ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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13-3317783
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Indicate by check mark:
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Yes
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No
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• 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.
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ý
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¨
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• whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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ý
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¨
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• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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Emerging growth company
¨
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• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)
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¨
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ý
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Item
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Description
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Page
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1.
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FINANCIAL STATEMENTS
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|
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
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CONDENSED CONSOLIDATED BALANCE SHEETS - AS OF MARCH 31, 2018 AND DECEMBER 31, 2017
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CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
[a]
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4.
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CONTROLS AND PROCEDURES
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|
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|
1.
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LEGAL PROCEEDINGS
|
|
1A.
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RISK FACTORS
|
|
2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
6.
|
EXHIBITS
|
|
|
EXHIBITS INDEX
|
|
|
SIGNATURE
|
•
|
Risks Related to Economic, Political and Global Market Conditions:
|
◦
|
challenges related to the Company’s current operating environment, including global political, economic and market conditions, and the effect of financial market disruptions, economic downturns, trade tariffs or other potentially adverse macroeconomic developments on the demand for our products and returns in our investment portfolios;
|
◦
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financial risk related to the continued reinvestment of our investment portfolios;
|
◦
|
market risks associated with our business, including changes in credit spreads, equity prices, interest rates, inflation rate, market volatility and foreign exchange rates;
|
◦
|
the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;
|
•
|
Insurance Industry and Product-Related Risks:
|
◦
|
the possibility of unfavorable loss development, including with respect to long-tailed exposures;
|
◦
|
the possibility of a pandemic, earthquake, or other natural or man-made disaster that may adversely affect our businesses;
|
◦
|
weather and other natural physical events, including the severity and frequency of storms, hail, winter storms, hurricanes and tropical storms, as well as climate change and its potential impact on weather patterns;
|
◦
|
the possible occurrence of terrorist attacks and the Company’s inability to contain its exposure as a result of, among other factors, the inability to exclude coverage for terrorist attacks from workers' compensation policies and limitations on reinsurance coverage from the federal government under applicable laws;
|
◦
|
the Company’s ability to effectively price its property and casualty policies, including its ability to obtain regulatory consents to pricing actions or to non-renewal or withdrawal of certain product lines;
|
◦
|
actions by competitors that may be larger or have greater financial resources than we do;
|
◦
|
technology changes, such as usage-based methods of determining premiums, advancement in automotive safety features, the development of autonomous vehicles, and platforms that facilitate ride sharing, which may alter demand for the Company's products, impact the frequency or severity of losses, and/or impact the way the Company markets, distributes and underwrites its products;
|
◦
|
the Company’s ability to market, distribute and provide insurance products and investment advisory services through current and future distribution channels and advisory firms;
|
◦
|
the uncertain effects of emerging claim and coverage issues;
|
•
|
Financial Strength, Credit and Counterparty Risks:
|
◦
|
risks to our business, financial position, prospects and results associated with negative rating actions or downgrades in the Company’s financial strength and credit ratings or negative rating actions or downgrades relating to our investments;
|
◦
|
the impact on our statutory capital of various factors, including many that are outside the Company’s control, which can in turn affect our credit and financial strength ratings, cost of capital, regulatory compliance and other aspects of our business and results;
|
◦
|
losses due to nonperformance or defaults by others, including sourcing partners, derivative counterparties and other third parties;
|
◦
|
the potential for losses due to our reinsurers’ unwillingness or inability to meet their obligations under reinsurance contracts and the availability, pricing and adequacy of reinsurance to protect the Company against losses;
|
◦
|
regulatory limitations on the ability of the Company and certain of its subsidiaries to declare and pay dividends;
|
•
|
Risks Relating to Estimates, Assumptions and Valuations;
|
◦
|
risk associated with the use of analytical models in making decisions in key areas such as underwriting, capital management, hedging, reserving, and catastrophe risk management;
|
◦
|
the potential for differing interpretations of the methodologies, estimations and assumptions that underlie Company’s fair value estimates for its investments and the evaluation of other-than-temporary impairments on available-for-sale securities;
|
◦
|
the potential for further impairments of our goodwill or the potential for changes in valuation allowances against deferred tax assets
|
◦
|
the significant uncertainties that limit our ability to estimate the ultimate reserves necessary for asbestos and environmental claims;
|
•
|
Strategic and Operational Risks:
|
◦
|
the Company’s ability to maintain the availability of its systems and safeguard the security of its data in the event of a disaster, cyber or other information security incident or other unanticipated event;
|
◦
|
the risks, challenges and uncertainties associated with our capital management plan, expense reduction initiatives and other actions, which may include acquisitions, divestitures or restructurings;
|
◦
|
the potential for difficulties arising from outsourcing and similar third-party relationships;
|
◦
|
the Company’s ability to protect its intellectual property and defend against claims of infringement;
|
•
|
Regulatory and Legal Risks:
|
◦
|
the cost and other potential effects of increased regulatory and legislative developments, including those that could adversely impact the demand for the Company’s products, operating costs and required capital levels;
|
◦
|
unfavorable judicial or legislative developments;
|
◦
|
the impact of changes in federal or state tax laws;
|
◦
|
regulatory requirements that could delay, deter or prevent a takeover attempt that shareholders might consider in their best interests;
|
◦
|
the impact of potential changes in accounting principles and related financial reporting requirements;
|
•
|
Risks Related to the Company's Life and Annuity Business in Discontinued Operations:
|
◦
|
the risks related to the Company's ability to close its previously announced sale of its life and annuity run-off book of business, which is subject to several closing conditions, including many that are outside of the Company's control;
|
◦
|
the risks related to political, economic and global economic conditions, including interest rate, equity and credit spread risks;
|
◦
|
the impact on our investment portfolio if our investment portfolio is concentrated in any particular segment of the economy;
|
◦
|
risks related to negative rating actions or downgrades in the financial strength and credit ratings of Hartford Life Insurance Company or Hartford Life and Annuity Insurance Company or negative rating actions or downgrades relating to our investments;
|
◦
|
the volatility in our statutory and United States ("U.S.") Generally Accepted Accounting Principles ("GAAP") earnings and potential material changes to our results resulting from our risk management program to emphasize protection of economic value;
|
◦
|
the potential for losses due to our reinsurers’ unwillingness or inability to meet their obligations under reinsurance contracts;
|
◦
|
the potential for differing interpretations of the methodologies, estimations and assumptions that underlie the fair value estimates for investments and the evaluation of other-than-temporary impairments on available for sale securities;
|
◦
|
the potential for further acceleration of deferred policy acquisition cost amortization and an increase in reserves for certain guaranteed benefits in our variable annuities;
|
◦
|
changes in federal or state tax laws that would impact the tax-favored status of life and annuity contracts; and
|
◦
|
changes in accounting and financial reporting of the liability for future policy benefits, including how the life and annuity businesses account for deferred acquisition costs and market risk benefits on variable annuity contracts and the discounting of life contingent fixed annuities.
