452 4.0% 523 4.6%
BB & below 21 0.2% 29 0.3%
Not rated -- -- 54 0.5%
Short-term 569 5.0% 727 6.3%
- ------------ ----------- --------- ----------- --------
TOTAL
FIXED $11,373 100.0% $11,450 100.0%
MATURITIES
- ------------ ----------- --------- ----------- --------
The average duration of the June 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.
SECOND SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
- ---------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- ---------------------- ------- ------- ------- -------
Net Investment Income $300 $292 $601 $527
Yield on Average
Invested 7.6% 8.2% 7.9% 7.9%
Assets
Before-tax (1)
Net Realized Capital
Gains(Losses) $(1) $1 $(1) $4
- ------------------------------------------------------
(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 second quarter ended June 30, 1996, net investment income totaled $300
compared to $292 in 1995, an increase of 3%. For the six months ended June 30,
1996, net investment income was $601 compared to $527 in 1995, an increase of
14%. The 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.
NET REALIZED CAPITAL GAINS/LOSSES
Net realized capital losses were $(1) for the second quarter ended
June 30, 1996 down from net realized capital gains of $1 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. Derivatives 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 June 30, 1996 and December 31, 1995, the Life segment had derivatives with an
aggregate notional amount of $4 billion for asset/liability management purposes.
INTERNATIONAL
Invested assets, excluding separate accounts, were $2.9 billion at June 30, 1996
and were comprised of fixed maturities of $2.4 billion and other investments of
$478. 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.
<PAGE>
FIXED MATURITIES BY TYPE
---------------------------------------------------------
(Unaudited) JUNE 30, DECEMBER 31,
1996 1995
- -------------- ----------- --------- ----------- --------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------- ----------- --------- ----------- --------
Corporate $347 14.3% $261 10.8%
Gov't/Gov't
agencies-US 104 4.3% 57 2.4%
Gov't/Gov't
1,363 56.1% 1,203 49.8%
agencies-For.
Short-terms 613 25.3% 893 37.0%
- -------------- ----------- --------- ----------- --------
TOTAL FIXED
MATURITIES $2,427 100.0% $2,414 100.0%
- -------------- ----------- --------- ----------- --------
As of June 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) JUNE 30, DECEMBER 31,
1996 1995
- ------------- ------------ -------- ----------- --------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------- ------------ -------- ----------- --------
AAA $1,693 69.7% $1,428 59.2%
AA 117 4.8% 89 3.8%
A 4 0.2% 4 --
Short-dated 613 25.3% 893 37.0%
- ------------- ------------ -------- ----------- --------
TOTAL FIXED
MATURITIES $2,427 100.0% $2,414 100.0%
- ------------- ------------ -------- ----------- --------
INVESTMENT RESULTS
The table below summarizes the International segment's results.
SECOND SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
- ---------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- ---------------------- ------- ------- ------- -------
Net Investment Income $49 $43 $97 $81
Yield on Average
Invested 7.0% 6.6% 7.0% 6.4%
Assets
Before-tax (1)
Net Realized Capital $20 $9 $39 $11
Gains
- ------------------------------------------------------
(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 second quarter ended June 30, 1996, net investment income totaled $49
compared to $43 in 1995, an increase of 14%. For the six months ended June 30,
1996, net investment income totaled $97 compared to $81 in 1995, an increase of
20% while yields on average invested assets increased to 7.0% from 6.4%. The
increase in net investment income was primarily due to increased operating cash
flow which was invested in international bonds, a shift in asset allocation to
long-term bonds from short-term bonds, and the acquisition of ITT Ercos.
NET REALIZED CAPITAL GAINS
For the second quarter ended June 30, 1996, net realized capital gains increased
to $20 from $9 in 1995 and for the six months ended June 30, 1996, to $39 from
$11 in 1995, primarily the result of an increase in both fixed maturity and
equity gains.
