Steven Wevodau - Property & Casualty Insurance

BLUE BELL, Pa.–(BUSINESS WIRE)–PMA Capital Corporation (NASDAQ:PMACA - News) today reported the following financial results for the third quarter and first nine months of 2009:

Vincent T. Donnelly, President and Chief Executive Officer commented, “PMA Capital produced improved operating results and book value growth in the quarter. We continued to grow our core insurance business, while maintaining disciplined underwriting standards in a price competitive environment, and had significant growth in the revenues of our Fee-based Business. Our combined ratio remained below 97% and for the first quarter since early 2006 our pricing on rate-sensitive workers’ compensation business increased. The Company’s book value grew by 8% in the quarter and 15% in the first nine months of 2009 to $12.38 per share, reflecting improved values in our investment portfolio combined with our earnings.”

At The PMA Insurance Group, Mr. Donnelly noted the following significant operating highlights:

• Pre-tax operating income increased to $13.6 million in the quarter, from $13.3 million in the third quarter of 2008, and increased to $38.8 million for the first nine months of 2009, compared to $38.3 million in the same period last year. The prior year-to-date results included a gain of $2.1 million from the sale of real estate;
• The combined ratio was 95.8% in the quarter, which improved the year-to-date ratio to 96.2%;
• Net investment income increased 7% in the quarter and 2% year-to-date, compared to the same periods last year, as the increase in investment portfolio assets more than offset the decrease in investment yields; and
• Direct premium production, which excludes fronting premiums and premium adjustments, increased 3% in the third quarter to $154.8 million, and increased 3% during the first nine months of 2009 to $404.3 million.

Mr. Donnelly added, “We are continuing to grow our Fee-based Business, with revenues increasing 9% in the quarter and 16% for the first nine months of 2009 as a result of organic growth and our prior year acquisition of PMA Management Corp. of New England. Organic growth of claims service revenues was 9% in the quarter and 12% during the first nine months of 2009. Our Fee-based Business revenues of $59.8 million represent 15% of our total revenues in 2009. Pre-tax operating income for our Fee-based Business was $1.6 million in the quarter, compared to $1.9 million for the same period last year, and $5.1 million for the first nine months of 2009, compared to $5.3 million for the same period in 2008.”

The Company previously announced the execution of a definitive stock purchase agreement (the “Agreement”) to sell its Run-off Operations and the filing of a Form A with the Pennsylvania Insurance Department. On November 3, 2009, additional information regarding the Form A was filed with the Department. Subject to the approval of the transaction by the Pennsylvania Insurance Department under the revised terms, the Company would make a capital contribution of $13 million at the closing of the sale. This contribution will include cash of $3 million and a note payable in two equal installments of $5 million in 2010 and 2011. The revised terms also include capital support agreements provided by the Company to the Run-off Operations in the event that its payments on claims in the excess workers’ compensation and certain excess liability (occurrence) lines of business exceed certain pre-established limits. Such support is limited to an amount not to exceed $46 million and any payments with respect to the supported lines of business are not expected to commence until 2018 and may extend to 2052. Under Generally Accepted Accounting Principles guidance for Guarantees, which requires guarantees to be recorded at fair value at inception, the Company estimates that the fair value of the capital support is approximately $13 million. Upon the closing of the transaction, the Company expects to record an after-tax charge of approximately $17 million, or $0.52 per share, to record the impact of the capital contribution and the additional capital support. The Company and the buyer have mutually agreed to extend the Agreement termination date to December 31, 2009.

Financial Condition

Total assets were $2.6 billion as of September 30, 2009, compared to $2.5 billion as of December 31, 2008. Assets of discontinued operations represented 7% of total assets at September 30, 2009, compared to 10% at December 31, 2008. At September 30, 2009, we had $33.7 million in cash and short-term investments at our holding company and non-regulated subsidiaries.

Shareholders’ equity and book value per share changed as follows:

The insurance companies within The PMA Insurance Group had statutory capital and surplus of $385.1 million as of September 30, 2009, compared to $332.9 million as of December 31, 2008. The increase in capital and surplus during 2009 related primarily to statutory net income, which included a benefit from the second quarter commutation of a reinsurance agreement with an affiliated entity. The PMA Insurance Group has the ability to pay $31.8 million in dividends during 2009 without the prior approval of the Pennsylvania Insurance Department.

Segment Operating Results

Operating income, which we define as net income (loss) under GAAP excluding net realized investment gains and losses and results from discontinued operations, is the financial performance measure used by our management and Board of Directors to evaluate and assess the results of our businesses. Net realized investment activity is excluded because (i) net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains and losses that do not relate to the operations of the individual segments. Operating income does not replace net income (loss) as the GAAP measure of our consolidated results of operations.

The following is a reconciliation of our operating results to GAAP net income (loss):

Income from continuing operations included the following after-tax net realized gains (losses):

We recorded other than temporary impairments of $3.2 million after-tax during the nine months ended September 30, 2009. The impairments in the first nine months of 2009 related primarily to write-downs of $2.9 million on $45.9 million par of commercial mortgage-backed securities (CMBS) that we sold in order to reduce our exposure to this asset sector. These write-downs were measured based on public market prices. At September 30, 2009, our CMBS had an average credit rating of AAA and fair value of $81.4 million, which represented 93% of their amortized cost. The prior year other than temporary impairments resulted from writing down our investments of Lehman Brothers senior debt and Fannie Mae preferred stock. Details of the Company’s investment portfolio at September 30, 2009 and December 31, 2008 are posted on our website at www.pmacapital.com.

The PMA Insurance Group

The PMA Insurance Group reported pre-tax operating income of $13.6 million for the third quarter of 2009, compared to $13.3 million for the same period last year. Year-to-date pre-tax operating income increased to $38.8 million, compared to $38.3 million for the first nine months of 2008. The results for the first nine months of 2008 included a gain of $2.1 million from the sale of a property that housed one of our branch offices.