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|
Three Months Ended March 31,
|
|||||
(In millions, except for per share data)
|
2018
|
2017
|
||||
|
(Unaudited)
|
|||||
Revenues
|
|
|
||||
Earned premiums
|
$
|
3,927
|
|
$
|
3,438
|
|
Fee income
|
323
|
|
278
|
|
||
Net investment income
|
451
|
|
410
|
|
||
Net realized capital gains (losses):
|
|
|
||||
Total other-than-temporary impairment ("OTTI") losses
|
(2
|
)
|
(3
|
)
|
||
OTTI losses recognized in other comprehensive income (“OCI”)
|
2
|
|
2
|
|
||
Net OTTI losses recognized in earnings
|
—
|
|
(1
|
)
|
||
Other net realized capital (losses) gains
|
(30
|
)
|
25
|
|
||
Total net realized capital (losses) gains
|
(30
|
)
|
24
|
|
||
Other revenues
|
20
|
|
19
|
|
||
Total revenues
|
4,691
|
|
4,169
|
|
||
Benefits, losses and expenses
|
|
|
||||
Benefits, losses and loss adjustment expenses
|
2,695
|
|
2,424
|
|
||
Amortization of deferred policy acquisition costs ("DAC")
|
342
|
|
344
|
|
||
Insurance operating costs and other expenses
|
1,037
|
|
919
|
|
||
Interest expense
|
80
|
|
80
|
|
||
Amortization of other intangible assets
|
18
|
|
1
|
|
||
Total benefits, losses and expenses
|
4,172
|
|
3,768
|
|
||
Income from continuing operations before income taxes
|
519
|
|
401
|
|
||
Income tax expense
|
91
|
|
98
|
|
||
Income from continuing operations, net of tax
|
428
|
|
303
|
|
||
Income from discontinued operations, net of tax
|
169
|
|
75
|
|
||
Net income
|
$
|
597
|
|
$
|
378
|
|
Income from continuing operations, net of tax, per common share
|
|
|
||||
Basic
|
$
|
1.20
|
|
$
|
0.82
|
|
Diluted
|
$
|
1.18
|
|
$
|
0.80
|
|
Net income per common share
|
|
|
|
|||
Basic
|
$
|
1.67
|
|
$
|
1.02
|
|
Diluted
|
$
|
1.64
|
|
$
|
1.00
|
|
Cash dividends declared per common share
|
$
|
0.25
|
|
$
|
0.23
|
|
|
Three Months Ended March 31,
|
|||||
(In millions)
|
2018
|
2017
|
||||
|
(Unaudited)
|
|||||
Net income
|
$
|
597
|
|
$
|
378
|
|
Other comprehensive income (loss):
|
|
|
||||
Changes in net unrealized gain on securities
|
(855
|
)
|
137
|
|
||
Changes in OTTI losses recognized in other comprehensive income
|
(2
|
)
|
(1
|
)
|
||
Changes in net gain on cash flow hedging instruments
|
(44
|
)
|
(18
|
)
|
||
Changes in foreign currency translation adjustments
|
(6
|
)
|
2
|
|
||
Changes in pension and other postretirement plan adjustments
|
10
|
|
10
|
|
||
OCI, net of tax
|
(897
|
)
|
130
|
|
||
Comprehensive income (loss)
|
$
|
(300
|
)
|
$
|
508
|
|
(In millions, except for share and per share data)
|
March 31,
2018 |
December 31, 2017
|
||||
|
(Unaudited)
|
|||||
Assets
|
|
|||||
Investments:
|
|
|
||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $35,330 and $35,612)
|
$
|
35,924
|
|
$
|
36,964
|
|
Fixed maturities, at fair value using the fair value option
|
38
|
|
41
|
|
||
Equity securities, at fair value
|
1,123
|
|
—
|
|
||
Equity securities, available-for-sale, at fair value (cost of $0 and $907)
|
—
|
|
1,012
|
|
||
Mortgage loans (net of allowances for loan losses of $1 and $1)
|
3,221
|
|
3,175
|
|
||
Limited partnerships and other alternative investments
|
1,649
|
|
1,588
|
|
||
Other investments
|
92
|
|
96
|
|
||
Short-term investments
|
2,385
|
|
2,270
|
|
||
Total investments
|
44,432
|
|
45,146
|
|
||
Cash
|
228
|
|
180
|
|
||
Premiums receivable and agents’ balances, net
|
3,994
|
|
3,910
|
|
||
Reinsurance recoverables, net
|
4,039
|
|
4,061
|
|
||
Deferred policy acquisition costs
|
663
|
|
650
|
|
||
Deferred income taxes, net
|
1,215
|
|
1,164
|
|
||
Goodwill
|
1,290
|
|
1,290
|
|
||
Property and equipment, net
|
1,018
|
|
1,034
|
|
||
Other intangible assets
|
687
|
|
659
|
|
||
Other assets
|
2,549
|
|
2,230
|
|
||
Assets held for sale
|
156,551
|
|
164,936
|
|
||
Total assets
|
$
|
216,666
|
|
$
|
225,260
|
|
Liabilities
|
|
|
||||
Unpaid losses and loss adjustment expenses
|
$
|
32,213
|
|
$
|
32,287
|
|
Reserve for future policy benefits
|
678
|
|
713
|
|
||
Other policyholder funds and benefits payable
|
800
|
|
816
|
|
||
Unearned premiums
|
5,450
|
|
5,322
|
|
||
Short-term debt
|
413
|
|
320
|
|
||
Long-term debt
|
4,755
|
|
4,678
|
|
||
Other liabilities
|
5,020
|
|
5,188
|
|
||
Liabilities held for sale
|
154,194
|
|
162,442
|
|
||
Total liabilities
|
$
|
203,523
|
|
$
|
211,766
|
|
Commitments and Contingencies (Note 13)
|
|
|
||||
Stockholders’ Equity
|
|
|
||||
Common stock, $0.01 par value — 1,500,000,000 shares authorized, 384,923,222 and 384,923,222 shares issued
|
$
|
4
|
|
$
|
4
|
|
Additional paid-in capital
|
4,363
|
|
4,379
|
|
||
Retained earnings
|
10,156
|
|
9,642
|
|
||
Treasury stock, at cost — 26,846,017 and 28,088,186 shares
|
(1,141
|
)
|
(1,194
|
)
|
||
Accumulated other comprehensive income (loss), net of tax
|
(239
|
)
|
663
|
|
||
Total stockholders’ equity
|
$
|
13,143
|
|
$
|
13,494
|
|
Total liabilities and stockholders’ equity
|
$
|
216,666
|
|
$
|
225,260
|
|
|
Three Months Ended March 31,
|
|||||
(In millions, except for share data)
|
2018
|
2017
|
||||
|
(Unaudited)
|
|||||
Common Stock
|
$
|
4
|
|
$
|
4
|
|
Additional Paid-in Capital
|
|
|
||||
Additional Paid-in Capital, beginning of period
|
4,379
|
|
5,247
|
|
||
Issuance of shares under incentive and stock compensation plans
|
(74
|
)
|
(66
|
)
|
||
Stock-based compensation plans expense
|
61
|
|
36
|
|
||
Issuance of shares for warrant exercise
|
(3
|
)
|
(40
|
)
|
||
Additional Paid-in Capital, end of period
|
4,363
|
|
5,177
|
|
||
Retained Earnings
|
|
|
||||
Retained Earnings, beginning of period
|
9,642
|
|
13,114
|
|
||
