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 March 31, 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 April 30, 1996, there were outstanding 117,193,560 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 - First Quarter
Ended March 31, 1996 and 1995 3
Consolidated Balance Sheets - March 31, 1996 and 4
December 31, 1995
Consolidated Statements of Cash Flows - First Quarter
Ended March 31, 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 6. Exhibits and Reports on Form 8-K 15
Signature 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
First Quarter Ended
(In millions, except for per share data) March 31,
1996 1995
(Unaudited)
REVENUES
Earned premiums $2,656 $2,424
Net investment income 603 561
Net realized capital gains 19 20
------- -------
TOTAL REVENUES 3,278 3,005
BENEFITS, CLAIMS AND EXPENSES
Benefits, claims and claim adjustment expenses 2,041 1,833
Amortization of deferred policy acquisition costs 411 414
Other expenses 712 561
------- -------
TOTAL BENEFITS, CLAIMS AND EXPENSES 3,164 2,808
OPERATING INCOME 114 197
Income tax expense 18 56
Dividends on subsidiary preferred stock -- (1)
------- -------
NET INCOME $96 $140
EARNINGS PER SHARE $0.82 $1.20
CASH DIVIDENDS DECLARED PER SHARE $0.40 --
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (1) 117.2 117.1
------- -------
(1) March 31, 1995 average common shares outstanding of 117.1 reflects a
retroactive presentation of the actual number of shares outstanding at
December 31, 1995.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THE ABOVE STATEMENTS.
<PAGE>
<TABLE>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
(In millions, except for shares data) 1996 1995
(Unaudited)
ASSETS
<S> <C> <C>
Investments
- - -----------
Fixed maturities, available for sale, at fair value (amortized cost of
$31,219 and $30,892) $30,893 $31,168
Equity securities, at fair value (cost $1,241 and $1,192) 1,431 1,342
Policy loans, at cost 3,883 3,380
Other investments, at cost 581 785
-------- --------
Total investments 36,788 36,675
Cash 155 95
Premiums receivable and agents' balances 2,032 1,890
Reinsurance recoverables 11,566 11,801
Deferred policy acquisition costs 3,064 2,945
Deferred income tax 1,414 1,150
Other assets 2,402 2,451
Separate account assets 39,565 36,848
-------- --------
Total assets $96,986 $93,855
======== ========
LIABILITIES
Future policy benefits, unpaid claims and claim adjustment expenses
Property and casualty $17,522 $17,536
Life 3,959 3,894
Other policy claims and benefits payable 22,838 22,770
Unearned premiums 2,907 2,766
Short-term debt 405 886
Long-term debt 1,020 1,022
Company obligated manditorily redeemable preferred securities of subsidiary trust holding solely
parent junior subordinated debentures 484 --
Other liabilities 3,889 3,431
Separate account liabilities 39,565 36,848
-------- --------
Total liabilities 92,589 89,153
======== ========
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000, issued 118,824,189 and 118,762,331, outstanding 117,186,189
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 1,639 1,636
Cumulative translation adjustments 34 48
Unrealized gain (loss) on securities, net of tax (98) 245
Retained earnings 2,851 2,802
-------- --------
Total stockholders' equity 4,397 4,702
-------- --------
Total liabilities and stockholders' equity $96,986 $93,855
======== ========
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THE ABOVE STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(In millions) First Quarter Ended
March 31,
1996 1995
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $96 $140
ADJUSTMENTS TO NET INCOME
Depreciation and amortization 23 18
Gain on sale of securities (19) (20)
Change in receivables, payables and accruals (209) (82)
Accrued and deferred taxes (2) 2
Increase in liabilities for future policy benefits, unpaid claims and claim
adjustment expenses and unearned premiums 191 165
Increase in deferred policy acquisition costs (121) (157)
Decrease in reinsurance and other related assets 281 138
Other, net 308 37
------- -------
CASH FROM OPERATING ACTIVITIES 548 241
INVESTING ACTIVITIES
Purchase of investments (4,655) (3,188)
Sale and maturity of investments 3,984 1,926
Additions to plant, property and equipment (12) (14)
------- -------
CASH USED FOR INVESTING ACTIVITIES (683) (1,276)
======= =======
FINANCING ACTIVITIES
Short-term debt, net (481) 1
Long-term debt, net (2) --
Company obligated manditorily redeemable preferred securities of subsidiary
trust holding solely parent junior subordinated debentures, net
484 --
Investments and advances from related parties -- 70
Net receipts from investment and universal life-type contracts credited to
policyholder accounts 191 1,007
Other, net -- (1)
------- -------
CASH FROM FINANCING ACTIVITIES 192 1,077
------- -------
Exchange rate effect on cash 3 1
------- -------
Increase in cash 60 43
Cash - beginning of period 95 55
------- -------
CASH - END OF PERIOD $155 $98
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NET CASH PAID (REFUNDS RECEIVED) DURING THE PERIOD FOR:
Income taxes $(23) $2
Interest $34 $24
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THE ABOVE STATEMENTS.
</TABLE>
<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 to the 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 make 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 7.70% 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 7.70%
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 continuously involved in numerous lawsuits arising, for the
most part, in the ordinary course of its business operations as an insurer.
While the ultimate outcome of such litigation cannot be determined at this
time, such litigation, net of reserves established therefor, is not expected
to result in judgments for amounts material to the financial condition of ITT
Hartford, although it may adversely affect results of operations in future
periods.
(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 and results of operations of ITT
Hartford for the first quarter ended March 31, 1996 compared with the
equivalent 1995 period. This discussion should be read in conjunction with the
MD&A included in ITT Hartford's 1995 Form 10-K Annual Report. 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 first quarter 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 9
Environmental and Asbestos Claims 10
Investments 10
Capital Resources and Liquidity 14
CONSOLIDATED RESULTS OF OPERATIONS: OPERATING SUMMARY
OPERATING SUMMARY FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
TOTAL REVENUES $3,278 $3,005
NET INCOME $ 96 $ 140
Less: Net realized capital gains, after-tax 12 13
------- --------
CORE EARNINGS $ 84 $ 127
------- --------
CORE EARNINGS PER SHARE [1] $ .72 $ 1.08
[1] First quarter ended March 31, 1995 per share data reflects a retroactive
presentation of the actual number of shares outstanding at December 31,
1995 of 117.1 million.
Revenues for the first quarter ended March 31, 1996 increased $273 million or
9% from the first quarter of 1995, primarily the result of growth in the Life
segment. Net income, excluding the impact of net realized capital gains,
after-tax, was $84 compared with $127 for first quarter of 1995. 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 decrease in core earnings of $43, or $.36 per share, was due primarily to
unusually high catastrophe and severe winter storm losses totaling $77 after-
tax for the first quarter ended March 31, 1996, compared to $17 after-tax for
the first quarter of 1995. Excluding the impact of these losses, core earnings
for the period increased $17, or 12% to $161 over the first quarter of the
prior year. This operational improvement was driven by increased property &
casualty investment income and growth in earnings on Life annuities.
The effective tax rate for the first quarter ended March 31, 1996 was 16%
compared to 28% for the comparable period in 1995. This change was largely due
to tax benefits generated at the 34% Federal tax rate resulting from increased
underwriting losses for the period ended March 31, 1996 compared to the same
period in 1995. Also, increased investments in tax-exempt municipal bonds
contributed to the decrease in the effective tax rate.
<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 to the March 31,
1996 presentation.
Below is a summary of core earnings by segment.
FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
North American Property & Casualty $ 26 $ 77
Life 54 46
International 18 15
Runoff (14) (11)
------- -------
CORE EARNINGS $ 84 $ 127
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
OPERATING SUMMARY FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
TOTAL REVENUES $1,553 $1,566
NET INCOME $ 26 $ 87
Less: Net realized capital gains, after tax -- 10
------- -------
CORE EARNINGS $ 26 $ 77
CORE EARNINGS PER SHARE $ .22 $ .66
Core earnings for the North American Property & Casualty segment were $26 for
the first quarter ended March 31, 1996, a decrease of $51, or $.44 per share,
from the comparable period in 1995. The decrease reflects a $69 reduction in
after-tax underwriting results, partially offset by higher investment income and
increased service fee income from involuntary pool servicing contracts. (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.
FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
Written premiums $ 1,457 $ 1,430
Underwriting results, before-tax $ (140) $ (32)
Combined ratio [1] 109.1 101.5
[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.
The North American Property & Casualty segment's written premiums of $1.5
billion for the first quarter ended March 31, 1996 increased slightly compared
to the equivalent prior year period. Premiums increased over the prior year in
both Reinsurance and Personal lines, offset by lower Specialty line results.