Direct premium production increased during the third quarter and first nine months of 2009, compared to the same periods last year. We define direct premium production as direct premiums written, excluding fronting premiums and premium adjustments. The following is a reconciliation of our direct premium production to consolidated gross premiums written:

Fronting premiums increased in 2009 primarily as a result of the two fronting arrangements we entered into during August 2008. The decrease in premium adjustments in 2009 primarily reflected a lower amount of return premium adjustments on loss-sensitive products where the insured shares in the underwriting result of the policy. We write these retrospective products because we believe they provide us with greater certainty in achieving our targeted underwriting results as the customer shares in the underwriting result of the policy with us.

Excluding fronting business, we wrote $28.2 million and $99.7 million of new business in the third quarter and first nine months of 2009, compared to $39.4 million and $99.8 million during the same periods last year. Pricing on our workers’ compensation rate-sensitive business increased 1% during the third quarter of 2009, compared to a 7% decrease during the third quarter last year, and on a year-to-date basis, it declined 1% during 2009, compared to a 7% decrease during 2008. Payrolls on our renewal customer base decreased by 1% in the first nine months of 2009, compared to the same period in 2008. Our renewal retention rates on existing workers’ compensation accounts were 84% for the third quarter and 81% for the first nine months of 2009, compared to 88% and 86% for the same periods last year. The decline in the retention rates in 2009 primarily reflected lower retentions on rate-sensitive middle-market business as we continue to maintain disciplined underwriting standards in a price competitive environment. While retention rates were also down on loss-sensitive workers’ compensation business, the decrease was lower than that on rate-sensitive business and retention rates remained higher for business written on a loss-sensitive basis than for business written on a rate-sensitive basis, reflecting our strategy to emphasize loss-sensitive business.

Net premiums earned were $102.6 million in the third quarter of 2009, compared to $98.1 million in the third quarter of 2008. For the first nine months of 2009, net premiums earned increased to $314.8 million, from $286.9 million for the first nine months of 2008. The increases in both periods reflect the increase in direct premiums written over the past year.

The combined ratio on a GAAP basis was 95.8% for the third quarter of 2009, compared to 95.2% in the third quarter last year. The higher combined ratio in the third quarter of 2009 was the result of increases in the policyholders’ dividend and expense ratios, which were partially offset by a decrease in the loss and LAE ratio. The decrease between periods in the loss and LAE ratio primarily reflected the impact of the Company’s managed care initiatives, and also related to modest favorable prior year development in our captive business. The higher policyholders’ dividend ratio was primarily in our captive business and reflected better than anticipated underwriting and investment results in many of the captive programs. In this business, the policyholders may receive a dividend based, to a large extent, on their program’s underwriting and investment results. The increase in the expense ratio reflected higher state based assessments.

On a year-to-date basis, the combined ratio was 96.2% in 2009, compared to 96.5% for the same period in 2008. The improvement in the combined ratio for the first nine months of 2009, compared to the first nine months of last year, was primarily the result of a lower expense ratio, which was partially offset by an increased policyholders’ dividend ratio.

The loss and LAE ratio remained relatively flat in the first nine months of 2009, compared to the prior year period, as the lower loss experience on our captive accounts business was offset by the first quarter reduction in audit premiums. While payrolls on our renewal book have been stable overall, the 1% decrease was lower than the rate of growth we experienced in 2008. As a result of the decrease, we reduced our accrual for additional audit premiums by $3.3 million during the first quarter of 2009. Key loss indicators are in line with our expectations for this business, and we will continue to evaluate loss activity on these accounts as they mature, but we did not reduce our expectation of losses on these policies, which were primarily written in 2007 and 2008. Although pricing changes coupled with payroll inflation for rate-sensitive workers’ compensation business were below overall estimated loss trends, our current accident year loss and LAE ratio remained consistent between periods as we continued to benefit in the first nine months of 2009 from changes in the type of workers’ compensation products selected by our insureds and from our managed care initiatives. We estimate our medical cost inflation to be 6.0% in the first nine months of 2009, compared to our estimate of 6.5% in the first nine months of 2008.

The expense ratio for the first nine months of 2009, compared to the same period last year, benefited as the increase in net premiums earned outpaced the 2% increase in our controllable expenses, which include salary, benefits and other employee-related costs. Commissions earned under our fronting arrangements reduced the acquisition expense ratios by 0.7 points for the third quarter and 0.6 points for the first nine months of 2009, compared to 0.4 points and 0.7 points for the same periods in 2008, as the ceding commissions earned on this business reduce our commission expense.

Net investment income increased to $9.4 million in the third quarter of 2009, compared to $8.8 million in the prior year quarter. Net investment income was $27.4 million for the first nine months of 2009, compared to $26.8 million for the first nine months of 2008. The increases in the third quarter and first nine months of 2009 were due primarily to increases in average invested assets, which were partially offset by lower investment yields.

Fee-based Business

For the third quarter of 2009, total revenues at our Fee-based Business increased to $20.6 million, from $18.8 million for the same period in 2008. For the nine months ended September 30, 2009, total revenues increased to $59.8 million, compared to $51.5 million for the first nine months of 2008. The increases in revenues primarily reflected increases in claims service revenues of $1.4 million and $9.2 million for the third quarter and first nine months of 2009. The year-to-date increase in claims service revenues was partially offset by a decline in commission income of $1.2 million. Organic claims service revenue growth was 9% in the quarter and 12% in the first nine months of 2009, compared to the same periods a year ago. Claims service revenues also increased as a result of our June 2008 acquisition of PMA Management Corp. of New England, Inc.

Our Fee-based Business reported pre-tax operating income of $5.1 million for the first nine months of 2009, compared to $5.3 million for the same period last year. The year-to-date results were reduced by lower net commissions earned by our agency business. The decline in net commissions was partially offset by claims service revenues that increased at a faster rate than operating expenses. For the third quarter, pre-tax operating income was $1.6 million, compared to $1.9 million for the same period last year. The decline in the quarter was due to operating expenses increasing at a higher rate than the increase in revenues.