RUNOFF
Invested assets were $6.1 billion at June 30, 1996, and were comprised of fixed
maturities of $6.0 billion and other investments of $81. The runoff segment uses
derivatives related to the Closed Book GRC. As of June 30, 1996 and December 31,
1995, Runoff had derivatives with an aggregate notional amount of $5.3 billion
and $5.6 billion, respectively, for asset/liability management purposes. (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) JUNE 30, DECEMBER 31,
1996 1995
- -------------- ----------- -------- ------------ --------
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
- -------------- ----------- -------- ------------ --------
Corporate $2,600 43.4% $2,587 39.0%
CMO 1,504 25.1% 1,691 25.5%
Gov't/Gov't
agencies-US 316 5.3% 362 5.4%
ABS 578 9.7% 649 9.8%
Gov't/Gov't
151 2.5% 145 2.2%
agencies-For.
MBS - Agency 169 2.8% 218 3.3%
Commercial
MBS 64 1.1% 77 1.1%
Municipals-
taxable 81 1.4% 87 1.3%
Short-terms 522 8.7% 821 12.4%
- -------------- ----------- -------- ------------ --------
TOTAL FIXED
MATURITIES $5,985 100.0% $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) JUNE 30, DECEMBER 31,
1996 1995
- ------------- ------------ -------- ----------- --------
CREDIT FAIR VALUE PERCENT FAIR VALUE PERCENT
QUALITY
- ------------- ------------ -------- ----------- --------
AAA $3,076 51.4% $2,804 42.2%
AA 580 9.7% 691 10.4%
A 1,537 25.7% 1,525 23.0%
BBB 242 4.0% 357 5.4%
Gov't 266 4.4% 272 4.1%
BB & below 12 0.2% 12 0.2%
Not rated 59 1.0% 65 1.0%
Short-term 213 3.6% 911 13.7%
- ------------- ----------- -------- ------------ --------
TOTAL FIXED
MATURITIES $5,985 100.0% $6,637 100.0%
- ------------- ----------- -------- ------------ --------
INVESTMENT RESULTS
The table below summarizes the Runoff segment's results.
SECOND SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
- ---------------------- --------------- ---------------
(Unaudited) 1996 1995 1996 1995
- ---------------------- ------- ------- ------- -------
Net Investment Income $86 $132 $179 $262
Yield on Average
Invested 4.3% 6.1% 4.8% 6.0%
Assets
Before-tax (1)
Net Realized Capital
Gains (Losses) $(1) $1 $(1) --
- ------------------------------------------------------
(1) Represents annualized net investment income
(excluding net realized capital gains (losses))
divided by average invested assets at cost (fixed
maturities at amortized cost).
- ------------------------------------------------------
<PAGE>
For the second quarter ended June 30, 1996, net investment income totaled $86
compared to $132 in 1995, a decrease of 35%. For the six months ended June 30,
1996, net investment income totaled $179 compared to $262 in 1995, a decrease of
32% while yields on average invested assets decreased to 4.8% from 6.0%. Net
investment income decreased primarily due to asset runoff in the Closed Book
GRC. The decrease in yield was primarily the result of sales and maturities of
higher yielding securities in Closed Book GRC. (For additional information, see
"Asset Management Services" in the Life section of the MD&A in the 1995 Form
10-K Annual Report.)
NET REALIZED CAPITAL GAINS/LOSSES
Net realized capital gains/losses for the six months ended June 30, 1996
were $(1) from no gain/loss in 1995, primarily due to losses taken in
First State.