Cumulative effect of accounting changes, net of tax
|
5
|
|
—
|
|
||
Adjusted balance, beginning of period
|
9,647
|
|
13,114
|
|
||
Net income
|
597
|
|
378
|
|
||
Dividends declared on common stock
|
(88
|
)
|
(86
|
)
|
||
Retained Earnings, end of period
|
10,156
|
|
13,406
|
|
||
Treasury Stock, at cost
|
|
|
||||
Treasury Stock, at cost, beginning of period
|
(1,194
|
)
|
(1,125
|
)
|
||
Treasury stock acquired
|
—
|
|
(325
|
)
|
||
Issuance of shares under incentive and stock compensation plans
|
81
|
|
72
|
|
||
Net shares acquired related to employee incentive and stock compensation plans
|
(31
|
)
|
(33
|
)
|
||
Issuance of shares for warrant exercise
|
3
|
|
40
|
|
||
Treasury Stock, at cost, end of period
|
(1,141
|
)
|
(1,371
|
)
|
||
Accumulated Other Comprehensive Income (Loss), net of tax
|
|
|
||||
Accumulated Other Comprehensive Loss, net of tax, beginning of period
|
663
|
|
(337
|
)
|
||
Cumulative effect of accounting changes, net of tax
|
(5
|
)
|
—
|
|
||
Adjusted balance, beginning of period
|
658
|
|
(337
|
)
|
||
Total other comprehensive income
|
(897
|
)
|
130
|
|
||
Accumulated Other Comprehensive Income, net of tax, end of period
|
(239
|
)
|
(207
|
)
|
||
Total Stockholders’ Equity
|
$
|
13,143
|
|
$
|
17,009
|
|
|
|
|
||||
Common Shares Outstanding
|
|
|
||||
Common Shares Outstanding, beginning of period (in thousands)
|
356,835
|
|
373,949
|
|
||
Treasury stock acquired
|
—
|
|
(6,709
|
)
|
||
Issuance of shares under incentive and stock compensation plans
|
1,770
|
|
1,690
|
|
||
Return of shares under incentive and stock compensation plans to treasury stock
|
(595
|
)
|
(674
|
)
|
||
Issuance of shares for warrant exercise
|
67
|
|
940
|
|
||
Common Shares Outstanding, at end of period
|
358,077
|
|
369,196
|
|
|
Three Months Ended March 31,
|
|||||
(In millions)
|
2018
|
2017
|
||||
Operating Activities
|
(Unaudited)
|
|||||
Net income
|
$
|
597
|
|
$
|
378
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
||||
Net realized capital losses
|
9
|
|
20
|
|
||
Amortization of deferred policy acquisition costs
|
383
|
|
363
|
|
||
Additions to deferred policy acquisition costs
|
(356
|
)
|
(352
|
)
|
||
Depreciation and amortization
|
116
|
|
96
|
|
||
Gain on sale
|
(62
|
)
|
—
|
|
||
Other operating activities, net
|
324
|
|
111
|
|
||
Change in assets and liabilities:
|
|
|
||||
Decrease (increase) in reinsurance recoverables
|
19
|
|
(7
|
)
|
||
Increase in accrued and deferred income taxes
|
122
|
|
256
|
|
||
Increase in unpaid losses and loss adjustment expenses, reserve for future policy benefits, and unearned premiums
|
58
|
|
293
|
|
||
Net change in other assets and other liabilities
|
(498
|
)
|
(933
|
)
|
||
Net cash provided by operating activities
|
712
|
|
225
|
|
||
Investing Activities
|
|
|
||||
Proceeds from the sale/maturity/prepayment of:
|
|
|
||||
Fixed maturities, available-for-sale
|
6,639
|
|
8,020
|
|
||
Fixed maturities, fair value option
|
6
|
|
62
|
|
||
Equity securities, at fair value
|
185
|
|
—
|
|
||
Equity securities, available-for-sale
|
—
|
|
216
|
|
||
Mortgage loans
|
154
|
|
213
|
|
||
Partnerships
|
75
|
|
83
|
|
||
Payments for the purchase of:
|
|
|
||||
Fixed maturities, available-for-sale
|
(5,874
|
)
|
(7,809
|
)
|
||
Equity securities, at fair value
|
(256
|
)
|
—
|
|
||
Equity securities, available-for-sale
|
—
|
|
(278
|
)
|
||
Mortgage loans
|
(178
|
)
|
(199
|
)
|
||
Partnerships
|
(126
|
)
|
(86
|
)
|
||
Net payments for derivatives
|
(189
|
)
|
(56
|
)
|
||
Net additions of property and equipment
|
(39
|
)
|
(41
|
)
|
||
Net payments for short-term investments
|
(608
|
)
|
(1,317
|
)
|
||
Other investing activities, net
|
(31
|
)
|
(16
|
)
|
||
Net cash used for investing activities
|
(242
|
)
|
(1,208
|
)
|
||
Financing Activities
|
|
|
||||
Deposits and other additions to investment and universal life-type contracts
|
1,366
|
|
1,398
|
|
||
Withdrawals and other deductions from investment and universal life-type contracts
|
(7,670
|
)
|
(3,773
|
)
|
||
Net transfers from separate accounts related to investment and universal life-type contracts
|
5,918
|
|
2,057
|
|
||
Repayments at maturity or settlement of consumer notes
|
(4
|
)
|
(7
|
)
|
||
Net increase (decrease) in securities loaned or sold under agreements to repurchase
|
(368
|
)
|
1,115
|
|
||
Repayment of debt
|
(320
|
)
|
(416
|
)
|
||
Proceeds from the issuance of debt
|
490
|
|
500
|
|
||
Net return of shares under incentive and stock compensation plans
|
1
|
|
(26
|
)
|
||
Treasury stock acquired
|
—
|
|
(325
|
)
|
||
Dividends paid on common stock
|
(90
|
)
|
(87
|
)
|
||
Net cash provided by (used for) financing activities
|
(677
|
)
|
436
|
|
||
Foreign exchange rate effect on cash
|
(5
|
)
|
2
|
|
||
Net decrease in cash, including cash classified as assets held for sale
|
(212
|
)
|
(545
|
)
|
||
Less: Net decrease in cash classified as assets held for sale
|
(260
|
)
|
(318
|
)
|
||
Net increase (decrease) in cash
|
48
|
|
(227
|
)
|
||
Cash – beginning of period
|
180
|
|
328
|
|
||
Cash – end of period
|
$
|
228
|
|
$
|
101
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
||||
Income tax received (paid)
|
$
|
(1
|
)
|
$
|
132
|
|
Interest paid
|
$
|
65
|
|
$
|
71
|
|
•
|
Amortization of other intangible assets has been reclassified out of insurance operating costs and other expenses to a separate line item.
|
•
|
Distribution costs within the Mutual Funds segment that were previously netted against fee income are presented gross in insurance operating costs and other expenses.