Premium volume in the Personal line reflects the continued expansion into the
over-50 market as facilitated by ITT Hartford's exclusive arrangement with the
American Association of Retired Persons ("AARP"), while intensely competitive
market conditions have adversely affected Specialty product sales.
Underwriting results, before-tax, for the first quarter ended March 31, 1996 for
the North American Property & Casualty segment were $108 below the prior year's
first quarter, resulting in a 7.6 point increase in the combined ratio. The
current quarter underwriting results reflect $118 before-tax of catastrophe and
severe winter storms losses, a $92 increase over equivalent losses for the first
quarter ended March 31, 1995. Excluding these losses, underwriting results were
$1.6 or 1.0 point unfavorable to prior year, reflecting intensely competitive
conditions, particularly in large commercial and specialty markets.
<PAGE>
LIFE
OPERATING SUMMARY FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
TOTAL REVENUES $ 1,241 $ 964
NET INCOME $ 54 $ 48
Less: Net realized capital gains, after tax -- 2
CORE EARNINGS $ 54 $ 46
-------- -------
CORE EARNINGS PER SHARE $ .46 $ .39
The Life segment's revenues of $1.2 billion for the first quarter of 1996
increased $277, or 29%, over the comparable 1995 period. This dramatic growth
was largely due to earnings from existing corporate owned life insurance
("COLI") contracts. Additionally, deposits on fixed and variable annuity
contracts and strong appreciation in policyholder account values contributed to
a 41% increase in Life's asset base, resulting in increased investment revenues.
Life's first quarter 1996 core earnings were $54, reflecting an $8, or 17%
increase over the prior year's first quarter. Strong sales and asset growth in
the Individual Annuity division accounted for $6 of this increase, while
earnings increases in excess of 10% were recorded in the Individual
Life and Employee Benefits divisions. The Asset Management Services division
was flat to prior year.
INTERNATIONAL
OPERATING SUMMARY FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
TOTAL REVENUES $ 390 $ 345
NET INCOME $ 30 $ 16
Less: Net realized capital gains, after-tax 12 1
------- --------
CORE EARNINGS $ 18 $ 15
CORE EARNINGS PER SHARE $ .15 $ .13
International segment revenues for the first quarter ended March 31, 1996
increased $45, or 13%, over the comparable period in 1995. This increase was
due primarily to a $29, or 32%, increase in revenues at Zwolsche Algemeene. Net
written premiums at Zwolsche Algemeene of $140 at March 31, 1996 increased $22
or 19% over the same period in 1995, reflecting increased sales of life and
health insurance. The increase in the health premiums was due largely to a
shift in the Netherlands from national health to private sector insurance, 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 current quarter included $19 related to this new subsidiary.
Core earnings in the International segment increased $3 or 20% for the first
quarter ended March 31, 1996 over the same period in 1995. An increase in core
earnings of $3 or 44% at ITT London & Edinburgh was due primarily to improved
investment income.
RUNOFF
OPERATING SUMMARY FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
TOTAL REVENUES $ 94 $ 130
NET LOSS/CORE EARNINGS $ (14) $ (11)
Total revenues of $94 for the first quarter ended March 31, 1996 decreased 28%
compared to the same period in 1995. 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.
<PAGE>
Revenues for Closed Book GRC decreased $39, or 39%, for the first quarter of
1996 compared to 1995, 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.
Runoff segment core earnings of $(14) for the first quarter ended March 31,
1996, was $3, or 27%, below the prior year's first quarter. These results
reflect the net losses of Closed Book GRC of $(15) and $(13) for the first
quarters ended March 31, 1996 and 1995, respectively, which were driven by the
same factors affecting revenues. The current quarter results of the property
and casualty runoff business were essentially flat compared to the prior year
first quarter.
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, a range of such reserve increases cannot be meaningfully
quantified.
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 has established an
environmental claims facility 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:
POLLUTION AND ASBESTOS CLAIMS
LOSS AND LOSS ADJUSTMENT EXPENSES
MAR. 31, DEC. 31,
1996 1995
(Unaudited)
Beginning liability $ 1,336 $ 1,334
Loss and loss expenses incurred 48 163
Loss and loss expenses paid (36) (161)
-------- --------
Ending liability [1] $ 1,348 $ 1,336
[1] The March 31, 1996 and December 31, 1995 ending reserves include $927 and
$926 for pollution, respectively, and $421 and $410, respectively, for
asbestos. Gross of reinsurance, the ending March 31, 1996 and December 31,
1995 reserves for pollution and asbestos were $1,702 and $1,602 and $1,707 and
$1,568, respectively.
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.
<PAGE>
NORTH AMERICAN PROPERTY & CASUALTY
Invested assets were $11.7 billion at March 31, 1996, and were comprised of
fixed maturities of $10.5 billion and other investments of $1.2 billion,
primarily equity securities. The table below summarizes fixed maturity holdings
by type.
<TABLE>
FIXED MATURITIES BY TYPE
<CAPTION>
(Unaudited) MARCH 31, DECEMBER 31,
1996 1995
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
<S> <C> <C> <C> <C>
Corporate $1,985 18.8% $2,427 22.8%
CMO 1,160 11.0% 1,462 13.7%
Municipals tax exempt 5,955 56.5% 5,171 48.5%
Gov't/Gov't agencies-US. 110 1.1% 249 2.3%
ABS 228 2.2% 239 2.2%
Gov't/Gov't agencies-For. 245 2.3% 255 2.4%
MBS - Agency 229 2.2% 244 2.3%
Commercial MBS 14 0.1% 14 0.1%
Municipals taxable 72 0.7% 75 0.7%
Redeemable Pref'd stock 24 0.2% -- --
Short-terms 517 4.9% 531 5.0%
-------- ------ -------- ------
TOTAL FIXED MATURITIES
$10,539 100.0% $10,667 100.0%
</TABLE>
This segment maintains a high quality fixed maturity portfolio. At March 31,
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) MARCH 31, DECEMBER 31,
1996 1995
CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
AAA $4,772 45.3% $4,570 42.8%
AA 2,245 21.3% 2,137 20.0%
A 1,623 15.4% 1,862 17.5%
BBB 565 5.4% 649 6.1%
Gov't 108 1.0% 252 2.4%
BB & below 472 4.5% 459 4.3%
Not rated 237 2.2% 207 1.9%
Short-term 517 4.9% 531 5.0%
-------- ------- -------- ------
TOTAL FIXED
MATURITIES $10,539 100.0% $10,667 100.0%
The North American Property & Casualty segment uses a minimal amount of
derivatives in managing its investments and, as of March 31, 1996, had no open
derivatives positions. As of December 31, 1995 this segment had derivatives
with a notional amount of $14.
INVESTMENT RESULTS
The table below summarizes the North American Property & Casualty segment's
results.
(Unaudited) Yield on Yield on
Average Average Net
Net Invested Invested Realized
Investment Assets Assets Capital
March 31, Income Before-tax(1) After-tax Gains
(2)
1996 $161 5.6% 4.4% --
1995 $158 5.8% 4.2% $16
(1) Represents annualized three months ended 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 quarter ended March 31, 1996, net investment income was $161 compared to
$158 in 1995, an increase of 2%. Before-tax yields on average invested assets
decreased to 5.6% in March 31, 1996 from 5.8% in 1995. The after-tax yield
increased to 4.4% in March 31, 1996 from 4.2% in 1995. The increases in net
investment income and after-tax yields were primarily due to the transition out
of lower yielding real estate along with increased ownership of tax-exempt
municipal bonds.
NET REALIZED CAPITAL GAINS
There were no net realized capital gains for the quarter ended March 31, 1996
down from $16 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 $15.7 billion at March 31,
1996 and were comprised of $11.6 billion of fixed maturities, $3.9 billion of
policy loans, and other investments of $182. The table below summarizes fixed
maturity holdings by type.
FIXED MATURITIES BY TYPE
(Unaudited) MARCH 31, DECEMBER 31,
1996 1995
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
Corporate $5,419 46.8% $5,146 45.0%
CMO 1,883 16.2% 2,071 18.1%
Gov't/Gov't
agencies-US 217 1.9% 260 2.3%
ABS 1,826 15.7% 1,782 15.6%
Gov't/Gov't
agencies-For. 259 2.2% 223 1.9%
MBS - Agency 768 6.6% 673 5.9%
Commercial
MBS 522 4.5% 348 3.0%
Municipals-
taxable 128 1.1% 130 1.1%
Short-terms 576 5.0% 817 7.1%
-------- ------- -------- ------
TOTAL FIXED
MATURITIES $11,598 100.0% $11,450 100.0%
The Life segment continued to maintain a high quality fixed maturity portfolio.