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>
JUNE 30, DECEMBER 31,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C> <C>
Short-term debt $ 500 $ 886
Long-term debt 1,021 1,022
- --------------------------------------------------------------------------------------------- ----------------- -----------------
SUB-TOTAL 1,521 1,908
Cumulative quarterly income preferred securities [1] 485 --
- --------------------------------------------------------------------------------------------- ----------------- -----------------
TOTAL DEBT [2] $2,006 $1,908
- ------------------------------------------------------------------------------------------ ----------------- -----------------
Equity excluding unrealized gain (loss), net of tax $4,575 $4,457
Unrealized gain (loss), net of tax (189) 245
- --------------------------------------------------------------------------------------------- ----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY $4,386 $4,702
------------------------------------------------------------------------------------------ ----------------- -----------------
TOTAL CAPITALIZATION EXCLUDING UNREALIZED GAIN (LOSS), NET OF TAX $6,581 $6,365
------------------------------------------------------------------------------------------ ----------------- -----------------
Debt to equity excluding unrealized gain (loss), net of tax [2] 43.8% 42.8%
Debt to capitalization excluding unrealized gain (loss), net of tax [2] 30.5% 30.0%
- --------------------------------------------------------------------------------------------- ----------------- -----------------
<FN>
[1] Represents Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Parent Junior
Subordinated Debentures.
[2] Debt at June 30, 1996 includes cumulative quarterly income preferred
securities.
</FN>
</TABLE>
CAPITALIZATION
ITT Hartford's total capitalization, excluding unrealized gain (loss), net of
tax, increased by $216 as of June 30, 1996 over December 31, 1995. This change
primarily was the result of earnings of $239 and additional net borrowings
totaling $96, partially offset by dividends declared of $94 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, a trust formed by ITT Hartford, 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.
DIVIDENDS
On May 16, 1996, ITT Hartford declared a dividend on its common stock of $.40
per share payable on July 1, 1996 to all shareholders of record as of May 31,
1996. Also, on July 18, 1996 a dividend was declared on ITT Hartford common
stock of $0.40 per share payable on October 1, 1996 to all shareholders of
record on August 30, 1996.
CASH FLOW
SIX MONTHS ENDED
JUNE 30,
1996 1995
------------------------
(Unaudited)
Cash provided by operating activities $ 355 $ 393
Cash used for investing activities $ (224) $ (1,453)
Cash provided by (used for) financing
activities $ (72) $ 1,127
Cash -- end of period $ 156 $ 112
- ------------------------------------------------------------------
The changes in cash from both investing and financing activities between years
were due to investment-type contracts written in the Life segment offset by
increases in investment-type contract maturities resulting in $(128) for the six
months ended June 30, 1996 compared with $971 in the prior year's six months.
These funds, along with cash reserves, were invested in securities held by ITT
Hartford. Operating cash flows have been more than adequate to meet the
liquidity requirements of ITT Hartford.
<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, final outcome of these matters will not materially
affect the consolidated financial position 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 16, 1996, ITT Hartford held its annual meeting of shareholders. The only
matters considered and voted upon were the election of directors for a one year
term and the ratification of Arthur Andersen LLP as independent auditors of ITT
Hartford for the fiscal year ending December 31, 1996 Each of the nominees for
the election as a director was elected to the Board of Directors. The following
is the vote tabulation for each nominee:
<TABLE>
<CAPTION>
Name of Director Nominee Shares Voted For Shares Withheld*
- ----------------------------------- ------------------------------ -----------------------------------
<S> <C> <C>
Bette B. Anderson 101,807,037 470,461
Rand V. Araskog 101,710,236 567,262
Ramani Ayer 101,896,729 380,769
Robert A. Burnett 101,799,449 478,049
Donald R. Frahm 101,751,540 525,958
Arthur A. Hartman 101,722,096 555,402
Paul G. Kirk, Jr. 100,930,583 1,346,915
Lon A. Smith 101,905,553 371,945
H. Patrick Swygert 100,765,933 1,511,565
DeRoy C. Thomas 101,830,251 447,247
Gordon I. Ulmer 101,800,017 477,481
- ----------------------------------- ------------------------------ -----------------------------------
<FN>
* Shares withheld include broker non-votes and abstentions.
</FN>
</TABLE>
In addition, the appointment of Arthur Andersen LLP as independent auditors for
the fiscal year ending December 31, 1996 was ratified by 101,339,146 shares of
Common Stock voting for the proposal, 551,429 voting against, and 386,923 shares
abstaining.