Corporate and Other

The Corporate and Other segment, which includes primarily corporate expenses and debt service, reported net expenses of $4.8 million during the third quarter of 2009, compared to $5.3 million in the third quarter of 2008. Net expenses were $14.9 million during the first nine months of 2009, compared to $15.8 million for the same period in 2008. The decreases in net expenses in 2009 related primarily to lower stock-based compensation expense and lower interest expense on variable rate debt.

Discontinued Operations

Discontinued operations, which consists of our former reinsurance and excess and surplus lines businesses, had after-tax losses of $40,000 and $1.3 million for the three and nine months ended September 30, 2009, compared to after-tax losses of $2.3 million and $4.9 million for the same periods in 2008. The loss for the first nine months of 2009 reflects the write-down of our carrying value of the discontinued operations to zero. The loss for the first nine months of 2008 was due to an after-tax charge of $4.9 million for adverse loss development, including $2.3 million recorded in the third quarter.

Conference Call with Investors

As a reminder, we will hold a conference call with investors beginning at 8:30 a.m. Eastern Time on Wednesday, November 4^th to review our third quarter 2009 results. The conference call will be available via a live webcast over the Internet at www.pmacapital.com. To access the webcast, enter the Investor Information section, click on News Releases and then click on the microphone icon. Please note that by accessing the conference call via the Internet, you will be in a listen-only mode.

The call-in numbers and passcodes for the conference call are as follows:

You may pre-register for the conference call using the following link:
www.theconferencingservice.com/prereg/key.process?key=PM4JGCJTD

Pre-registering is not mandatory but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the conference. Pre-registration only takes a few moments and you may pre-register at anytime, including up to and after the call start time. Alternatively, if you would rather be placed into the call by an operator, please use the dial-in information above at least five minutes prior to the call start time.

A replay of the conference call will be available over the Internet or by dialing the call-in number for the replay and using the passcode. The replay will be available from approximately 11:30 a.m. Eastern Time on Wednesday, November 4^th until 11:59 p.m. Eastern Time on Friday, December 4^th.

Quarterly Statistical Supplement

Our Third Quarter Statistical Supplement, which provides more detailed information about our results, is available on our website. Please see the Investor Information section of our website at www.pmacapital.com. You may also obtain a copy of this supplement by sending your request to:

Alternatively, you may make a request by telephone (610-397-5298) or by e-mail to InvestorRelations@pmacapital.com. We will also furnish a copy of this news release and the Statistical Supplement to the Securities and Exchange Commission on a Form 8-K. A copy of the Form 8-K will be available on the SEC’s website at www.sec.gov.

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to the Company’s financial condition and results of operations and the plans and objectives of its management. Forward-looking statements can generally be identified by use of forward-looking terminology such as “may,” “will,” “plan,” “expect,” “intend,” “anticipate,” “should” and “believe.” These forward-looking statements may include estimates, assumptions or projections and are based on currently available financial, competitive and economic data and the Company’s current operating plans. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements. The factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:

• adequacy of reserves for claim liabilities, including reserves for potential environmental and asbestos claims;
• any future lowering or loss of one or more of our financial strength and debt ratings, and the adverse impact that any such downgrade may have on our ability to compete and to raise capital, and our liquidity and financial condition;
• adequacy and collectibility of reinsurance that we purchase;
• uncertainty as to the price and availability of reinsurance on business we intend to write in the future, including reinsurance for terrorist acts;
• the effects of emerging claims and coverage issues, including changing judicial interpretations of available coverage for certain insured losses;
• the success with which our independent agents and brokers sell our products and our ability to collect payments from them;
• legislative and regulatory changes that affect the cost of, or demand for, our products or otherwise affect our ability to conduct business, including any future action with respect to our business taken by the Pennsylvania Insurance Department and any future action taken by the federal government with respect to regulation of the insurance industry;
• our concentration in workers’ compensation insurance, which makes us particularly susceptible to adverse changes in that industry segment;
• our ability to consummate the sale of our Run-off Operations as described above in a timely manner;
• severity of natural disasters and other catastrophes, including the impact of future acts of terrorism, in connection with insurance and reinsurance policies;
• uncertainties related to possible terrorist activities or international hostilities and whether the Terrorism Risk Insurance Program Reauthorization Act of 2007 is extended beyond its December 31, 2014 termination date;
• our ability to effectively compete in the highly competitive property and casualty insurance industry;
• adverse economic or regulatory developments in the eastern part of the United States, particularly those affecting Pennsylvania, New York and New Jersey;
• fluctuations in interest rates and other events that can adversely impact our investment portfolio;
• disruptions in the financial markets that affect the value of our investment portfolio and our ability to sell our investments;
• our ability to repay our indebtedness;
• our ability to raise additional capital on financially favorable terms when required;
• restrictions on our operations contained in any document governing our indebtedness;
• the impact of future results on the value of recorded goodwill and other intangible assets and the recoverability of our deferred tax asset;
• our ability to attract and retain qualified management personnel;
• the outcome of any litigation against us;
• provisions in our charter documents that can inhibit a change in control of our company; and
• other factors or uncertainties disclosed from time to time in our filings with the Securities and Exchange Commission.

You should not place undue reliance on any forward-looking statements in this press release. Forward-looking statements are not generally required to be publicly revised as circumstances change and we do not intend to update the forward-looking statements in this press release to reflect circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

PMA Capital Corporation
William E. Hitselberger, 610-397-5298
bhitselberger@pmacapital.com

HARTFORD, Conn.–(BUSINESS WIRE)–The Hartford Financial Services Group, Inc. (NYSE: HIG - News):

• Operating Franchises Performing Well:
  • P&C Combined Ratio at 93.0%
  • Life Assets Under Management* Top $334 Billion
• Core Earnings* of $660 Million, or $1.56 Per Diluted Share
• Net Loss of $220 Million, or $0.79 Per Share, Driven by Impairments and Hedging Results
• Book Value Per Share Jumps 18% From End of Second Quarter to $37.90
• Net Unrealized Loss Declines More than 50% to $5.8 Billion
• Capital Position Strong, Enhanced by $900 Million Equity Raise

The Hartford Financial Services Group, Inc. (NYSE: HIG - News) today reported its third quarter 2009 results. A summary of the company’s financial performance is provided in the following table.