As of March 31, 1996, less than
<PAGE>
0.5% 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) MARCH 31, DECEMBER 31,
1996 1995
CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
AAA $3,297 28.4% $3,688 32.2%
AA 1,618 14.0% 1,502 13.1%
A 3,728 32.1% 3,651 31.9%
BBB 1,583 13.6% 1,276 11.1%
Gov't 475 4.1% 523 4.6%
BB & below 31 0.3% 29 0.3%
Not rated -- -- 54 0.5%
Short-term 866 7.5% 727 6.3%
TOTAL FIXED
MATURITIES $11,598 100.0% $11,450 100.0%
The average duration of the March 31, 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.
(Unaudited) Yield on Average
Net Investment Invested Assets Net Realized
March 31, Income Before-tax (1) Capital Gains
1996 $301 7.8% --
1995 $235 7.2% $3
(1) Represents annualized three months ended net investment income (excluding
net realized capital gains) divided by average invested assets at cost
(fixed maturities at amortized cost).
For the quarter ended March 31, 1996, net investment income totaled $301
compared to $235 in 1995, an increase of 28%. Yields on average invested assets
increased to 7.8% in March 31, 1996 from 7.2% in 1995. The increases in net
investment income and yield were primarily due to an increase in policy loans
and new business cash flow invested in fixed maturities.
NET REALIZED CAPITAL GAINS
There were no net realized capital gains for the quarter ended March 31, 1996
down from $3 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 March 31, 1996 and
December 31, 1995, the Life segment had derivatives with an aggregate notional
amount of $3.9 billion and $4 billion, respectively, outstanding for
asset/liability management purposes.
INTERNATIONAL
Invested assets, excluding separate accounts, were $2.9 billion at March 31,
1996 and were comprised of fixed maturities of $2.4 billion and other assets of
$.5 billion. 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) MARCH 31, DECEMBER 31,
1996 1995
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
Corporate $392 16.5% $261 10.8%
Gov't/Gov't
agencies-US 65 2.7% 57 2.4%
Gov't/Gov't
agencies-For. 1,207 50.7% 1,203 49.8%
Short-term 718 30.1% 893 37.0%
------- ------ ------- ------
TOTAL FIXED
MATURITIES $2,382 100.0% $2,414 100.0%
As of March 31, 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) MARCH 31, DECEMBER 31,
1996 1995
CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
AAA $1,556 65.3% $1,428 59.2%
AA 104 4.4% 89 3.8%
A 4 0.2% 4 --
Short-dated 718 30.1% 893 37.0%
------- ------ ------- ------
TOTAL FIXED
MATURITIES $2,382 100.0% $2,414 100.0%
<PAGE>
INVESTMENT RESULTS
The table below summarizes the International segment's results.
(Unaudited) Net Investment Yield on Average Net
Income Invested Assets Realized
March 31, Before-tax (1) Capital Gains
1996 $48 7.0% $19
1995 $38 6.0% $2
(1) Represents annualized three months ended net investment income (excluding
net realized capital gains) divided by average invested assets at cost
(fixed maturities at amortized cost).
For the quarter ended March 31, 1996, net investment income totaled $48
compared to $38 in 1995, an increase of 26%. Yields on average invested assets
increased to 7.0% in March 31, 1996 from 6.0% in 1995. 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
Net realized capital gains increased to $19 in March 31, 1996 from $2 in 1995,
primarily the result of an increase in both fixed maturity and equity gains.
RUNOFF
Invested assets were $6.5 billion at March 31, 1996, and were comprised of fixed
maturities of $6.4 billion and other investments of $106. The runoff segment
uses derivatives related to the Closed Book GRC. As of March 31, 1996 and
December 31, 1995, Runoff had derivatives with an aggregate notional amount of
$5.2 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) MARCH 31, DECEMBER 31,
1996 1995
TYPE FAIR VALUE PERCENT FAIR VALUE PERCENT
Corporate $2,652 41.6% $2,587 39.0%
CMO 1,640 25.6% 1,691 25.5%
Gov't/Gov't
agencies-US 337 5.3% 362 5.4%
ABS 695 10.9% 649 9.8%
Gov't/Gov't
agencies-For. 171 2.7% 145 2.2%
MBS - Agency 158 2.5% 218 3.3%
Commercial
MBS 61 1.0% 77 1.1%
Municipals-
taxable 82 1.3% 87 1.3%
Short-terms 578 9.1% 821 12.4%
------- ------ ------- -------
TOTAL FIXED
MATURITIES $6,374 100.0% $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) MARCH 31, DECEMBER 31,
1996 1995
CREDIT QUALITY FAIR VALUE PERCENT FAIR VALUE PERCENT
AAA $3,164 49.6% $2,804 42.2%
AA 662 10.4% 691 10.4%
A 1,606 25.2% 1,525 23.0%
BBB 354 5.6% 357 5.4%
Gov't 279 4.4% 272 4.1%
BB & below 12 0.2% 12 0.2%
Not rated 9 0.1% 65 1.0%
Short-term 288 4.5% 911 13.7%
------- ------- ------- ------
TOTAL FIXED
MATURITIES $6,374 100.0% $6,637 100.0%
INVESTMENT RESULTS
The table below summarizes the Runoff segment's results.
(Unaudited) Net Yield on Average Net Realized
Investment Invested Assets Capital
March 31, Income Before-tax (1) Losses
1996 $93 5.3% --
1995 $130 6.0% $(1)
(1) Represents annualized three months ended net investment income (excluding
net realized capital losses) divided by average invested assets at cost (fixed
maturities at amortized cost).
For the quarter ended March 31, 1996, net investment income totaled $93 compared
to $130 in 1995, a decrease of 28%. Yields on average invested assets decreased
to 5.3% in March 31, 1996 from 6.0% in 1995. Net investment income decreased
primarily due to lower investment earnings in the Closed Book GRC. The decrease
in yield was primarily the result of prepayments and hedge costs associated with
the Closed Book GRC. (For additional information, see "Asset Management
Services"in the Life section of the 1995 Form 10-K Annual Report.)
NET REALIZED CAPITAL GAINS/LOSSES
There were no net realized capital gains/losses for the quarter ended March 31,
1996 from $1 loss in 1995, primarily due to losses taken in First State.
<PAGE>
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>
MARCH 31, 1996 DECEMBER 31, 1995
(Unaudited)
<S> <C> <C>
Short-term debt $ 405 $ 886
Long-term debt 1,020 1,022
SUB-TOTAL 1,425 1,908
Cumulative quarterly income preferred securities [1] 484 --
TOTAL DEBT [2] $ 1,909 $ 1,908
Equity excluding unrealized gain (loss), net of tax $ 4,495 $ 4,457
Unrealized gain (loss), net of tax (98) 245
TOTAL STOCKHOLDERS' EQUITY $ 4,397 $ 4,702
TOTAL CAPITALIZATION EXCLUDING UNREALIZED GAIN (LOSS), NET OF TAX $ 6,404 $ 6,365
Debt to equity excluding unrealized gain (loss), net of tax [2] 42.5% 42.8%
Debt to capitalization excluding unrealized gain (loss), net of tax [2] 29.8% 30.0%
<FN>
[1] Represents Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Parent Junior
Subordinated Debentures.
[2] Debt at March 31, 1996 includes cumulative quarterly income preferred securities.
</TABLE>
CAPITALIZATION
ITT Hartford's total capitalization excluding unrealized gain (loss), net of
tax, increased by $39 as of March 31, 1996 over December 31, 1995. This change
primarily was the result of earnings of $96, partially offset by dividends
declared of $47 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 to the Consolidated
Financial Statements.
DIVIDENDS
On February 15, 1996, ITT Hartford declared a dividend on its common stock of
$.40 per share payable on April 1, 1996 to all shareholders of record as of
March 1, 1996.
CASH FLOW
FIRST QUARTER ENDED
MARCH 31,
1996 1995
(Unaudited)
Cash from operating activities $ 548 $ 241
Cash used in investing activities $ (683) $ (1,276)
Cash from financing activities $ 192 $ 1,077
Cash -- end of period $ 155 $ 98
During the first quarter of 1996, cash from operating activities improved
primarily due to increased revenues and collections on reinsurance. The
changes in cash from both investing and financing activities between years were
driven by investment-type contracts written in the Life segment which provided
$191 in the first quarter of 1996 compared with $1.0 billion in the prior
year's first quarter. 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 above and 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.
<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)
MAY 13, 1996
<PAGE>
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
EXHBITS INDEX
EXHIBIT #
- - ---------
10.01 1995 ITT Hartford Incentive Stock Plan, as amended, is filed
herewith.
10.02 ITT Hartford Group, Inc. 1996 Restricted Stock Plan for Non-
Employee Directors, as amended, is filed herewith.