|
|
|
Three months ended March 31,
|
|||||
|
Revenue Line Item
|
2018
|
2017
|
||||
Commercial Lines
|
|
|
|
||||
Installment billing fees
|
Fee income
|
$
|
9
|
|
$
|
10
|
|
Personal Lines
|
|
|
|
||||
Installment billing fees
|
Fee income
|
10
|
|
11
|
|
||
Insurance servicing revenues
|
Other revenues
|
19
|
|
19
|
|
||
Group Benefits
|
|
|
|
||||
Administrative services
|
Fee income
|
44
|
|
19
|
|
||
Mutual Funds
|
|
|
|
||||
Advisor, distribution and other management fees
|
Fee income
|
238
|
|
212
|
|
||
Other fees
|
Fee income
|
20
|
|
26
|
|
||
Corporate
|
Fee income
|
2
|
|
1
|
|
||
Total revenues subject to updated guidance
|
|
$
|
342
|
|
$
|
298
|
|
|
Three months ended March 31, 2017 [1]
|
||
Total Revenue
|
$
|
4,739
|
|
Net Income
|
$
|
390
|
|
Computation of Basic and Diluted Earnings per Common Share
|
||||||
|
Three Months Ended March 31,
|
|||||
(In millions, except for per share data)
|
2018
|
2017
|
||||
Earnings
|
|
|
||||
Income from continuing operations, net of tax
|
$
|
428
|
|
$
|
303
|
|
Income from discontinued operations, net of tax
|
169
|
|
75
|
|
||
Net income
|
$
|
597
|
|
$
|
378
|
|
Shares
|
|
|
||||
Weighted average common shares outstanding, basic
|
357.5
|
|
371.4
|
|
||
Dilutive effect of stock compensation plans
|
4.4
|
|
4.2
|
|
||
Dilutive effect of warrants
|
2.0
|
|
3.0
|
|
||
Weighted average common shares outstanding and dilutive potential common shares
|
363.9
|
|
378.6
|
|
||
Net income per common share
|
|
|
||||
Basic
|
|
|
||||
Income from continuing operations, net of tax
|
$
|
1.20
|
|
$
|
0.82
|
|
Income from discontinued operations, net of tax
|
$
|
0.47
|
|
$
|
0.20
|
|
Net income per common share
|
$
|
1.67
|
|
$
|
1.02
|
|
Diluted
|
|
|
||||
Income from continuing operations, net of tax
|
$
|
1.18
|
|
$
|
0.80
|
|
Income from discontinued operations, net of tax
|
$
|
0.46
|
|
$
|
0.20
|
|
Net income per common share
|
$
|
1.64
|
|
$
|
1.00
|
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Commercial Lines
|
$
|
298
|
|
$
|
231
|
|
Personal Lines
|
89
|
|
33
|
|
||
Property & Casualty Other Operations
|
17
|
|
24
|
|
||
Group Benefits
|
54
|
|
45
|
|
||
Mutual Funds
|
34
|
|
23
|
|
||
Corporate
|
105
|
|
22
|
|
||
Net income
|
$
|
597
|
|
$
|
378
|
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Earned premiums and fee income
|
|
|
||||
Commercial Lines
|
|
|
||||
Workers’ compensation
|
$
|
818
|
|
$
|
813
|
|
Liability
|
151
|
|
148
|
|
||
Package business
|
332
|
|
314
|
|
||
Automobile
|
149
|
|
161
|
|
||
Professional liability
|
62
|
|
60
|
|
||
Bond
|
58
|
|
55
|
|
||
Property
|
150
|
|
147
|
|
||
Total Commercial Lines
|
1,720
|
|
1,698
|
|
||
Personal Lines
|
|
|
||||
Automobile
|
607
|
|
662
|
|
||
Homeowners
|
262
|
|
283
|
|
||
Total Personal Lines [1]
|
869
|
|
945
|
|
||
Group Benefits
|
|
|
||||
Group disability
|
677
|
|
381
|
|
||
Group life
|
664
|
|
399
|
|
||
Other
|
60
|
|
55
|
|
||
Total Group Benefits
|
1,401
|
|
835
|
|
||
Mutual Funds
|
|
|
||||
Mutual fund and ETP [2]
|
232
|
|
211
|
|
||
Life and annuity run-off business held for sale
|
26
|
|
26
|
|
||
Total Mutual Funds
|
258
|
|
237
|
|
||
Corporate
|
2
|
|
1
|
|
||
Total earned premiums and fee income
|
4,250
|
|
3,716
|
|
||
Net investment income
|
451
|
|
410
|
|
||
Net realized capital gains (losses)
|
(30
|
)
|
24
|
|
||
Other revenues
|
20
|
|
19
|
|
||
Total revenues
|
$
|
4,691
|
|
$
|
4,169
|
|
[1]
|
For the
three months ended
March 31, 2018
and
2017
, AARP members accounted for earned premiums of
$758
and
$800
, respectively.
|
[2]
|
Excludes distribution costs of
$46
for the
three months ended
March 31, 2017
that were previously netted against fee income and are now presented gross in insurance operating costs and other expenses.
|
Level 1
|
Fair values based primarily on unadjusted quoted prices for identical assets or liabilities, in active markets that the Company has the ability to access at the measurement date.
|
Level 2
|
Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.
|
Level 3
|
Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.
|
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2017
|
||||||||||||
|
Total
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
Significant
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets accounted for at fair value on a recurring basis
|
|
|
|
|
||||||||
Fixed maturities, AFS
|
|
|
|
|
||||||||
Asset-backed-securities ("ABS")
|
$
|
1,126
|
|
$
|
—
|
|
$
|
1,107
|
|
$
|
19
|
|
Collateralized debt obligations ("CDOs")
|
1,260
|
|
—
|
|
1,165
|
|
95
|
|
||||
Commercial mortgage-backed securities ("CMBS")
|
3,336
|
|
—
|
|
3,267
|
|
69
|
|
||||
Corporate
|
12,804
|
|
—
|
|
12,284
|
|
520
|
|
||||
Foreign government/government agencies
|
1,110
|
|
—
|
|
1,108
|
|
2
|
|
||||
Municipal
|
12,485
|
|
—
|
|
12,468
|
|
17
|
|
||||
Residential mortgage-backed securities ("RMBS")
|
3,044
|
|
—
|
|
1,814
|
|
1,230
|
|
||||
U.S. Treasuries
|
1,799
|
|
333
|
|
1,466
|
|
—
|
|
||||
Total fixed maturities
|
36,964
|
|
333
|
|
34,679
|
|
1,952
|
|
||||
Fixed maturities, FVO
|
41
|
|
—
|
|
41
|
|
—
|
|
||||
Equity securities, AFS
|
1,012
|
|
887
|
|
49
|
|
76
|
|
||||
Derivative assets
|
|
|
|
|
||||||||
Credit derivatives
|
9
|
|
—
|
|
9
|
|
—
|
|
||||
Equity derivatives
|
1
|
|
—
|
|
—
|
|
1
|
|
||||
Foreign exchange derivatives
|
(1
|
)
|
—
|
|
(1
|
)
|
—
|
|
||||
Interest rate derivatives
|
1
|
|
—
|
|
1
|
|
—
|
|
||||
Total derivative assets [1]
|
10
|
|
—
|
|
9
|
|
1
|
|
||||
Short-term investments
|
2,270
|
|
1,098
|
|
1,172
|
|
—
|
|
||||
Total assets accounted for at fair value on a recurring basis
|
$
|
40,297
|
|
$
|
2,318
|
|
$
|
35,950
|
|
$
|
2,029
|
|
Liabilities accounted for at fair value on a recurring basis
|
|
|
|
|
||||||||
Derivative liabilities
|
|
|
|
|
||||||||
Credit derivatives
|
(3
|
)
|
—
|
|
(3
|
)
|
—
|
|
||||
Foreign exchange derivatives
|
(13
|
)
|
—
|
|
(13
|
)
|
—
|
|
||||
Interest rate derivatives
|
(84
|
)
|
—
|
|
(85
|
)
|
1
|
|
||||
Total derivative liabilities [2]
|
(100
|
)
|
—
|
|
(101
|
)
|
1
|
|
||||
Contingent consideration [3]
|
(29
|
)
|
—
|
|
—
|
|
(29
|
)
|
||||
Total liabilities accounted for at fair value on a recurring basis
|
$
|
(129
|
)
|
$
|
—
|
|
$
|
(101
|
)
|
$
|
(28
|
)
|
[1]
|
Includes derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements, clearing house rules and applicable law. See footnote 2 to this table for derivative liabilities.
|
[2]
|
Includes derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements, clearing house rules and applicable law.
|
[3]
|
For additional information see the Contingent Consideration section below.
|
•
|
Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1.
|
•
|
Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both
|
•
|
Internal matrix pricing, which is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third-party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads using market based data for public securities adjusted for credit spread differentials between public and private securities, which are obtained from a survey of multiple private placement brokers. The market-based reference credit spread considers the issuer’s financial strength and term to maturity, using an independent public security index and trade information, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the inputs are observable or can be corroborated with observable data.
|
•
|
Independent broker quotes, which are typically non-binding, use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3.
|
•
|
Review of daily price changes over specific thresholds and new trade comparison to third-party pricing services.
|
•
|
Daily comparison of OTC derivative market valuations to counterparty valuations.
|
•
|
Review of weekly price changes compared to published bond prices of a corporate bond index.
|
•
|
Monthly reviews of price changes over thresholds, stale prices, missing prices, and zero prices.