*Denotes financial measures not calculated based on generally accepted accounting principles (“non-GAAP”). More information is provided in the Discussion of Non-GAAP and Other Financial Measures section below.

“The Hartford’s third quarter core earnings results demonstrate a resilient company that is emerging from the challenges of the last 18 months,” said Liam E. McGee, The Hartford’s Chairman and Chief Executive Officer. “In my first month on the job, I have found that the core attributes that initially drew me to The Hartford are sound. The company today has a strong capital foundation; a trusted, well-respected, 200-year-old brand; solid operating franchises; positive relationships with its distribution partners; and a dedicated group of employees committed to winning in the marketplace.

“There are clearly challenges, including the economy and the potential for a second downturn in the equity and credit markets, as well as the performance of our investment portfolio. We remain focused on managing through these issues. Our protection and wealth management franchises are stable and performing well, we are seeing signs that business momentum is building, and the company is focused on its path forward,” added McGee.

The Hartford reported a third quarter 2009 net loss of $220 million, or $0.79 per diluted share, compared with a third quarter 2008 net loss of $2.6 billion, or $8.74 per diluted share. Core earnings for the third quarter of 2009 were $660 million, or $1.56 per diluted share, compared with a core loss of $422 million or $1.40 per diluted share, in the prior period.

Third quarter 2009 net income reflected a DAC unlock benefit of $63 million, after tax and third quarter 2009 core earnings included a $232 million benefit from the DAC unlock. The lower net income benefit relates to a $169 million charge primarily related to the company’s macro hedging program. Third quarter 2008 net income reflected a $932 million after-tax charge related to the DAC unlock, and third quarter 2008 core earnings reflected a $923 million after-tax charge related to the DAC unlock.

The net realized capital loss for the third quarter of 2009 was $885 million, after tax, primarily due to after-tax impairments of $336 million and an after-tax loss of $435 million from the company’s variable annuity hedging programs. Third quarter 2008 results included a net realized capital loss of $2.2 billion, after tax.

REVIEW OF BUSINESS UNIT RESULTS

Property and Casualty Operations

Written premiums* for The Hartford’s property and casualty operations in the third quarter were $2.4 billion, down 6% from the third quarter of 2008 largely as a result of weaker economic conditions which particularly affected commercial lines. The company is seeing momentum in new business submissions in all segments, but particularly strong in personal lines and small commercial.

Core earnings were $246 million, up 58% from the $156 million reported in the prior year period. Net income was $190 million for the third quarter of 2009, including the effect of a $58 million net realized capital loss. In the third quarter of 2008, property and casualty operations reported a net loss of $774 million, including the effect of a $929 million net realized capital loss.

The current accident year combined ratio for ongoing operations in the third quarter of 2009, excluding catastrophes, was 93.8%, compared with 91.8% in the prior-year period. The third quarter of 2009 included $135 million, or 5.5 points, of net favorable prior year development primarily related to small commercial and middle market workers compensation, professional liability, personal lines auto liability and middle market general liability claims.

Personal Lines

Personal lines written premiums for the third quarter of 2009 grew 2% over the prior-year period to $1.0 billion. Written premiums in the company’s agency business rose 4% in the third quarter, with AARP written premiums up 2% over the prior period. New business premium was very strong, increasing 26% over the third quarter of 2008, while the number of policies in force grew 2% year-over-year as investments in new products and increased consumer shopping continued to drive new business submissions. During the quarter, the company continued its successful launch of its AARP product through agents, with the product already in 14 states, and 6 additional states rolling out in the fourth quarter.

The third quarter 2009 current accident year combined ratio, excluding catastrophes, was 94.5%, compared to 88.3% in the prior-year period. The increase in the combined ratio was largely due to current accident year reserve strengthening, in response to an uptick in auto frequency and lower average premium. The third quarter of 2009 included 9.1 points of current accident year catastrophes related to significant hail and wind storms in the Midwest and Colorado.

Small Commercial

Written premiums for small commercial were $626 million for the third quarter of 2009, compared with $652 million in the prior year period. The decline in year-over-year written premium was driven by weaker economic conditions that have resulted in business closings and an overall reduction in exposures as businesses reduce coverages and shrink payrolls. New business premium was up 20% over the prior-year period as product enhancements made in 2009 had a positive impact and the company capitalized on policyholder shopping.

Third quarter 2009 profitability continued to be very strong, with a current accident year combined ratio, excluding catastrophes, of 86.0% as compared to 87.7% in the third quarter of 2008. The third quarter of 2009 included 2.9 points of current accident year catastrophes.

Middle Market

Written premiums for middle market were $496 million for the third quarter of 2009, compared with $571 million in the year-ago period. Written premiums were lower due mainly to weaker economic conditions combined with the company’s ongoing disciplined approach to evaluating and pricing risks. The company continued to target profitable growth opportunities in a highly competitive environment.

The third quarter 2009 current accident year combined ratio, excluding catastrophes, was 97.0%, compared with 98.4% in the prior-year period. The third quarter of 2009 included 1.2 points of current accident year catastrophes and $52 million, or 10.1 points, of net favorable prior year development largely related to workers’ compensation and general liability.

Specialty Commercial

In specialty commercial, written premiums for the third quarter of 2009 were $266 million as compared to $345 million in the year-ago period. Premiums were driven lower by a combination of the effects of the economic downturn, the sale of First State Management Group, which contributed $14 million of premium in the third quarter of 2008, and lower net premiums resulting from changes in a reinsurance treaty.