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>
EXHIBIT 10.01
1995 ITT HARTFORD INCENTIVE STOCK PLAN
1. PURPOSE
The purpose of the 1995 ITT Hartford Incentive Stock Plan is to motivate and
reward superior performance on the part of employees of ITT Hartford Group, Inc.
and its subsidiaries ("ITT Hartford") and to thereby attract and retain
employees of superior ability. In addition, the Plan is intended to further
opportunities for stock ownership by such employees in order to increase their
proprietary interest in ITT Hartford and, as a result, their interest in the
success of the Company. Awards will be made, in the discretion of the Committee,
to Key Employees (including officers and directors who are also employees) whose
responsibilities and decisions directly affect the performance of any
Participating Company and its subsidiaries. Such incentive awards may consist of
stock options, stock appreciation rights payable in stock or cash, performance
shares, restricted stock or any combination of the foregoing, as the Committee
may determine.
2. DEFINITIONS
When used herein, the following terms shall have the following meanings:
"Acceleration Event" means the occurrence of an event defined in Section 9 of
the Plan.
"Act" means the Securities Exchange Act of 1934.
"Annual Limit" means the maximum number of shares of Stock for which Awards
may be granted under the Plan in each Plan Year as provided in Section 3 of the
Plan.
"Award" means an award granted to any Key Employee in accordance with the
provisions of the Plan in the form of Options, Rights, Performance Shares or
Restricted Stock, or any combination of the foregoing.
"Award Agreement" means the written agreement evidencing each Award granted to
a Key Employee under the Plan.
"Beneficiary" means the beneficiary or beneficiaries designated pursuant to
Section 10 to receive the amount, if any, payable under the Plan upon the death
of a Key Employee.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended. (All citations to sections of the Code are to such sections
as they may from time to time be amended or renumbered.)
"Committee" means the Compensation and Personnel Committee of the Board or
such other committee as may be designated by the Board to administer the Plan.
"Company" means ITT Hartford and its successors and assigns.
"Fair Market Value", unless otherwise indicated in the provisions of this
Plan, means, as of any date, the composite closing price for one share of Stock
on the New York Stock Exchange or, if no sales of Stock have taken place on such
date, the composite closing price on the most recent date on which selling
prices were quoted, the determination to be made in the discretion of the
Committee.
"Incentive Stock Option" means a stock option qualified under Section 422 of
the Code.
"Key Employee" means an employee (including any officer or director who is
also an employee) of any Participating Company whose responsibilities and
decisions, in the judgment of the Committee, directly affect the performance of
the Company and its subsidiaries.
"Limited Stock Appreciation Right" means a stock appreciation right which
shall become exercisable automatically upon the occurrence of an Acceleration
Event as described in Section 9 of the Plan.
"Option" means an option awarded under Section 5 of the Plan to purchase Stock
of the Company, which option may be an Incentive Stock Option or a non-qualified
stock option.
<PAGE>
"Participating Company" means the Company or any subsidiary or other affiliate
of the Company; provided, however, for Incentive Stock Options only,
"Participating Company" means the Company or any corporation which at the time
such Option is granted qualifies as a "subsidiary" of the Company under Section
425(f) of the Code.
"Performance Share" means a performance share awarded under Section 6 of the
Plan.
"Plan" means the 1995 ITT Hartford Incentive Stock Plan, as the same may be
amended, administered or interpreted from time to time.
"Plan Year" means the calendar year.
"Retirement" means eligibility to receive immediate retirement benefits under
a Participating Company pension plan.
"Restricted Stock" means Stock awarded under Section 7 of the Plan subject to
such restrictions as the Committee deems appropriate or desirable.
"Right" means a stock appreciation right awarded in connection with an Option
under Section 5 of the Plan.
"Stock" means the common stock ($.01 par value) of the Company.
"Total Disability" means the complete and permanent inability of a Key
Employee to perform all of his or her duties under the terms of his or her
employment with any Participating Company, as determined by the Committee upon
the basis of such evidence, including independent medical reports and data, as
the Committee deems appropriate or necessary.
3. SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Stock which may be awarded under the Plan in
any Plan Year shall be subject to an annual limit. The maximum number of shares
of Stock for which Awards may be granted under the Plan in each Plan Year shall
be 1.5 percent (1.5%) of the total of the issued and outstanding shares of ITT
Hartford Common Stock and Treasury Stock as reported in the Annual Report on
Form 10-K of the Company for the fiscal year ending immediately prior to any
Plan Year. Any unused portion of the Annual Limit for any Plan Year shall be
carried forward and be made available for awards in succeeding Plan Years.
In addition to the foregoing, in no event shall more than five million
(5,000,000) shares of ITT Hartford Common Stock be cumulatively available for
Awards of incentive stock options under the Plan, and provided further, that no
more than twenty percent (20%) of the total number of shares on a cumulative
basis shall be available for restricted stock and performance shares Awards. For
any Plan Year, no individual employee may receive an Award of stock options for
more than the lesser of (i) ten percent (10%) of the Annual Limit on available
shares applicable to that Plan Year and (ii) 500,000 shares; except that, for
the Plan Year that follows the Distribution Date, each individual employee may
receive in addition to the foregoing limit that number of stock options equal to
the lesser of (x) 525,000 and (y) the number of substitute stock options
required to replace ITT Corporation stock options surrendered by such employee
in connection with the spin-off by ITT Corporation of the shares of ITT Hartford
to ITT Corporation shareholders.
Subject to the above limitations, shares of ITT Hartford Common Stock to be
issued under the Plan may be made available from the authorized but unissued
shares, or shares held by the Company in treasury or from shares purchased in
the open market.
For the purpose of computing the total number of shares of Stock available for
Awards under the Plan, there shall be counted against the foregoing limitations
the number of shares of Stock which equal the value of performance share Awards,
in each case determined as at the dates on which such Awards are granted. If any
Awards under the Plan are forfeited, terminated, expire unexercised, are settled
in cash in lieu of Stock or are exchanged for other Awards, the shares of Stock
which were theretofore subject to such Awards shall again be available for
Awards under the Plan to the extent of such forfeiture or expiration of such
Awards. Further, any shares that are exchanged (either actually or
constructively) by optionees as full or partial payment to the Company of the
purchase price of shares being acquired through the exercise of a stock option
granted under the Plan may be available for subsequent Awards, provided however,
that such shares may be awarded only to those participants who are not directors
or executive officers (as that term is defined in the rules and regulations
under Section 16 of the Act).
4. GRANT OF AWARDS AND AWARD AGREEMENTS
<PAGE>
(a) Subject to the provisions of the Plan, the Committee shall (i) determine
and designate from time to time those Key Employees or groups of Key Employees
to whom Awards are to be granted; (ii) determine the form or forms of Award to
be granted to any Key Employee; (iii) determine the amount or number of shares
of Stock subject to each Award; and (iv) determine the terms and conditions of
each Award.
(b) Each Award granted under the Plan shall be evidenced by a written Award
Agreement. Such agreement shall be subject to and incorporate the express terms
and conditions, if any, required under the Plan or required by the Committee.
5. STOCK OPTIONS AND RIGHTS
(a) With respect to Options and Rights, the Committee shall (i) authorize the
granting of Incentive Stock Options, non-qualified stock options, or a
combination of Incentive Stock Options and non-qualified stock options; (ii)
authorize the granting of Rights which may be granted in connection with all or
part of any Option granted under this Plan, either concurrently with the grant
of the Option or at any time thereafter during the term of the Option; (iii)
determine the number of shares of Stock subject to each Option or the number of
shares of Stock that shall be used to determine the value of a Right; and (iv)
determine the time or times when and the manner in which each Option or Right
shall be exercisable and the duration of the exercise period.
(b) Any option issued hereunder which is intended to qualify as an Incentive
Stock Option shall be subject to such limitations or requirements as may be
necessary for the purposes of Section 422 of the Code or any regulations and
rulings thereunder to the extent and in such form as determined by the Committee
in its discretion.
(c) Rights may be granted only to Key Employees who may be considered
directors or officers of the Company for purposes of Section 16 of the Act.
(d) The exercise period for a non-qualified stock option and any related Right
shall not exceed ten years and two days from the date of grant, and the exercise
period for an Incentive Stock Option and any related Right shall not exceed ten
years from the date of grant.
(e) The Option price per share shall be determined by the Committee at the
time any Option is granted and shall be not less than the Fair Market Value of
one share of Stock on the date the Option is granted.
(f) No part of any Option or Right may be exercised until the Key Employee who
has been granted the Award shall have remained in the employ of a Participating
Company for such period after the date of grant as the Committee may specify, if
any, and the Committee may further require exercisability in installments;
provided, however, the period during which a Right is exercisable shall commence
no earlier than six months following the date the Option or Right is granted.