|
•
|
Monthly validation of prices to a second source for securities in most sectors and for certain derivatives.
|
Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Derivatives
|
|||
Level 2
Primary Observable Inputs
|
Level 3
Primary Unobservable Inputs
|
||
Fixed Maturity Investments
|
|||
Structured securities (includes ABS, CDOs, CMBS and RMBS)
|
|||
|
• Benchmark yields and spreads
• Monthly payment information
• Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions
• Credit default swap indices
Other inputs for ABS and RMBS:
• Estimate of future principal prepayments, derived from the characteristics of the underlying structure
• Prepayment speeds previously experienced at the interest rate levels projected for the collateral
|
|
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve
Other inputs for less liquid securities or those that trade less actively, including subprime RMBS:
• Estimated cash flows
• Credit spreads, which include illiquidity premium
• Constant prepayment rates
• Constant default rates
• Loss severity
|
Corporates
|
|||
|
• Benchmark yields and spreads
• Reported trades, bids, offers of the same or similar securities
• Issuer spreads and credit default swap curves
Other inputs for investment grade privately placed securities that utilize internal matrix pricing:
• Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
|
|
• Independent broker quotes
• Credit spreads beyond observable curve
• Interest rates beyond observable curve
Other inputs for below investment grade privately placed securities:
• Independent broker quotes
• Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
|
U.S Treasuries, Municipals, and Foreign government/government agencies
|
|||
|
• Benchmark yields and spreads
• Issuer credit default swap curves
• Political events in emerging market economies
• Municipal Securities Rulemaking Board reported trades and material event notices
• Issuer financial statements
|
|
• Credit spreads beyond observable curve
• Interest rates beyond observable curve
|
Equity Securities
|
|||
|
• Quoted prices in markets that are not active
|
|
• For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable
|
Short Term Investments
|
|||
|
• Benchmark yields and spreads
• Reported trades, bids, offers
• Issuer spreads and credit default swap curves
• Material event notices and new issue money market rates
|
|
Not applicable
|
Derivatives
|
|||
Credit derivatives
|
|||
|
• Swap yield curve
• Credit default swap curves
|
|
Not applicable
|
Equity derivatives
|
|||
|
• Equity index levels
• Swap yield curve
|
|
• Independent broker quotes
• Equity volatility
|
Foreign exchange derivatives
|
|||
|
• Swap yield curve
• Currency spot and forward rates
• Cross currency basis curves
|
|
Not applicable
|
Interest rate derivatives
|
|||
|
• Swap yield curve
|
|
• Independent broker quotes
• Interest rate volatility
|
Significant Unobservable Inputs for Level 3 - Securities
|
|||||||||
Assets accounted for at fair value on a recurring basis
|
Fair
Value |
Predominant
Valuation Technique |
Significant
Unobservable Input
|
Minimum
|
Maximum
|
Weighted Average [1]
|
Impact of
Increase in Input on Fair Value [2] |
||
As of March 31, 2018
|
|||||||||
CMBS [3]
|
$
|
21
|
|
Discounted cash flows
|
Spread (encompasses prepayment, default risk and loss severity)
|
9 bps
|
1,040 bps
|
389 bps
|
Decrease
|
Corporate [4]
|
$
|
277
|
|
Discounted cash flows
|
Spread
|
112 bps
|
768 bps
|
197 bps
|
Decrease
|
Municipal
|
$
|
16
|
|
Discounted cash flows
|
Spread
|
199 bps
|
240 bps
|
218 bps
|
Decrease
|
RMBS [3]
|
$
|
1,163
|
|
Discounted cash flows
|
Spread
|
6 bps
|
335 bps
|
69 bps
|
Decrease
|
|
|
|
Constant prepayment rate
|
1%
|
25%
|
7%
|
Decrease [5]
|
||
|
|
|
Constant default rate
|
—%
|
9%
|
4%
|
Decrease
|
||
|
|
|
Loss severity
|
—%
|
100%
|
59%
|
Decrease
|
||
As of December 31, 2017
|
|||||||||
CMBS [3]
|
$
|
56
|
|
Discounted cash flows
|
Spread (encompasses prepayment, default risk and loss severity)
|
9 bps
|
1,040 bps
|
400 bps
|
Decrease
|
Corporate [4]
|
$
|
251
|
|
Discounted cash flows
|
Spread
|
103 bps
|
1,000 bps
|
242 bps
|
Decrease
|
Municipal [3]
|
$
|
17
|
|
Discounted cash flows
|
Spread
|
192 bps
|
250 bps
|
219 bps
|
Decrease
|
RMBS [3]
|
$
|
1,215
|
|
Discounted cash flows
|
Spread
|
24 bps
|
351 bps
|
74 bps
|
Decrease
|
|
|
|
Constant prepayment rate
|
1%
|
25%
|
6%
|
Decrease [5]
|
||
|
|
|
Constant default rate
|
—%
|
9%
|
4%
|
Decrease
|
||
|
|
|
Loss severity
|
—%
|
100%
|
66%
|
Decrease
|
[1]
|
The weighted average is determined based on the fair value of the securities.
|
[2]
|
Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
|
[3]
|
Excludes securities for which the Company based fair value on broker quotations.
|
[4]
|
Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value.
|
[5]
|
Decrease for above market rate coupons and increase for below market rate coupons.
|
[1]
|
Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions.
|
[2]
|
The swaptions presented are purchased options that have the right to enter into a pay-fixed swap.
|
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended March 31, 2018
|
||||||||||||||||||||||||||||
|
Total realized/unrealized gains (losses)
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Fair value as of January 1, 2018
|
Included in net income [1] [5]
|
Included in OCI [2]
|
Purchases
|
Settlements
|
Sales
|
Transfers into Level 3 [3]
|
Transfers out of Level 3 [3]
|
Fair value as of March 31, 2018
|
||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Fixed Maturities, AFS
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
ABS
|
$
|
19
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(2
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(3
|
)
|
$
|
14
|
|
|
CDOs
|
95
|
|
—
|
|
—
|
|
21
|
|
—
|
|
—
|
|
—
|
|
(10
|
)
|
106
|
|
|||||||||
|
CMBS
|
69
|
|
—
|
|
(1
|
)
|
—
|
|
(1
|
)
|
—
|
|
—
|
|
(34
|
)
|
33
|
|
|||||||||
|
Corporate
|
520
|
|
1
|
|
(1
|
)
|
65
|
|
(14
|
)
|
(23
|
)
|
—
|
|
(33
|
)
|
515
|
|
|||||||||
|
Foreign Govt./Govt. Agencies
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|||||||||
|
Municipal
|
17
|
|
—
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
16
|
|
|||||||||
|
RMBS
|
1,230
|
|
—
|
|
(3
|
)
|
102
|
|
(81
|
)
|
—
|
|
—
|
|
(15
|
)
|
1,233
|
|
|||||||||
Total Fixed Maturities, AFS
|
1,952
|
|
1
|
|
(6
|
)
|
188
|
|
(98
|
)
|
(23
|
)
|
—
|
|
(95
|
)
|
1,919
|
|
||||||||||
Equity Securities, at fair value
|
76
|
|
28
|
|
—
|
|
—
|
|
—
|
|
(39
|
)
|
—
|
|
—
|
|
65
|
|
||||||||||
Derivatives, net [4]
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Equity