The third quarter 2009 current accident year combined ratio, excluding catastrophes, was 102.6% as compared with 99.0% in the third quarter of 2008. The third quarter of 2009 included $39 million, or 13.0 points, of net favorable prior year development primarily related to professional liability.

Life Operations

Life operations assets under management were $334.3 billion at the end of the third quarter of 2009, essentially flat compared with $333.3 billion as of September 30, 2008 and up 11% from the end of the second quarter of 2009. Core earnings for the third quarter of 2009 were $499 million, up from core losses of $541 million in the prior year period.

Life reported a net loss of $323 million in the third quarter of 2009, compared with a net loss of $1.8 billion in the year-ago period. The third quarter of 2009 net loss included a $62 million after-tax benefit related to the DAC unlock and an $825 million net realized capital loss. The third quarter of 2008 included a $941 million after-tax charge related to the DAC unlock and a $1.3 billion net realized capital loss.

INDIVIDUAL MARKETS

Retail Products Group

Total retail products assets under management were $136.6 billion at September 30, 2009, compared with $146.4 billion at September 30, 2008, primarily as a result of equity market declines over the last 12 months. Assets under management increased 11% sequentially from the $123.3 billion reported at the end of the second quarter of 2009, as a result of recent market improvement. The net loss for the third quarter of 2009 was $172 million, and included a $69 million benefit related to the DAC unlock, as well as a net realized capital loss of $499 million, driven by a combination of losses on the company’s variable annuity hedging programs and impairments on the investment portfolio. This compares with a third quarter 2008 net loss of $822 million, which included a DAC unlock charge of $732 million and a net realized capital loss of $283 million.

Variable annuity deposits for the quarter were $622 million, compared to $1.9 billion in the prior-year period. The year-over-year decline was due primarily to the company’s product feature and pricing changes. Third quarter 2009 variable annuity net outflows were $1.7 billion, compared with $1.5 billion in the prior year period.

In October, the company introduced The Hartford’s Personal Retirement Manager, an innovative new product that combines two traditional retirement planning approaches, long-term investment growth and guaranteed lifetime income potential, in a single, user-friendly, tax-deferred retirement planning vehicle.

Mutual fund deposits were $3.1 billion in the third quarter of 2009, compared with $3.6 billion in the prior-year period. Strong mutual fund performance in the third quarter contributed to sales, with 65% of The Hartford’s retail mutual funds outperforming their Morningstar peers in the third quarter of 2009. Net sales were $779 million in the third quarter of 2009, compared with $816 million in the prior year period.

Individual Life

Third quarter 2009 sales for individual life were $45 million, down from $69 million in the prior-year period due to equity market volatility and disruption in the wirehouse and bank distribution channels. Life insurance in-force rose 4% over the prior-year period, primarily driven by a 13% increase in term life insurance, as customer demand shifted to fixed products.

Individual life reported net income of $4 million for the third quarter of 2009, including a net realized capital loss of $24 million and a $24 million charge related to the DAC unlock. Net loss for the third quarter of 2008 was $102 million, which included a net realized capital loss of $111 million and a $44 million charge related to the DAC unlock.

EMPLOYER MARKETS

Retirement Plans

Retirement plans assets under management were $42.7 billion at September 30, 2009, compared with $43.3 billion at the end of the third quarter of 2008. Sequentially, assets under management were up notably from the $38.8 billion reported at the end of the second quarter of 2009 due primarily to recent equity market performance. Total deposits were $1.8 billion in the third quarter of 2009, compared with $2.3 billion in the prior-year period. During the quarter, The Hartford and Lord Abbett entered into a strategic alliance to offer Lord Abbett’s 401(k) plan sponsors the ability to transition their plans to The Hartford. Lord Abbett manages nearly 8,000 bundled small 401(k) plans comprising more than 59,000 participants and more than $1.2 billion in assets.

Retirement plans reported a net loss of $34 million for the third quarter of 2009, driven by a net realized capital loss of $49 million. This compares to a net loss of $160 million in the prior-year period, which included a net realized capital loss of $123 million and a $49 million charge related to the DAC unlock.

Group Benefits

Group benefits fully insured sales were $122 million in the third quarter, compared with sales of $158 million in the prior-year period largely due to the economic and competitive environment. Fully insured premiums were $1.1 billion for the third quarter of 2009, down 4% from the prior-year period. The decrease was primarily related to the effects of the economic downturn, including lower payrolls, while persistency remained high.

Group benefits reported net income for the third quarter of 2009 of $65 million, up from a net loss of $186 million in the prior-year period. The third quarter of 2009 included a net realized capital loss of $20 million compared with a net realized capital loss of $287 million in the third quarter of 2008.

INTERNATIONAL MARKETS

As a result of the company’s decision to suspend writing new business in Japan, variable annuity deposits in Japan for the third quarter of 2009 were $17 million, down from $868 million in the third quarter of 2008. Net outflows for variable annuities were $249 million for the third quarter of 2009.

International operations reported a third quarter 2009 net loss of $32 million, including an $18 million benefit related to the DAC unlock and a net realized capital loss of $107 million. Third quarter 2008 net loss was $107 million and included a net realized capital loss of $36 million and a DAC unlock charge of $116 million.

INSTITUTIONAL MARKETS

Institutional deposits for the third quarter of 2009 were $623 million, compared with $850 million in the prior-year period, with the majority of the deposits in institutional mutual funds. The decline in deposits was primarily driven by the company’s decision to cease writing new business in certain lines. Institutional reported a third quarter 2009 net loss of $101 million, which included a net realized capital loss of $94 million, compared with a net loss of $393 million in the year-ago period, which included a net realized capital loss of $394 million.

INVESTMENTS

The Hartford’s total investments, excluding trading securities, were $96 billion as of September 30, 2009, compared to $89 billion as of December 31, 2008. Net investment income, excluding trading securities, was $1.0 billion, before tax, in the third quarter of 2009, a decline of 5% from the prior-year period. The decline was primarily due to lower interest rates as well as the company’s decision to increase its allocation to short-term investments.