(g) The purchase price of the shares as to which an Option shall be exercised
shall be paid to the Company at the time of exercise either in cash or Stock
already owned by the optionee having a total Fair Market Value equal to the
purchase price, or a combination of cash and Stock having a total fair market
value, as so determined, equal to the purchase price. The Committee shall
determine acceptable methods for tendering Stock as payment upon exercise of an
Option and may impose such limitations and prohibitions on the use of Stock to
exercise an Option as it deems appropriate.
(h) Unless Section 9 shall provide otherwise, Rights granted to a director or
officer shall terminate when such person ceases to be considered a director or
officer of the Company subject to Section 16 of the Act.
(i) In case of termination of employment, the following provisions shall
apply:
(A) If a Key Employee who has been granted an Option shall die before such
Option has expired, his or her Option may be exercised in full by the person
or persons to whom the Key Employee's rights under the Option pass by will, or
if no such person has such right, by his or her executors or administrators,
at any time, or from time to time, within five years after the date of the Key
Employee's death or within such other period, and subject to such terms and
conditions as the Committee may specify, but not later than the expiration
date specified in Section 5(d) above.
(B) If the Key Employee's employment by any Participating Company terminates
because of his or her Retirement or Total Disability, he or she may exercise
his or her Options in full at any time, or from time to time, within five
years after the date of the termination of his or her employment or within
such other period, and subject to such terms and conditions as the Committee
may specify, but not later than the expiration date specified in Section 5(d)
above. Any such Options not fully exercisable immediately prior to such
optionee's retirement shall become fully exercisable upon
<PAGE>
such retirement unless the Committee, in its sole discretion, shall otherwise
determine.
(C) Except as provided in Section 9, if the Key Employee shall voluntarily
resign before eligibility for Retirement or he or she is terminated for cause
as determined by the Committee, the Options or Rights shall be cancelled
coincident with the effective date of the termination of employment.
(D) If the Key Employee's employment terminates for any other reason, he or
she may exercise his or her Options, to the extent that he or she shall have
been entitled to do so at the date of the termination of his or her
employment, at any time, or from time to time, within three months after the
date of the termination of his or her employment or within such other period,
and subject to such terms and conditions as the Committee may specify, but not
later than the expiration date specified in Section 5(d) above.
(j) No Option or Right granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution. During the lifetime of the
optionee, an Option or Right shall be exercisable only by the Key Employee to
whom the Option or Right is granted (or his or her estate or designated
beneficiary).
(k) With respect to an Incentive Stock Option, the Committee shall specify
such terms and provisions as the Committee may determine to be necessary or
desirable in order to qualify such Option as an "incentive stock option" within
the meaning of Section 422 of the Code.
(l) With respect to the exercisability and settlement of Rights:
(i) Upon exercise of a Right, the Key Employee shall be entitled, subject to
such terms and conditions the Committee may specify, to receive upon exercise
thereof all or a portion of the excess of (A) the Fair Market Value of a
specified number of shares of Stock at the time of exercise, as determined by
the Committee, over (B) a specified amount which shall not, subject to Section
5(e), be less than the Fair Market Value of such specified number of shares of
Stock at the time the Right is granted. Upon exercise of a Right, payment of
such excess shall be made as the Committee shall specify in cash, the issuance
or transfer to the Key Employee of whole shares of Stock with a Fair Market
Value at such time equal to any excess, or a combination of cash and shares of
Stock with a combined Fair Market Value at such time equal to any such excess,
all as determined by the Committee. The Company will not issue a fractional
share of Stock and, if a fractional share would otherwise be issuable, the
Company shall pay cash equal to the Fair Market Value of the fractional share
of Stock at such time.
(ii) For the purposes of Subsection (i) of this Section 5(l), in the case of
any such Right or portion thereof, other than a Right related to an Incentive
Stock Option, exercised for cash during a "window period" specified by Rule
16b-3 under the Act, the Fair Market Value of the Stock at the time of such
exercise shall be the highest composite daily closing price of the Stock
during such window period.
(iii) In the event of the exercise of such Right, the Company's obligation
in respect of any related Option or such portion thereof will be discharged by
payment of the Right so exercised.
6. PERFORMANCE SHARES
(a) Subject to the provisions of the Plan, the Committee shall (i) determine
and designate from time to time those Key Employees or groups of Key Employees
to whom Awards of Performance Shares are to be made, (ii) determine the
Performance Period (the "Performance Period") and Performance Objectives (the
"Performance Objectives") applicable to such Awards, (iii) determine the form of
settlement of a Performance Share and (iv) generally determine the terms and
conditions of each such Award. At any date, each Performance Share shall have a
value equal to the Fair Market Value of a share of Stock at such date; provided
that the Committee may limit the aggregate amount payable upon the settlement of
any Award. The maximum award for any individual employee in any given year shall
be 100,000 Performance Shares.
(b) The Committee shall determine a Performance Period of not less than two
nor more than five years. Performance Periods may overlap and Key Employees may
participate simultaneously with respect to Performance Shares for which
different Performance Periods are prescribed.
(c) The Committee shall determine the Performance Objectives of Awards of
Performance Shares. Performance Objectives may vary from Key Employee to Key
Employee and between groups of Key Employees and shall be based upon one or more
of the following objective criteria, as the Committee deems appropriate:
earnings per share, return on equity, cash flow or total shareholder return of
ITT Hartford. If during the course of a Performance Period there shall occur
significant events which the Committee expects to have a substantial effect on
the applicable Performance Objectives
<PAGE>
during such period, the Committee may revise such Performance Objectives.
(d) At the beginning of a Performance Period, the Committee shall determine
for each Key Employee or group of Key Employees the number of Performance Shares
or the percentage of Performance Shares which shall be paid to the Key Employee
or member of the group of Key Employees if the applicable Performance Objectives
are met in whole or in part.
(e) If a Key Employee terminates service with all Participating Companies
during a Performance Period because of death, Total Disability, Retirement, or
under other circumstances where the Committee in its sole discretion finds that
a waiver would be in the best interests of the Company, that Key Employee may,
as determined by the Committee, be entitled to payment in settlement of such
Performance Shares at the end of the Performance Period based upon the extent to
which the Performance Objectives were satisfied at the end of such period and
prorated for the portion of the Performance Period during which the Key Employee
was employed by any Participating Company; provided, however, the Committee may
provide for an earlier payment in settlement of such Performance Shares in such
amount and under such terms and conditions as the Committee deems appropriate or
desirable. If a Key Employee terminates service with all Participating Companies
during a Performance Period for any other reason, then such Key Employee shall
not be entitled to any Award with respect to that Performance Period unless the
Committee shall otherwise determine.
(f) Each Award of a Performance Share shall be paid in whole shares of Stock,
or cash, or a combination of Stock and cash either as a lump sum payment or in
annual installments, all as the Committee shall determine, with payment to
commence as soon as practicable after the end of the relevant Performance
Period.
7. RESTRICTED STOCK
(a) Restricted Stock shall be subject to a restriction period (after which
restrictions will lapse) which shall mean a period commencing on the date the
Award is granted and ending on such date as the Committee shall determine (the
"Restriction Period"). The Committee may provide for the lapse of restrictions
in installments where deemed appropriate and it may also require the achievement
of predetermined performance objectives in order for such shares to vest.
(b) Except when the Committee determines otherwise pursuant to Section 7(d),
if a Key Employee terminates employment with all Participating Companies for any
reason before the expiration of the Restriction Period, all shares of Restricted
Stock still subject to restriction shall be forfeited by the Key Employee and
shall be reacquired by the Company.
(c) Except as otherwise provided in this Section 7, no shares of Restricted
Stock received by a Key Employee shall be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of during the Restriction Period.
(d) In cases of death, Total Disability or Retirement or in cases of special
circumstances, the Committee may, in its sole discretion when it finds that a
waiver would be in the best interests of the Company, elect to waive any or all
remaining restrictions with respect to such Key Employee's Restricted Stock.
(e) The Committee may require, under such terms and conditions as it deems
appropriate or desirable, that the certificates for Stock delivered under the
Plan may be held in custody by a bank or other institution, or that the Company
may itself hold such shares in custody until the Restriction Period expires or
until restrictions thereon otherwise lapse, and may require, as a condition of
any Award of Restricted Stock that the Key Employee shall have delivered a stock
power endorsed in blank relating to the Restricted Stock.
(f) Nothing in this Section 7 shall preclude a Key Employee from exchanging
any shares of Restricted Stock subject to the restrictions contained herein for
any other shares of Stock that are similarly restricted.
(g) Subject to Section 7(e) and Section 8, each Key Employee entitled to
receive Restricted Stock under the Plan shall be issued a certificate for the
shares of Stock. Such certificate shall be registered in the name of the Key
Employee, and shall bear an appropriate legend reciting the terms, conditions
and restrictions, if any, applicable to such Award and shall be subject to
appropriate stop-transfer orders.