|
1
|
|
2
|
|
—
|
|
—
|
|
—
|
|
(2
|
)
|
—
|
|
—
|
|
1
|
|
|||||||||
|
Interest rate
|
1
|
|
1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
|||||||||
Total Derivatives, net [4]
|
2
|
|
3
|
|
—
|
|
—
|
|
—
|
|
(2
|
)
|
—
|
|
—
|
|
3
|
|
||||||||||
Total Assets
|
$
|
2,030
|
|
$
|
32
|
|
$
|
(6
|
)
|
$
|
188
|
|
$
|
(98
|
)
|
$
|
(64
|
)
|
$
|
—
|
|
$
|
(95
|
)
|
$
|
1,987
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Contingent Consideration [6]
|
(29
|
)
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(27
|
)
|
||||||||||
Total Liabilities
|
$
|
(29
|
)
|
$
|
2
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(27
|
)
|
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended March 31, 2017
|
||||||||||||||||||||||||||||
|
Total realized/unrealized gains (losses)
|
|
|
|
|
|
|
|||||||||||||||||||||
|
|
Fair value as of January 1, 2017
|
Included in net income [1] [5]
|
Included in OCI [2]
|
Purchases
|
Settlements
|
Sales
|
Transfers into Level 3 [3]
|
Transfers out of Level 3 [3]
|
Fair value as of March 31, 2017
|
||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Fixed Maturities, AFS
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
ABS
|
$
|
45
|
|
$
|
—
|
|
$
|
—
|
|
$
|
33
|
|
$
|
(3
|
)
|
$
|
—
|
|
$
|
23
|
|
$
|
(17
|
)
|
$
|
81
|
|
|
CDOs
|
154
|
|
—
|
|
3
|
|
—
|
|
(1
|
)
|
—
|
|
—
|
|
(36
|
)
|
120
|
|
|||||||||
|
CMBS
|
59
|
|
(1
|
)
|
—
|
|
28
|
|
(2
|
)
|
—
|
|
—
|
|
(12
|
)
|
72
|
|
|||||||||
|
Corporate
|
514
|
|
1
|
|
5
|
|
100
|
|
(37
|
)
|
(97
|
)
|
35
|
|
—
|
|
521
|
|
|||||||||
|
Foreign Govt./Govt. Agencies
|
47
|
|
—
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
49
|
|
|||||||||
|
Municipal
|
46
|
|
—
|
|
3
|
|
—
|
|
—
|
|
(5
|
)
|
—
|
|
—
|
|
44
|
|
|||||||||
|
RMBS
|
1,261
|
|
—
|
|
4
|
|
88
|
|
(55
|
)
|
(7
|
)
|
—
|
|
—
|
|
1,291
|
|
|||||||||
Total Fixed Maturities, AFS
|
2,126
|
|
—
|
|
17
|
|
249
|
|
(98
|
)
|
(109
|
)
|
58
|
|
(65
|
)
|
2,178
|
|
||||||||||
Fixed Maturities, FVO
|
11
|
|
—
|
|
—
|
|
4
|
|
(2
|
)
|
(13
|
)
|
—
|
|
—
|
|
—
|
|
||||||||||
Equity Securities, AFS
|
55
|
|
—
|
|
(2
|
)
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
55
|
|
||||||||||
Derivatives, net [4]
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
|
Equity
|
—
|
|
(1
|
)
|
—
|
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4
|
|
|||||||||
|
Interest rate
|
9
|
|
(4
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5
|
|
|||||||||
|
Other contracts
|
1
|
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|||||||||
Total Derivatives, net [4]
|
10
|
|
(6
|
)
|
—
|
|
5
|
|
—
|
|
—
|
|
—
|
|
—
|
|
9
|
|
||||||||||
Total Assets
|
$
|
2,202
|
|
$
|
(6
|
)
|
$
|
15
|
|
$
|
260
|
|
$
|
(100
|
)
|
$
|
(122
|
)
|
$
|
58
|
|
$
|
(65
|
)
|
$
|
2,242
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Contingent Consideration [6]
|
(25
|
)
|
(1
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(26
|
)
|
||||||||||
Total Liabilities
|
$
|
(25
|
)
|
$
|
(1
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(26
|
)
|
[1]
|
Amounts in these columns are generally reported in net realized capital gains (losses). All amounts are before income taxes.
|
[2]
|
All amounts are before income taxes.
|
[3]
|
Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
|
[4]
|
Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Condensed Consolidated Balance Sheets in other investments and other liabilities.
|
[5]
|
Includes both market and non-market impacts in deriving realized and unrealized gains (losses).
|
[6]
|
For additional information, see Note
2
-
Business Acquisitions
of Notes to Consolidated Financial Statements included in the Company's 2017 form 10-K Annual Report for discussion of the contingent consideration in connection with the acquisition of Lattice.
|
Changes in Unrealized Gains (Losses) Included in Net Income for Financial Instruments Classified as Level 3 Still Held at End of Period
|
|||||||
|
|
Three months ended March 31,
|
|||||
|
|
2018 [1] [2]
|
2017 [1] [2]
|
||||
Assets
|
|
|
|||||
Fixed Maturities, AFS
|
|
|
|||||
|
CMBS
|
$
|
—
|
|
$
|
(1
|
)
|
Total Fixed Maturities, AFS
|
—
|
|
(1
|
)
|
|||
Derivatives, net
|
|
|
|||||
|
Equity
|
—
|
|
(1
|
)
|
||
|
Interest rate
|
1
|
|
(3
|
)
|
||
Total Derivatives, net
|
1
|
|
(4
|
)
|
|||
Total Assets
|
$
|
1
|
|
$
|
(5
|
)
|
|
Liabilities
|
|
|
|||||
Contingent Consideration [3]
|
2
|
|
(1
|
)
|
|||
Total Liabilities
|
$
|
2
|
|
$
|
(1
|
)
|
[1]
|
All amounts in these rows are reported in net realized capital gains (losses). All amounts are before income taxes.
|
[2]
|
Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein.
|
[3]
|
For additional information, see Note
2
-
Business Acquisitions
of Notes to Consolidated Financial Statements included in the Company's 2017 form 10-K Annual Report for discussion of the contingent consideration in connection with the acquisition of Lattice.
|
Financial Assets and Liabilities Not Carried at Fair Value
|
|||||||
|
Fair Value Hierarchy Level
|
Carrying Amount
|
Fair Value
|
||||
March 31, 2018
|
|||||||
Assets
|
|
|
|
||||
Mortgage loans
|
Level 3
|
$
|
3,221
|
|
$
|
3,220
|
|
Liabilities
|
|
|
|
||||
Other policyholder funds and benefits payable
|
Level 3
|
$
|
809
|
|
$
|
811
|
|
Senior notes [1]
|
Level 2
|
$
|
3,585
|
|
$
|
4,097
|
|
Junior subordinated debentures [1]
|
Level 2
|
$
|
1,583
|
|
$
|
1,694
|
|
December 31, 2017
|
|||||||
Assets
|
|
|
|
||||
Mortgage loans
|
Level 3
|
$
|
3,175
|
|
$
|
3,220
|
|
Liabilities
|
|
|
|
||||
Other policyholder funds and benefits payable
|
Level 3
|
$
|
825
|
|
$
|
827
|
|
Senior notes [1]
|
Level 2
|
$
|
3,415
|
|
$
|
4,054
|
|
Junior subordinated debentures [1]
|
Level 2
|
$
|
1,583
|
|
$
|
1,699
|
|
[1]
|
Included in long-term debt in the Consolidated Balance Sheets, except for current maturities, which are included in short-term debt.
|
Net Realized Capital Gains (Losses)
|
||||||
|
Three Months Ended March 31,
|
|||||
(Before tax)
|
2018
|
2017
|
||||
Gross gains on sales
|
$
|
19
|
|
$
|
61
|
|
Gross losses on sales
|
(57
|
)
|
(46
|
)
|
||
Equity securities [1]
|
16
|
|
—
|
|
||
Net OTTI losses recognized in earnings
|
—
|
|
(1
|
)
|
||
Transactional foreign currency revaluation
|
1
|
|
6
|
|
||
Non-qualifying foreign currency derivatives
|
(3
|
)
|
(7
|
)
|
||
Other, net [2]
|
(6
|
)
|
11
|
|
||
Net realized capital gains (losses)
|
$
|
(30
|
)
|
$
|
24
|
|
[1]
|
Effective January 1, 2018, with adoption of new accounting guidance for equity securities at fair value, includes all changes in fair value and trading gains and losses for equity securities.