Impairments were $536 million, pre-tax, in the third quarter of 2009. The majority of impairments were related to potential future credit losses on certain structured securities.

Net unrealized losses on investments were $5.8 billion, pre-tax, as of September 30, 2009, compared with $13.2 billion as of December 31, 2008. The improvement was driven by significant spread tightening across virtually all fixed maturity asset classes in the second and third quarter of 2009, partially offset by the implementation of new impairment accounting guidance.

2009 GUIDANCE

Based on the assumptions below, The Hartford currently expects 2009 core earnings per diluted share to be between $0.85 and $1.05. The company’s previous guidance for 2009 core earnings per diluted share was between $0.00 and $0.20. The guidance contained within this news release is subject to unusual or unpredictable benefits or charges that might occur in 2009, as well as factors noted below. Historically, the company has frequently experienced unusual or unpredictable benefits and charges that were not anticipated in previously provided guidance.

This guidance assumes the following:

– U.S. equity markets produce an annualized return of 9.0% (including 7.2% stock appreciation and 1.8% dividends) from the S&P 500 level of 1,057 on September 30, 2009;

– This guidance incorporates no estimate of the effect of any fourth quarter 2009 unlock of the account values and related assumptions underlying the company’s estimate of future gross profits used in the determination of certain asset and liability balances, principally life deferred acquisition costs;

– A fourth quarter 2009 restructuring charge of $30 million, after tax;

– Preferred dividends and amortization of discount of $128 million on the cumulative perpetual preferred stock issued under the Capital Purchase Program;

– A full year, pre-tax underwriting loss of $225 million from other operations in property and casualty. In the last several years, underwriting losses in other operations have differed materially from the assumptions incorporated in guidance;

– A full year catastrophe ratio of 3.6% to 4.0%;

– A pre-tax annualized yield on limited partnerships and other alternative investments of (21%); and

– Diluted weighted average shares outstanding of 364 million for full year 2009.

Markets worldwide have experienced persistent volatility and disruption, due largely to the stresses affecting the global financial system, which accelerated significantly in the second half of 2008 and continued into 2009. The United States, Europe and Japan have entered severe recessions that are likely to persist well into the second half of 2009 and perhaps into 2010, despite governmental intervention in the world’s major economies. The likelihood that the company’s 2009 earnings guidance will turn out to be incorrect is increased by virtue of these conditions. The company’s actual experience in 2009 will almost certainly differ from many of the assumptions described above, and investors should consider the risks and uncertainties that may cause the company’s actual results to differ from the 2009 earnings guidance, including, but not limited to, those set forth in the discussion of forward looking statements at the end of this release and the risk factors included in the company’s quarterly report on Form 10-Q for the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009, and annual report on Form 10-K for the year ended December 31, 2008.

CONFERENCE CALL

The Hartford will discuss its third quarter 2009 results in a conference call on Wednesday, November 4 at 8:00 a.m. EST. The call, along with a slide presentation, can be simultaneously accessed through The Hartford’s Web site at ir.thehartford.com.

More detailed financial information can be found in The Hartford’s Investor Financial Supplement for the third quarter of 2009, which is available on The Hartford’s Web site, ir.thehartford.com.

About The Hartford

Celebrating nearly 200 years, The Hartford (NYSE: HIG - News) is an insurance-based financial services company that serves households, businesses and employees by helping to protect their assets and income from risks, and by managing wealth and retirement needs. A Fortune 500 company, The Hartford is recognized widely for its service expertise and as one of the world’s most ethical companies. More information on the company and its financial performance is available at www.thehartford.com.

HIG-F

DISCUSSION OF NON-GAAP AND OTHER FINANCIAL MEASURES

The Hartford uses non-GAAP and other financial measures in this press release to assist investors in analyzing the company’s operating performance for the periods presented herein. Because The Hartford’s calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing The Hartford’s non-GAAP and other financial measures to those of other companies.

The Hartford uses the non-GAAP financial measure core earnings (loss) as an important measure of the company’s operating performance. The Hartford believes that the measure core earnings provides investors with a valuable measure of the performance of the company’s ongoing businesses because it reveals trends in the company’s insurance and financial services businesses that may be obscured by the net effect of certain realized capital gains and losses. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of the company’s business.

Accordingly, core earnings (loss) excludes the effect of all realized gains and losses (net of tax and the effects of deferred policy acquisition costs) that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to the company’s insurance operations, so core earnings (loss) includes net realized gains and losses such as net periodic settlements on credit derivatives and net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income (loss). Core earnings (loss) is also used by management to assess the company’s operating performance and is one of the measures considered in determining incentive compensation for the company’s managers. Net income (loss) is the most directly comparable GAAP measure. Core earnings (loss) should not be considered as a substitute for net income (loss) and does not reflect the overall profitability of the company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) and core earnings (loss) when reviewing the company’s performance. A reconciliation of net income (loss) to core earnings for the three and nine months ended September 30, 2008 and 2009 is set forth in the results by segment table. The 2009 earnings guidance presented in this release is based in part on core earnings (loss). A quantitative reconciliation of The Hartford’s net income (loss) to core earnings (loss) is not calculable on a forward-looking basis because it is not possible to provide a reliable forecast of realized capital gains and losses, which typically vary substantially from period to period.

Core earnings (loss) per share is calculated based on the non-GAAP financial measure core earnings (loss). The Hartford believes that the measure core earnings (loss) per share provides investors with a valuable measure of the company’s operating performance for many of the same reasons applicable to its underlying measure, core earnings (loss). Net income (loss) per share is the most directly comparable GAAP measure. Core earnings (loss) per share should not be considered as a substitute for net income (loss) per share and does not reflect the overall profitability of the company’s business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) per share and core earnings (loss) per share when reviewing the company’s performance. A reconciliation of net income (loss) per share to core earnings (loss) per share for the three and nine months ended September 30, 2008 and 2009 is set forth on pages C-3 and C-4 of The Hartford’s Investor Financial Supplement for the third quarter of 2009.