8. CERTIFICATES FOR AWARDS OF STOCK
(a) The Company shall not be required to issue or deliver any certificates for
shares of Stock prior to (i) the listing of such shares on any stock exchange on
which the Stock may then be listed and (ii) the completion of any registration
or qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
<PAGE>
(b) All certificates for shares of Stock delivered under the Plan shall also
be subject to such stop-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities laws, and the
Committee may cause a legend or legends to be placed on any such certificates to
make appropriate reference to such restrictions. In making such determination,
the Committee may rely upon an opinion of counsel for the Company.
(c) Except for the restrictions on Restricted Stock under Section 7, each Key
Employee who receives Stock in settlement of an Award of Stock, shall have all
of the rights of a shareholder with respect to such shares, including the right
to vote the shares and receive dividends and other distributions. No Key
Employee awarded an Option, a Right or Performance Share shall have any right as
a shareholder with respect to any shares covered by his or her Option, Right or
Performance Share prior to the date of issuance to him or her of a certificate
or certificates for such shares.
9. ACCELERATION EVENTS
(a) For the purposes of this Plan, an Acceleration Event shall occur if (i) a
report on Schedule 13D shall be filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Act disclosing that any person
(within the meaning of Section 13(d) of the Act), other than the Company or a
subsidiary of the Company or any employee benefit plan sponsored by the Company
or a subsidiary of the Company, is the beneficial owner directly or indirectly
of twenty percent or more of the outstanding Stock of the Company; (ii) any
person (within the meaning of Section 13(d) of the Act), other than the Company
or a subsidiary of the Company or any employee benefit plan sponsored by the
Company or a subsidiary of the Company, shall purchase shares pursuant to a
tender offer or exchange offer to acquire any Stock of the Company (or
securities convertible into Stock) for cash, securities or any other
consideration, provided that after consummation of the offer, the person in
question is the beneficial owner (as such term is defined in Rule 13d-3 under
the Act), directly or indirectly, of fifteen percent or more of the outstanding
Stock of the Company (calculated as provided in paragraph (d) of Rule 13d-3
under the Act in the case of rights to acquire Stock); (iii) the stockholders of
the Company shall approve (A) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which shares of Stock of the Company would be converted into cash, securities or
other property, other than a merger of the Company in which holders of Stock of
the Company immediately prior to the merger have the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger as immediately before, or (B) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or substantially
all the assets of the Company; or (iv) there shall have been a change in a
majority of the members of the Board within a 12-month period unless the
election or nomination for election by the Company's stockholders of each new
director during such 12-month period was approved by the vote of two-thirds of
the directors then still in office who were directors at the beginning of such
12-month period.
(b) Notwithstanding any provisions in this Plan to the contrary:
(i) Each outstanding Option granted under the Plan shall become immediately
exercisable in full for the aggregate number of shares covered thereby and all
related Rights shall also become exercisable upon the occurrence of an
Acceleration Event described in this Section 9 and shall continue to be
exercisable in full for cash for a period of 60 calendar days beginning on the
date that such Acceleration Event occurs and ending on the 60th calendar day
following that date; provided, however, that (A) no Right shall become
exercisable earlier than six months following the date the Right is granted,
and (B) no Option or Right shall be exercisable beyond the expiration date of
its original term.
(ii) Options and Rights shall not terminate and shall continue to be fully
exercisable for a period of seven months following the occurrence of an
Acceleration Event in the case of an employee who is terminated other than for
just cause or who voluntarily terminates his employment because he in good
faith believes that as a result of such Acceleration Event he is unable
effectively to discharge his present duties or the duties of the position he
occupied just prior to the occurrence of such Acceleration Event. For purposes
of Section 9 only, termination shall be for "just cause" only if such
termination is based on fraud, misappropriation or embezzlement on the part of
the employee which results in a final conviction of a felony. Under no
circumstances, however, shall any Option or Right be exercised beyond the
expiration date of its original term.
(iii) Any Right or portion thereof may be exercised for cash within the 60-
calendar-day period following the occurrence of an Acceleration Event with
settlement, except in the case of a Right related to an Incentive Stock
Option, based on the "Formula Price" which shall be the highest of (A) the
highest composite daily closing price of the Stock during the period beginning
on the 60th calendar day prior to the date on which the Right is exercised and
ending on the date such Right is exercised, (B) the highest gross price paid
for the Stock during the same period of time, as reported in a report on
Schedule 13D filed with the Securities and Exchange Commission or (C) the
highest gross price paid or to
<PAGE>
be paid for a share of Stock (whether by way of exchange, conversion,
distribution upon merger, liquidation or otherwise) in any of the transactions
set forth in this Section 9 as constituting an Acceleration Event.
(iv) Upon the occurrence of an Acceleration Event, Limited Stock
Appreciation Rights shall automatically be granted as to any Option with
respect to which Rights are not then outstanding; provided, however, that
Limited Stock Appreciation Rights shall be provided at the time of grant of
any Incentive Stock Option subject to exercisability upon the occurrence of an
Acceleration Event. Limited Stock Appreciation Rights shall entitle the holder
thereof, upon exercise of such rights and surrender of the related Option or
any portion thereof, to receive, without payment to the Company (except for
applicable withholding taxes), an amount in cash equal to the excess, if any,
of the Formula Price as that term is defined in Section 9 over the option
price of the Stock as provided in such Option; provided that in the case of
the exercise of any such Limited Stock Appreciation Right or portion thereof
related to an Incentive Stock Option, the Fair Market Value of the Stock at
the time of such exercise shall be substituted for the Formula Price. Each
such Limited Stock Appreciation Right shall be exercisable only during the
period beginning on the first business day following the occurrence of such
Acceleration Event and ending on the 60th day following such date and only to
the same extent the related Option is exercisable. In the case of persons who
are considered directors or officers of the Company for purposes of Section 16
of the Act, Limited Stock Appreciation Rights shall not be so exercisable
until they have been outstanding for at least six months. Upon exercise of a
Limited Stock Appreciation Right and surrender of the related Option, or
portion thereof, such Option, to the extent surrendered, shall not thereafter
be exercisable.
(v) The restrictions applicable to Awards of Restricted Stock issued
pursuant to Section 7 shall lapse upon the occurrence of an Acceleration Event
and the Company shall issue stock certificates without a restrictive legend.
Key Employees holding Restricted Stock on the date of an Acceleration Event
may tender such Restricted Stock to the Company which shall pay the Formula
Price as that term is defined in Section 9; provided, such Restricted Stock
must be tendered to the Company within 60 calendar days of the Acceleration
Event.
(vi) If an Acceleration Event occurs during the course of a Performance
Period applicable to an Award of Performance Shares pursuant to Section 6,
then the Key Employee shall be deemed to have satisfied the Performance
Objectives and settlement of such Performance Shares shall be based on the
Formula Price, as defined in this Section 9.
10. BENEFICIARY
(a) Each Key Employee shall file with the Company a written designation of one
or more persons as the Beneficiary who shall be entitled to receive the Award,
if any, payable under the Plan upon his or her death. A Key Employee may from
time to time revoke or change his or her Beneficiary designation without the
consent of any prior Beneficiary by filing a new designation with the Company.
The last such designation received by the Company shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Company prior to the Key Employee's death,
and in no event shall it be effective as of a date prior to such receipt.
(b) If no such Beneficiary designation is in effect at the time of a Key
Employee's death, or if no designated Beneficiary survives the Key Employee
or if such designation conflicts with law, the Key Employee's estate shall
be entitled to receive the Award, if any, payable under the Plan upon his
or her death. If the Committee is in doubt as to the right of any person to
receive such Award, the Company may retain such Award, without liability
for any interest thereon, until the Committee determines the rights
thereto, or the Company may pay such Award into any court of appropriate
jurisdiction and such payment shall be a complete discharge of the
liability of the Company therefor.
11. ADMINISTRATION OF THE PLAN
(a) Each member of the Committee shall be both a member of the Board and a
"disinterested person" within the meaning of Rule 16b-3 under the Act or
successor rule or regulation.
(b) All decisions, determinations or actions of the Committee made or taken
pursuant to grants of authority under the Plan shall be made or taken in the
sole discretion of the Committee and shall be final, conclusive and binding on
all persons for all purposes.
(c) The Committee shall have full power, discretion and authority to
interpret, construe and administer the Plan and any part thereof, and its
interpretations and constructions thereof and actions taken thereunder shall be,
except as otherwise determined by the Board, final, conclusive and binding on
all persons for all purposes.
(d) The Committee's decisions and determinations under the Plan need not be
uniform and may be made selectively
<PAGE>
among Key Employees, whether or not such Key Employees are similarly situated.