There were 117,182,164 shares issued and outstanding and entitled to vote
at the annual meeting as of the record date for the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibits Index.
(b) Reports on Form 8-K - None.
<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)
AUGUST 13, 1996
<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.
<PAGE>
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share data)
Second Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
- --------------------------------------------------------------- ------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $143 $105 $239 $245
Weighted average common shares outstanding (1) 117.2 117.1 117.2 117.1
Earnings Per Share $1.22 $0.90 $2.04 $2.09
- --------------------------------------------------------------- ------------- ------------- ------------- -------------
<FN>
(1) June 30, 1995 average common shares outstanding of 117.1 reflects a retroactive presentation of the actual number of shares
outstanding at December 31, 1995.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
($ in millions) Six Months Ended
June 30,
1996 1995
---------------------------------------------------------------------- ---------------- ---------------
(Unaudited)
EARNINGS
<S> <C> <C>
OPERATING INCOME $293 $323
ADD:
FIXED CHARGES
Interest expense 71 47
Interest factor attributable to rentals (1) 18 23
---------------------------------------------------------------------- ---------------- ---------------
TOTAL FIXED CHARGES 89 70
----------------------------------------------------------------- ---------------- ---------------
EARNINGS, AS DEFINED $382 $393
---------------------------------------------------------------------- ---------------- ---------------
FIXED CHARGES
Fixed charges above $89 $70
Dividends on subsidiary preferred stock -- 3
---------------------------------------------------------------------- ---------------- ---------------
TOTAL FIXED CHARGES AND PREFERRED DIVIDEND REQUIREMENTS $89 $73
---------------------------------------------------------------------- ---------------- ---------------
RATIOS
Earnings, as defined, to combined fixed charges 4.3 5.6
---------------------------------------------------------------------- ---------------- ---------------
Earnings, as defined, to combined fixed charges and preferred
stock dividend requirements 4.3 5.3
---------------------------------------------------------------------- ---------------- ---------------
<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>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 30,302
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,528
<MORTGAGE> 54
<REAL-ESTATE> 78
<TOTAL-INVEST> 36,121
<CASH> 156
<RECOVER-REINSURE> 11,694
<DEFERRED-ACQUISITION> 3,247
<TOTAL-ASSETS> 100,214
<POLICY-LOSSES> 21,596
<UNEARNED-PREMIUMS> 2,846
<POLICY-OTHER> 22,702
<POLICY-HOLDER-FUNDS> 43,216
<NOTES-PAYABLE> 1,521
485<F1>
0
<COMMON> 1
<OTHER-SE> 4,385
<TOTAL-LIABILITY-AND-EQUITY> 100,214
5,059
<INVESTMENT-INCOME> 1,204
<INVESTMENT-GAINS> 41
<OTHER-INCOME> 0
<BENEFITS> 4,083
<UNDERWRITING-AMORTIZATION> 861
<UNDERWRITING-OTHER> 962
<INCOME-PRETAX> 293
<INCOME-TAX> 54
<INCOME-CONTINUING> 239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.04
<RESERVE-OPEN> 0<F2>
<PROVISION-CURRENT> 0<F2>
<PROVISION-PRIOR> 0<F2>
<PAYMENTS-CURRENT> 0<F2>
<PAYMENTS-PRIOR> 0<F2>
<RESERVE-CLOSE> 0<F2>
<CUMULATIVE-DEFICIENCY> 0<F2>
<FN>
<F1>REPRESENTS COMPANY OBLIGATED MANDITORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY PARENT JUNIOR SUBORDINATED DEBENTURES.
<F2>AMOUNTS FOR SECURITIES ACT INDUSTRY GUIDE 6 AND EXCHANGE ACT INDUSTRY GUIDE 4 DISCLOSURES ARE
REQUIRED FOR ANNUAL FILINGS ONLY. ACCORDINGLY, NO AMOUNTS WILL BE REPORTED FOR INTERIM FILINGS.
</FN>
</TABLE>