|
[2]
|
Includes gains (losses) on non-qualifying derivatives, excluding foreign currency derivatives, of
$(10)
and
$7
, respectively, for the three months ended
March 31, 2018
and
2017
.
|
Cumulative Credit Impairments
|
||||||
|
Three Months Ended March 31,
|
|||||
(Before tax)
|
2018
|
2017
|
||||
Balance as of beginning of period
|
$
|
(25
|
)
|
$
|
(110
|
)
|
Additions for credit impairments recognized on [1]:
|
|
|
||||
Securities not previously impaired
|
—
|
|
(1
|
)
|
||
Reductions for credit impairments previously recognized on:
|
|
|
||||
Securities that matured or were sold during the period
|
4
|
|
7
|
|
||
Securities due to an increase in expected cash flows
|
—
|
|
5
|
|
||
Balance as of end of period
|
$
|
(21
|
)
|
$
|
(99
|
)
|
[1]
|
These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.
|
AFS Securities by Type
|
||||||||||||||||||||||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||||||||||||||
|
Cost or
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
Non-Credit
OTTI [1]
|
Cost or
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
Non-Credit
OTTI [1]
|
||||||||||||||||||||
ABS
|
$
|
911
|
|
$
|
6
|
|
$
|
(6
|
)
|
$
|
911
|
|
$
|
—
|
|
$
|
1,119
|
|
$
|
9
|
|
$
|
(2
|
)
|
$
|
1,126
|
|
$
|
—
|
|
CDOs
|
1,145
|
|
1
|
|
(2
|
)
|
1,144
|
|
—
|
|
1,257
|
|
3
|
|
—
|
|
1,260
|
|
—
|
|
||||||||||
CMBS
|
3,334
|
|
34
|
|
(57
|
)
|
3,311
|
|
(5
|
)
|
3,304
|
|
58
|
|
(26
|
)
|
3,336
|
|
(5
|
)
|
||||||||||
Corporate
|
12,550
|
|
294
|
|
(210
|
)
|
12,634
|
|
—
|
|
12,370
|
|
490
|
|
(56
|
)
|
12,804
|
|
—
|
|
||||||||||
Foreign govt./govt. agencies
|
1,076
|
|
22
|
|
(16
|
)
|
1,082
|
|
—
|
|
1,071
|
|
43
|
|
(4
|
)
|
1,110
|
|
—
|
|
||||||||||
Municipal
|
11,052
|
|
541
|
|
(49
|
)
|
11,544
|
|
—
|
|
11,743
|
|
754
|
|
(12
|
)
|
12,485
|
|
—
|
|
||||||||||
RMBS
|
3,064
|
|
54
|
|
(32
|
)
|
3,086
|
|
—
|
|
2,985
|
|
63
|
|
(4
|
)
|
3,044
|
|
—
|
|
||||||||||
U.S. Treasuries
|
2,198
|
|
35
|
|
(21
|
)
|
2,212
|
|
—
|
|
1,763
|
|
46
|
|
(10
|
)
|
1,799
|
|
—
|
|
||||||||||
Total fixed maturities, AFS
|
35,330
|
|
987
|
|
(393
|
)
|
35,924
|
|
(5
|
)
|
35,612
|
|
1,466
|
|
(114
|
)
|
36,964
|
|
(5
|
)
|
||||||||||
Equity securities, AFS [2]
|
|
|
|
|
|
|
|
|
|
|
907
|
|
121
|
|
(16
|
)
|
1,012
|
|
—
|
|
||||||||||
Total AFS securities
|
$
|
35,330
|
|
$
|
987
|
|
$
|
(393
|
)
|
$
|
35,924
|
|
$
|
(5
|
)
|
$
|
36,519
|
|
$
|
1,587
|
|
$
|
(130
|
)
|
$
|
37,976
|
|
$
|
(5
|
)
|
[1]
|
Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses in AOCI as of
March 31, 2018
, and
December 31, 2017
.
|
[2]
|
Effective January 1, 2018, with the adoption of new accounting standards for financial instruments, equity securities, AFS were reclassified to equity securities at fair value and are excluded from the table above as of
March 31, 2018
.
|
Fixed maturities, AFS, by Contractual Maturity Year
|
||||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||||
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
||||||||
One year or less
|
$
|
1,425
|
|
$
|
1,430
|
|
$
|
1,507
|
|
$
|
1,513
|
|
Over one year through five years
|
5,361
|
|
5,414
|
|
5,007
|
|
5,119
|
|
||||
Over five years through ten years
|
6,499
|
|
6,525
|
|
6,505
|
|
6,700
|
|
||||
Over ten years
|
13,591
|
|
14,103
|
|
13,928
|
|
14,866
|
|
||||
Subtotal
|
26,876
|
|
27,472
|
|
26,947
|
|
28,198
|
|
||||
Mortgage-backed and asset-backed securities
|
8,454
|
|
8,452
|
|
8,665
|
|
8,766
|
|
||||
Total fixed maturities, AFS
|
$
|
35,330
|
|
$
|
35,924
|
|
$
|
35,612
|
|
$
|
36,964
|
|
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of March 31, 2018
|
|||||||||||||||||||||||||||
|
Less Than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||||
|
Amortized Cost
|
Fair Value
|
Unrealized Losses
|
Amortized Cost
|
Fair Value
|
Unrealized Losses
|
Amortized Cost
|
Fair Value
|
Unrealized Losses
|
||||||||||||||||||
ABS
|
$
|
520
|
|
$
|
515
|
|
$
|
(5
|
)
|
$
|
33
|
|
$
|
32
|
|
$
|
(1
|
)
|
$
|
553
|
|
$
|
547
|
|
$
|
(6
|
)
|
CDOs
|
905
|
|
903
|
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
905
|
|
903
|
|
(2
|
)
|
|||||||||
CMBS
|
1,701
|
|
1,662
|
|
(39
|
)
|
242
|
|
224
|
|
(18
|
)
|
1,943
|
|
1,886
|
|
(57
|
)
|
|||||||||
Corporate
|
5,931
|
|
5,785
|
|
(146
|
)
|
1,066
|
|
1,002
|
|
(64
|
)
|
6,997
|
|
6,787
|
|
(210
|
)
|
|||||||||
Foreign govt./govt. agencies
|
552
|
|
539
|
|
(13
|
)
|
51
|
|
48
|
|
(3
|
)
|
603
|
|
587
|
|
(16
|
)
|
|||||||||
Municipal
|
2,077
|
|
2,044
|
|
(33
|
)
|
230
|
|
214
|
|
(16
|
)
|
2,307
|
|
2,258
|
|
(49
|
)
|
|||||||||
RMBS
|
1,448
|
|
1,421
|
|
(27
|
)
|
132
|
|
127
|
|
(5
|
)
|
1,580
|
|
1,548
|
|
(32
|
)
|
|||||||||
U.S. Treasuries
|
850
|
|
838
|
|
(12
|
)
|
272
|
|
263
|
|
(9
|
)
|
1,122
|
|
1,101
|
|
(21
|
)
|
|||||||||
Total fixed maturities, AFS in an unrealized loss position
|
13,984
|
|
13,707
|
|
(277
|
)
|
2,026
|
|
1,910
|
|
(116
|
)
|
16,010
|
|
15,617