Written premium is a statutory accounting financial measure used by The Hartford as an important indicator of the operating performance of the company’s property and casualty operations. Because written premium represents the amount of premium charged for policies issued, net of reinsurance, during a fiscal period, The Hartford believes it is useful to investors because it reflects current trends in The Hartford’s sale of property and casualty insurance products. Earned premium, the most directly comparable GAAP measure, represents all premiums that are recognized as revenues during a fiscal period. The difference between written premium and earned premium is attributable to the change in unearned premium reserves. A reconciliation of written premium to earned premium for the three and nine months ended September 30, 2008 and 2009 is set forth on page PC-2 of The Hartford’s Investor Financial Supplement for the third quarter of 2009.

Book value per share excluding accumulated other comprehensive income (“AOCI”) is calculated based upon a non-GAAP financial measure. It is calculated by dividing (a) stockholders’ equity excluding AOCI, net of tax, by (b) common shares outstanding.

The Hartford provides book value per share excluding AOCI to enable investors to analyze the amount of the company’s net worth that is primarily attributable to the company’s business operations. The Hartford believes book value per share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per share is the most directly comparable GAAP measure. A reconciliation of book value per share to book value per share excluding AOCI as of September 30, 2008 and 2009 is set forth in the results by segment table.

Assets under management is an internal performance measure used by The Hartford because a significant portion of the company’s revenues are based upon asset values. These revenues increase or decrease with a rise or fall, correspondingly, in the level of assets under management. Assets under management is the sum of The Hartford’s total assets, mutual fund assets, and third-party assets managed by Hartford Investment Management Company.

The Hartford’s management evaluates profitability of the Personal Lines, Small Commercial, Middle Market and Specialty Commercial underwriting segments primarily on the basis of underwriting results. Underwriting results is a before-tax measure that represents earned premiums less incurred losses, loss adjustment expenses and underwriting expenses. Net income (loss) is the most directly comparable GAAP measure. Underwriting results are influenced significantly by earned premium growth and the adequacy of The Hartford’s pricing. Underwriting profitability over time is also greatly influenced by The Hartford’s underwriting discipline, which seeks to manage exposure to loss through favorable risk selection and diversification, its management of claims, its use of reinsurance and its ability to manage its expense ratio, which it accomplishes through economies of scale and its management of acquisition costs and other underwriting expenses. The Hartford believes that underwriting results provides investors with a valuable measure of before-tax profitability derived from underwriting activities, which are managed separately from the company’s investing activities. Underwriting results are presented for Ongoing Operations, Other Operations and total Property and Casualty in The Hartford’s Investor Financial Supplement. A reconciliation of underwriting results to net income (loss) for total Property and Casualty, Ongoing Operations and Other Operations is set forth on pages PC-2, PC-3 and PC-13 of The Hartford’s Investor Financial Supplement for the third quarter of 2009.

A catastrophe is a severe loss, resulting from natural or man-made events, including fire, earthquake, windstorm, explosion, terrorist attack and similar events. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or loss amount in advance, and therefore their effects are not included in earnings or losses and loss adjustment expense reserves prior to occurrence. The Hartford believes that a discussion of the effect of catastrophes is meaningful for investors to understand the variability of periodic earnings.

Some of the statements in this release should be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These include statements about The Hartford’s future results of operations. The Hartford cautions investors that these forward-looking statements are not guarantees of future performance, and actual results may differ materially. Investors should consider the important risks and uncertainties that may cause actual results to differ. These important risks and uncertainties include, without limitation, uncertainties related to the depth and duration of the current recession and financial market conditions, which continue to pressure the Company’s capital position and adversely affect the Company’s business and results, the extent of the impact on the Company’s results and prospects of recent downgrades in the Company’s financial strength and credit ratings and the impact of any further downgrades on the Company’s business and results; the success of management’s initiatives to stabilize the Company’s ratings and mitigate and reduce risks associated with various business lines; the additional restrictions, oversight, costs and other potential consequences of the Company’s participation in the Capital Purchase Program under the Emergency Economic Stabilization Act of 2008; changes in financial and capital markets, including changes in interest rates, credit spreads, equity prices and foreign exchange rates; the inability to effectively mitigate the impact of equity market volatility on the company’s financial position and results of operations arising from obligations under annuity product guarantees; the amount of statutory capital that the company has, changes to the statutory reserves and/or risk based capital requirements, and the company’s ability to hold and protect sufficient statutory capital to maintain financial strength and credit ratings; the possibility of general economic and business conditions that are less favorable than anticipated; the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the valuation of the company’s financial instruments that could result in changes to investment valuations; the subjective determinations that underlie the company’s evaluation of other-than-temporary impairments on available-for-sale securities; losses due to defaults by others; the availability of our commercial paper program; the potential for further acceleration of DAC amortization; the potential for further impairments of our goodwill; the difficulty in predicting the company’s potential exposure for asbestos and environmental claims; the possible occurrence of terrorist attacks; the response of reinsurance companies under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the company against losses; the possibility of unfavorable loss development; the incidence and severity of catastrophes, both natural and man-made; stronger than anticipated competitive activity; unfavorable judicial or legislative developments; the potential effect of domestic and foreign regulatory developments, including those which could increase the company’s business costs and required capital levels; the company’s ability to distribute its products through distribution channels, both current and future; the uncertain effects of emerging claim and coverage issues; the ability of the company’s subsidiaries to pay dividends to the company; the company’s ability to adequately price its property and casualty policies; the ability to recover the company’s systems and information in the event of a disaster or other unanticipated event; potential for difficulties arising from outsourcing relationships; potential changes in federal or state tax laws, including changes impacting the availability of the separate account dividend received deduction; the company’s ability to protect its intellectual property and defend against claims of infringement; and other risks and uncertainties discussed in The Hartford’s Quarterly Reports on Form 10-Q, the 2008 Annual Report on Form 10-K and other filings The Hartford makes with the Securities and Exchange Commission. The Hartford assumes no obligation to update this release, which speaks as of the date issued.