(e) The Committee may, in its sole discretion, delegate such of its powers as
it deems appropriate to the chief executive officer or other members of senior
management, except that Awards to executive officers shall be made solely by the
Committee and subject to compliance with Rule 16b-3 of the Act.
(f) If an Acceleration Event has not occurred and if the Committee determines
that a Key Employee has taken action inimical to the best interests of any
Participating Company, the Committee may, in its sole discretion, terminate in
whole or in part such portion of any Option (including any related Right) as has
not yet become exercisable at the time of termination, terminate any Performance
Share Award for which the Performance Period has not been completed or terminate
any Award of Restricted Stock for which the Restriction Period has not lapsed.
12. AMENDMENT, EXTENSION OR TERMINATION
The Board may, at any time, amend or terminate the Plan and, specifically, may
make such modifications to the Plan as it deems necessary to avoid the
application of Section 162(m) of the Code and the Treasury regulations issued
thereunder. However, no amendment shall, without approval by a majority of the
Company's stockholders, (a) alter the group of persons eligible to participate
in the Plan, (b) except as provided in Section 13 increase the maximum number of
shares of Stock which are available for Awards under the Plan, (c) materially
increase the benefits accruing to participants under the Plan or (d) extend the
period during which awards may be granted beyond December 31, 2005. If an
Acceleration Event has occurred, no amendment or termination shall impair the
rights of any person with respect to a prior Award.
13. ADJUSTMENTS IN EVENT OF CHANGE IN COMMON STOCK
In the event of any reorganization, merger, recapitalization, consolidation,
liquidation, stock dividend, stock split, reclassification, combination of
shares, rights offering, split-up or extraordinary dividend (including a spin-
off) or divestiture, or any other change in the corporate structure or shares,
the Committee may make such adjustment in the Stock subject to Awards, including
Stock subject to purchase by an Option, or the terms, conditions or restrictions
on Stock or Awards, including the price payable upon the exercise of such Option
and the number of shares subject to restricted stock awards, as the Committee
deems equitable.
14. SUBSTITUTE AWARDS
The Committee shall be authorized to issue substitute ITT Hartford stock
options and related rights to those key employees of Participating Companies who
surrender options to acquire stock in ITT Corporation. The Committee may make a
determination as to the exercise price and number of such substitute options as
it may determine in order to preserve the economic value of the surrendered ITT
options and related rights in the aggregate amount not to exceed 8,000,000
shares. Subject to this limitation, shares of ITT Hartford Common Stock to be
issued upon the exercise of substitute stock options may be made available from
authorized but unissued shares or from treasury or shares held by ITT Hartford
in shares purchased in the open market.
The maximum number of substitute ITT Hartford stock options and related rights
that may be granted to an individual employee is 525,000 or such lower number as
may be necessary to preserve the economic value of the surrendered ITT options
and related rights by any such individual employee.
The terms and conditions of each substitute stock award, including, without
limitation, the expiration date of the option, the time or times when, and the
manner in which, each substitute option shall be exercisable, the duration of
the exercise period, the method of exercise, settlement and payment, and the
rules in the event of termination, shall be the same as those of the surrendered
ITT award.
The Committee shall also be authorized to issue substitute grants of ITT
Hartford Restricted Stock to replace shares of ITT restricted stock surrendered
by employees of Participating Companies. Such substitute shares shall be subject
to the same terms and conditions as the surrendered shares of ITT restricted
stock, including, without limitation, the restriction period of such ITT shares.
15. MISCELLANEOUS
(a) Except as provided in Section 9, nothing in this Plan or any Award granted
hereunder shall confer upon any employee any right to continue in the employ of
any Participating Company or interfere in any way with the right of any
Participating Company to terminate his or her employment at any time. No Award
payable under the Plan shall be deemed
<PAGE>
salary or compensation for the purpose of computing benefits under any employee
benefit plan or other arrangement of any Participating Company for the benefit
of its employees unless the Company shall determine otherwise. No Key Employee
shall have any claim to an Award until it is actually granted under the Plan. To
the extent that any person acquires a right to receive payments from the Company
under this Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as provided in Section 7(e) with respect to Restricted Stock.
(b) The Committee may cause to be made, as a condition precedent to the
payment of any Award, or otherwise, appropriate arrangements with the Key
Employee or his or her Beneficiary, for the withholding of any federal, state,
local or foreign taxes.
(c) The Plan and the grant of Awards shall be subject to all applicable
federal and state laws, rules, and regulations and to such approvals by any
government or regulatory agency as may be required.
(d) The terms of the Plan shall be binding upon the Company and its successors
and assigns.
(e) Captions preceding the sections hereof are inserted solely as a matter of
convenience and in no way define or limit the scope or intent of any provision
hereof.
16. EFFECTIVE DATE, TERM OF PLAN AND SHAREHOLDER APPROVAL
The effective date of the Plan shall be December 19, 1995. No Award shall be
granted under this Plan after the Plan's termination date. The Plan's
termination date shall be December 31, 2005. The Plan will continue in effect
for existing Awards as long as any such Award is outstanding.
<PAGE>
EXHIBIT 10.02
ITT HARTFORD GROUP, INC. 1996 RESTRICTED STOCK PLAN
FOR NON-EMPLOYEE DIRECTORS
ARTICLE I -- PLAN ADMINISTRATION AND ELIGIBILITY
1.1 PURPOSE
The purpose of the ITT Hartford Group, Inc. 1996 Restricted Stock Plan for
Non-Employee Directors (the "Plan") is to attract and retain persons of ability
as directors of ITT Hartford Group, Inc. (the "Company") and to provide them
with a closer identity with the interests of the Company's stockholders by
paying the Annual Retainer in common stock of the Company.
1.2 ADMINISTRATION
The Plan shall be administered by the Compensation and Personnel Committee of
the Board of Directors (hereinafter referred to as the "Committee"). The
Committee shall have the responsibility of interpreting the Plan and
establishing and amending such rules and regulations necessary or appropriate
for the administration of the Plan. All interpretations of the Plan or any
Restricted Stock awards issued under it shall be final and binding upon all
persons having an interest in the Plan. No member of the Committee shall be
liable for any action or determination taken or made in good faith with respect
to this Plan or any award granted hereunder.
1.3 ELIGIBILITY
Directors of the Company who are not employees of the Company or any of its
subsidiaries shall be eligible to participate in the Plan.
1.4 STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be granted under the Plan shall be
100,000 shares of common stock of the Company (the "Stock").
(b) If any Restricted Stock is forfeited by a Director in accordance with the
provisions of Section 2.2(c), such shares of Restricted Stock shall be restored
to the total number of shares available for grant pursuant to the Plan.
(c) Upon the grant of a Restricted Stock award the Company may distribute
newly issued shares or treasury shares.
ARTICLE II -- RESTRICTED STOCK
2.1 RESTRICTED STOCK AWARDS
Restricted Stock awards shall be made automatically on the date of the Annual
Meeting of Stockholders, to each Director elected at the meeting or continuing
in office following the meeting. The award shall equal the number of whole
shares arrived at by dividing the Annual Retainer that is in effect for the 12
month period beginning with the date of the Annual Meeting (the "Service
Year") by the Fair Market Value of the Company's common stock. Fractional
shares shall be paid in cash.
(a) "Annual Retainer" shall mean the amount that is payable to a Director for
service on the Board of Directors during the Service Year. Annual Retainer shall
not include fees paid for attendance at any Board or Committee meeting.
(b) "Fair Market Value" shall mean the average of the high and low prices per
share of the Company's common stock on the date of the Annual Meeting, as
reported by the New York Stock Exchange Composite Tape.
<PAGE>
2.2 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
(a) Written Documentation -- Restricted Stock awards shall be evidenced by
such written notice, agreement or other documentation as the Committee deems
appropriate.
(b) Shares held in Escrow -- The Restricted Stock subject to such award shall
be registered in the name of the Director and held in escrow by the Committee
until the restrictions on such shares lapse as described below.
(c) Restrictions -- Restricted Stock granted to a Director may not be sold,
assigned, transferred, pledged or otherwise disposed of, except by will or the
laws of descent and distribution, prior to the earliest of the following dates:
(1) The fifth anniversary of the date of grant.
(2) Retirement from the Board at age 72.
(3) "Change in Control" of the Company. A "Change in Control" shall be deemed
to have occurred if:
(i) a report on Schedule 13D shall be filed with the Securities and Exchange
Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934
(the "Act") disclosing that any person (within the meaning of Section 13(d) of
the Act), other than the Company or a subsidiary of the Company or any
employee benefit plan sponsored by the Company or a subsidiary of the Company,
is the beneficial owner directly or indirectly of twenty percent or more of
the outstanding Stock of the Company;
(ii) any person (within the meaning of Section 13(d) of the Act), other than
the Company or a subsidiary of the Company or any employee benefit plan
sponsored by the Company or a subsidiary of the Company, shall purchase shares
pursuant to a tender offer or exchange offer to acquire any Stock of the
Company (or securities convertible into Stock) for cash, securities or any
other consideration, provided that after consummation of the offer, the person
in question is the beneficial owner (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of fifteen percent or more of the
outstanding Stock of the Company (calculated as provided in paragraph (d) of
Rule 13d-3 under the Act in the case of rights to acquire Stock);
(iii) the stockholders of the Company shall approve (A) any consolidation or
merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of Stock of the Company would be
converted into cash, securities or other property, other than a merger of the
Company in which holders of Stock of the Company immediately prior to the
merger have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger as immediately before, or (B) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the assets of the Company;
or
(iv) there shall have been a change in a majority of the members of the
Board within a 12-month period unless the election or nomination for election
by the Company's stockholders of each new director during such 12-month period
was approved by the vote of two-thirds of the directors then still in office
who were directors at the beginning of such 12-month period.
(4) Death of the Director.
(5) Disability of the Director, as defined in the ITT Hartford Investment
and Savings Plan dated December 19, 1995.
(6) Resignation by the Director on account of (i) a physical or mental
condition that, in the opinion of a qualified physician, is expected to impede
the Director's ability to fulfill his or her principal duties for a period of
at least three months; (ii) the relocation of the Director's principal place
of business to a location that increases the time required for such Director
to travel to the Company's headquarters by more than 50%; (iii) the acceptance
by the Director of a position (other than an honorary position) in the
government of the United States, any State or any municipality or any
subdivision thereof or any organization performing any quasi-governmental
function; or (iv) any circumstances which, in the opinion of outside counsel
to the Company, would (or could reasonably be expected to) conflict with
applicable law or any written policy of the Company.
(d) Dividends and Voting Rights -- The Director shall, subject to Section
2.2(c), possess all incidents of ownership of the shares of Restricted Stock
including the right to receive dividends with respect to such shares and to vote
such shares.
(e) The Company shall deliver to the Director, or the beneficiary of such
Director, if applicable, all of the shares of
<PAGE>
stock that were awarded to the Director as Restricted Stock, within 30 days
following the lapse of restrictions as described under Section 2.2(c). If the
Director discontinues serving on the Board prior to the date upon which
restrictions lapse as described under Section 2.2(c), such Director's Restricted
Stock will be forfeited by the Director and transferred to and reacquired by the
Company at no cost to the Company.
ARTICLE III -- GENERAL PROVISIONS
3.1 AUTHORITY
Appropriate officers of the Company designated by the Committee are authorized
to execute Restricted Stock agreements, and amendments thereto, in the name of
the Company, as directed from time to time by the Committee.
3.2 ADJUSTMENTS IN THE EVENT OF CHANGE IN COMMON STOCK OF THE COMPANY
In the event of any reorganization, merger, recapitalization, consolidation,
liquidation, stock dividend, stock split, reclassification, combination of
shares, rights offering, split-up, or extraordinary dividend (including a spin-
off) or divestiture, or any other change in the corporate structure or shares,
the number and kind of shares which thereafter may be granted under the Plan and
the number of shares of Restricted Stock awarded pursuant to Section 2.1 with
respect to which all restrictions have not lapsed, shall be appropriately
adjusted consistent with such change in such manner as the Board in its
discretion may deem equitable to prevent substantial dilution or enlargement of
the rights granted to, or available for, Directors participating in the Plan.
Any fractional shares resulting from such adjustments shall be eliminated.
3.3 RIGHTS OF DIRECTORS
The Plan shall not be deemed to create any obligation on the part of the Board
to nominate any Director for reelection by the Company's stockholders or to
retain any Director at any particular rate of compensation. The Company shall
not be obligated to issue Stock pursuant to an award of Restricted Stock for
which the restrictions hereunder have lapsed if such issuance would constitute a
violation of any applicable law. Except as provided herein, no Director shall
have any rights as a stockholder with respect to any shares of Restricted Stock
awarded to him.
3.4 BENEFICIARY
A Director may file with the Committee a written designation of a beneficiary
on such form as may be prescribed by the Committee and may, from time to time,
amend or revoke such designation. In the event of the death of a Director, his
beneficiary shall have the right to receive the shares of Restricted Stock
awarded pursuant to the Plan. If no designated beneficiary survives the
Director, the executor or administrator of the Director's estate shall be deemed
to be the Director's beneficiary.
3.5 LAWS AND REGULATIONS
The Committee shall have the right to condition any issuance of shares to any
Director hereunder on such Director's undertaking in writing to comply with such
restrictions on the subsequent disposition of such shares as the Committee shall
deem necessary or advisable as a result of any applicable law or regulation. The
Committee may postpone the delivery of stock following the lapse of restrictions
with respect to awards of Restricted Stock for such time as the Committee in its
discretion may deem necessary, in order to permit the Company with reasonable
diligence (i) to effect or maintain registration of the Plan, or the shares
issuable upon the lapse of certain restrictions respecting awards of Restricted
Stock, under the Securities Act of 1933 or the securities laws of any applicable
jurisdiction, or (ii) to determine that such shares and the Plan are exempt from
such registration; the Company shall not be obligated by virtue of any
Restricted Stock agreement or any provision of the Plan to recognize the lapse
of certain restrictions respecting awards of Restricted Stock or issue shares in
violation of said Act or of the law of the government having jurisdiction
thereof.
3.6 AMENDMENT, SUSPENSION AND DISCONTINUANCE OF THE PLAN
The Board may from time to time amend, suspend or discontinue the Plan,
provided that the Board may not, without the approval of the holders of a
majority of the outstanding shares entitled to vote, take any action which would
cause the Plan to no longer comply with Rule 16b-3 under the Act, or any
successor rule or other regulatory requirement.
No amendment, suspension or discontinuance of the Plan shall impair a
Director's right under a Restricted Stock award
<PAGE>
previously granted to him without his consent.
3.7 GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto shall
be governed by the laws of the State of Connecticut.
3.8 EFFECTIVE DATE AND DURATION OF THE PLAN
This Plan shall be effective upon the Distribution Date, subject to the
approval of the Plan by the stockholders of the Company, and shall terminate on
December 31, 2005 (as defined in the Proxy Statement of ITT Corporation dated
August 30, 1995) provided that grants of Restricted Stock made prior to the
termination of the Plan may vest following such termination in accordance with
their terms.
<PAGE>
EXHIBIT 11.01
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In millions, except per share data)
First Quarter Ended
March 31,
1996 1995
(Unaudited)
Net income $ 96 $ 140
Weighted average common shares outstanding (1) 117.2 117.1
Earnings Per Share $0.82 $1.20
(1) March 31, 1995 average common shares outstanding of 117.1 reflects a
retroactive presentation of the actual number of shares outstanding
at December 31, 1995.
<PAGE>
EXHIBIT 12.01
ITT HARTFORD GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
($ in millions) First Quarter Ended
March 31,
1996 1995
(Unaudited)
EARNINGS
OPERATING INCOME $114 $197
ADD:
FIXED CHARGES
Interest expense 35 23
Interest factor attributable to rentals (1) 9 12
----- -----
TOTAL FIXED CHARGES 44 35
EARNINGS, AS DEFINED $158 $232
----- -----
FIXED CHARGES
Fixed charges above $44 $35
Dividends on subsidiary preferred stock -- 1
----- -----
TOTAL FIXED CHARGES AND PREFERRED DIVIDEND $44 $36
REQUIREMENTS
RATIOS
Earnings, as defined, to combined fixed charges 3.6 6.6
Earnings, as defined, to combined fixed charges
and preferred stock dividend requirements 3.6 6.4
(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.
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 30,893
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,431
<MORTGAGE> 81
<REAL-ESTATE> 85
<TOTAL-INVEST> 36,788
<CASH> 155
<RECOVER-REINSURE> 11,566
<DEFERRED-ACQUISITION> 3,064
<TOTAL-ASSETS> 96,986
<POLICY-LOSSES> 21,481
<UNEARNED-PREMIUMS> 2,907
<POLICY-OTHER> 22,838
<POLICY-HOLDER-FUNDS> 39,565
<NOTES-PAYABLE> 1,425
<COMMON> 1
484<F1>
0
<OTHER-SE> 4,396
<TOTAL-LIABILITY-AND-EQUITY> 96,986
2,656
<INVESTMENT-INCOME> 603
<INVESTMENT-GAINS> 19
<OTHER-INCOME> 0
<BENEFITS> 2,041
<UNDERWRITING-AMORTIZATION> 411
<UNDERWRITING-OTHER> 659
<INCOME-PRETAX> 114
<INCOME-TAX> 18
<INCOME-CONTINUING> 96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.82
<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>