- Financial tables to follow -

The Hartford Financial Services Group, Inc.
Media Contact(s):
Shannon Lapierre, 860-547-5624
shannon.lapierre@thehartford.com
or
Debora Raymond, 860-547-9613
debora.raymond@thehartford.com
or
Investor Contact(s):
Rick Costello, 860-547-8480
richard.costello@thehartford.com
or
JR Reilly, 860-547-9140
jr.reilly@thehartford.com

GREENWICH, Conn.–(BUSINESS WIRE)–W. R. Berkley Corporation (NYSE:WRB - News) today announced the election by the Board of Directors of W. Robert Berkley, Jr. as president and chief operating officer of the Company. The appointment is effective immediately.

As president and chief operating officer, W. Robert Berkley will manage all of the Company’s operating units, adding oversight of the Company’s reinsurance and international segments to his current responsibilities. He has been responsible for the oversight of the Company’s domestic insurance operations, including its specialty, regional and alternative markets businesses, since 2005.

W. Robert Berkley joined W. R. Berkley Corporation in 1997 and has served as its executive vice president since August 2005. In addition, he has served on the Company’s Board of Directors since his election in 2001. W. Robert Berkley previously held a number of positions in the Company, including senior vice president-specialty operations, overseeing the operations of the specialty segment, and president of Berkley International, LLC, with responsibility for the Company’s international segment. Before joining W. R. Berkley Corporation, W. Robert Berkley worked as an investment banker at Merrill Lynch & Company. He is currently Chairman of the Board of NCCI Holdings, Inc., an industry-based organization that manages the nation’s largest database of workers’ compensation insurance information.

Founded in 1967, W. R. Berkley Corporation is an insurance holding company that is among the largest commercial lines writers in the United States and operates in five segments of the property casualty insurance business: specialty insurance, regional property casualty insurance, alternative markets, reinsurance and international.

W. R. Berkley Corporation
Karen A. Horvath, 203-629-3040
Vice President – External Financial Communications

POSTED BY STEVEN WEVODAU

OMAHA, Nebraska (AP) — Billionaire Warren Buffett said Saturday the U.S. government is generally taking the right actions to help the economy recover, and it should be given some benefit of the doubt because officials have been reacting in the middle of a crisis.

The state of the economy was one of the first things addressed at Saturday’s daylong Berkshire Hathaway Inc. shareholders meeting. Roughly 35,000 people packed an arena and overflow rooms to listen to Buffett and Berkshire vice chairman Charlie Munger answer questions for hours.

“Overall, I commend the actions that were taken,” Buffett said. But he said no one should expect perfection because the economy experienced a “financial hurricane.”

But Buffett said he can’t predict how quickly the economy and the markets will improve. He said last fall that the U.S. was facing an “economic Pearl Harbor.”

To illustrate the challenges the U.S. faced last year, Buffett showed a sales receipt for $5 million in U.S. Treasury bonds that Berkshire sold in December for $90.07 more than face value, ensuring a negative return for the buyer. Buffett said he does not think most investors will see negative returns on U.S. bonds again in their lifetimes.

“It’s been a very extraordinary year,” he said.

In the exhibit hall Saturday morning, Buffett was mobbed like a movie star by shareholders seeking photos of the CEO as he walked between exhibits for subsidiaries Justin Boots and Dairy Queen.

The meeting began as usual with a humorous movie, but instead of the traditional comical cartoon, Berkshire offered a reassuring message from animated versions of its products.

An animated Mrs. See of See’s Candy told the crowd that it didn’t seem right to have a humorous cartoon when so many things in the world don’t seem sweet. And a talking Dairy Queen ice cream treat said the security of the company’s balance sheet would help it withstand any blizzard.

The economy, succession at the top of Berkshire and the state of the company, which last year had its worst year since Buffett took over in 1965, were on the minds of many shareholders.

Berkshire’s Class A stock lost 32 percent in 2008, and Berkshire’s book value — assets minus liabilities — declined 9.6 percent, to $70,530 per share. That was the biggest drop in book value under Buffett and only the second time its book value has declined.

But despite Berkshire’s rough year — which was depressed by unrealized multibillion-dollar derivative losses — the company still outpaced the market index Buffett uses as a measuring stick. The S&P 500 fell 37 percent in 2008.

Berkshire reported a 2008 profit of $4.99 billion, or $3,224 per Class A share. That was down 62 percent from the previous year, but better than many companies.

Retired shareholder Paul Gallmeyer of the Chicago area said he wasn’t especially worried about who will replace the 78-year-old Buffett as Berkshire’s chairman and CEO. He said all of Berkshire’s more than 60 subsidiaries are run by people who will keep the company going after Buffett is gone.

“I truly don’t see that as much of an issue as other people make it,” Gallmeyer said.

But some shareholders, like Dennis Hospodarsky of Waterloo, Iowa, were a little worried about the succession issue.

“I hope he’s as good at picking a successor as he is at stocks,” Hospodarsky said.

Buffett offered a few new clues about who will replace him at the helm of Berkshire Hathaway, but Buffett still refused to name the people who will become Berkshire’s next chief executive or its next chief investment officer. Buffett received several succession questions.

Three of Berkshire’s internal managers are candidates to be CEO. And the board has a list of four internal and external investment managers who could manage Berkshire’s $49 billion stock portfolio and investing its $24.3 billion cash.

Buffett says none of the investment managers likely beat the S&P 500 last year, but over the past 10 years they all beat the average performance at least modestly if not significantly.

Buffett said he doesn’t see any value in choosing a CEO successor now to follow him around Berkshire’s 19-person headquarters because all the candidates are already running businesses now. Plus the other two might leave Berkshire if a successor was named.

“It’d be a waste of talent,” Buffett said. “I don’t really see any advantages in having some crown prince around.”

Buffett has said his son Howard will take over as chairman to ensure Berkshire’s culture is preserved. Howard Buffett already serves on the board.

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com/