|
|
(393
|
)
|
Unrealized Loss Aging for AFS Securities by Type and Length of Time as of December 31, 2017
|
|||||||||||||||||||||||||||
|
Less Than 12 Months
|
12 Months or More
|
Total
|
||||||||||||||||||||||||
|
Amortized Cost
|
Fair Value
|
Unrealized Losses
|
Amortized Cost
|
Fair Value
|
Unrealized Losses
|
Amortized Cost
|
Fair Value
|
Unrealized Losses
|
||||||||||||||||||
ABS
|
$
|
461
|
|
$
|
460
|
|
$
|
(1
|
)
|
$
|
30
|
|
$
|
29
|
|
$
|
(1
|
)
|
$
|
491
|
|
$
|
489
|
|
$
|
(2
|
)
|
CDOs
|
359
|
|
359
|
|
—
|
|
1
|
|
1
|
|
—
|
|
360
|
|
360
|
|
—
|
|
|||||||||
CMBS
|
1,178
|
|
1,167
|
|
(11
|
)
|
243
|
|
228
|
|
(15
|
)
|
1,421
|
|
1,395
|
|
(26
|
)
|
|||||||||
Corporate
|
2,322
|
|
2,302
|
|
(20
|
)
|
1,064
|
|
1,028
|
|
(36
|
)
|
3,386
|
|
3,330
|
|
(56
|
)
|
|||||||||
Foreign govt./govt. agencies
|
244
|
|
242
|
|
(2
|
)
|
51
|
|
49
|
|
(2
|
)
|
295
|
|
291
|
|
(4
|
)
|
|||||||||
Municipal
|
511
|
|
507
|
|
(4
|
)
|
236
|
|
228
|
|
(8
|
)
|
747
|
|
735
|
|
(12
|
)
|
|||||||||
RMBS
|
889
|
|
887
|
|
(2
|
)
|
137
|
|
135
|
|
(2
|
)
|
1,026
|
|
1,022
|
|
(4
|
)
|
|||||||||
U.S. Treasuries
|
658
|
|
652
|
|
(6
|
)
|
254
|
|
250
|
|
(4
|
)
|
912
|
|
902
|
|
(10
|
)
|
|||||||||
Total fixed maturities, AFS
|
6,622
|
|
6,576
|
|
(46
|
)
|
2,016
|
|
1,948
|
|
(68
|
)
|
8,638
|
|
8,524
|
|
(114
|
)
|
|||||||||
Equity securities, AFS [1]
|
176
|
|
163
|
|
(13
|
)
|
24
|
|
21
|
|
(3
|
)
|
200
|
|
184
|
|
(16
|
)
|
|||||||||
Total securities in an unrealized loss position
|
$
|
6,798
|
|
$
|
6,739
|
|
$
|
(59
|
)
|
$
|
2,040
|
|
$
|
1,969
|
|
$
|
(71
|
)
|
$
|
8,838
|
|
$
|
8,708
|
|
$
|
(130
|
)
|
Commercial Mortgage Loans Credit Quality
|
||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||
Loan-to-value
|
Carrying Value
|
Avg. Debt-Service Coverage Ratio
|
Carrying Value
|
Avg. Debt-Service Coverage Ratio
|
||||
Greater than 80%
|
$
|
—
|
|
0.00x
|
$
|
18
|
|
1.27x
|
65% - 80%
|
265
|
|
1.95x
|
265
|
|
1.95x
|
||
Less than 65%
|
2,956
|
|
2.78x
|
2,892
|
|
2.76x
|
||
Total commercial mortgage loans
|
$
|
3,221
|
|
2.71x
|
$
|
3,175
|
|
2.69x
|
Mortgage Loans by Region
|
||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||
|
Carrying Value
|
Percent of Total
|
Carrying Value
|
Percent of Total
|
||||||
East North Central
|
$
|
251
|
|
7.8
|
%
|
$
|
251
|
|
7.9
|
%
|
Middle Atlantic
|
272
|
|
8.4
|
%
|
272
|
|
8.6
|
%
|
||
Mountain
|
31
|
|
1.0
|
%
|
31
|
|
1.0
|
%
|
||
New England
|
292
|
|
9.1
|
%
|
293
|
|
9.2
|
%
|
||
Pacific
|
828
|
|
25.7
|
%
|
760
|
|
23.9
|
%
|
||
South Atlantic
|
693
|
|
21.5
|
%
|
710
|
|
22.4
|
%
|
||
West North Central
|
148
|
|
4.6
|
%
|
149
|
|
4.7
|
%
|
||
West South Central
|
277
|
|
8.6
|
%
|
278
|
|
8.7
|
%
|
||
Other [1]
|
429
|
|
13.3
|
%
|
431
|
|
13.6
|
%
|
||
Total mortgage loans
|
$
|
3,221
|
|
100.0
|
%
|
$
|
3,175
|
|
100.0
|
%
|
[1]
|
Primarily represents loans collateralized by multiple properties in various regions.
|
Mortgage Loans by Property Type
|
||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||
|
Carrying Value
|
Percent of Total
|
Carrying
Value |
Percent of Total
|
||||||
Commercial
|
|
|
|
|
||||||
Industrial
|
$
|
830
|
|
25.8
|
%
|
$
|
817
|
|
25.7
|
%
|
Multifamily
|
1,043
|
|
32.4
|
%
|
1,006
|
|
31.7
|
%
|
||
Office
|
749
|
|
23.3
|
%
|
751
|
|
23.7
|
%
|
||
Retail
|
365
|
|
11.2
|
%
|
367
|
|
11.5
|
%
|
||
Other
|
234
|
|
7.3
|
%
|
234
|
|
7.4
|
%
|
||
Total mortgage loans
|
$
|
3,221
|
|
100.0
|
%
|
$
|
3,175
|
|
100.0
|
%
|
[1]
|
Cash collateral received is reinvested in fixed maturities, AFS and short term investments which are included in the Condensed Consolidated Balance Sheets. Amount includes additional securities collateral received of $
4
and $
0
million which are excluded from the Company's Condensed Consolidated Balance Sheets as of
March 31, 2018
and
December 31, 2017
, respectively.
|
[2]
|
Collateral pledged is included within fixed maturities, AFS and short term investments in the Company's Condensed Consolidated Balance Sheets.
|
Derivative Balance Sheet Presentation
|
||||||||||||||||||||||||
|
Net Derivatives
|
Asset Derivatives
|
Liability Derivatives
|
|||||||||||||||||||||
|
Notional Amount
|
Fair Value
|
Fair Value
|
Fair Value
|
||||||||||||||||||||
Hedge Designation/ Derivative Type
|
Mar. 31, 2018
|
Dec. 31, 2017
|
Mar. 31, 2018
|
Dec. 31, 2017
|
Mar. 31, 2018
|
Dec. 31, 2017
|
Mar. 31, 2018
|
Dec. 31, 2017
|
||||||||||||||||
Cash flow hedges
|
|
|
|
|
|
|
|
|
||||||||||||||||
Interest rate swaps
|
$
|
2,176
|
|
$
|
2,190
|
|
$
|
—
|
|
$
|
—
|
|
$
|
137
|
|
$
|
94
|
|
$
|
(137
|
)
|
$
|
(94
|
)
|
Foreign currency swaps
|
153
|
|
153
|
|
(20
|
)
|
(13
|
)
|
—
|
|
—
|
|
(20
|
)
|
(13
|
)
|
||||||||
Total cash flow hedges
|
2,329
|
|
2,343
|
|
(20
|
)
|
(13
|
)
|
137
|
|
94
|
|
(157
|
)
|
(107
|
)
|
||||||||
Non-qualifying strategies
|
|
|
|
|
|
|
|
|
||||||||||||||||
Interest rate contracts
|
|
|
|
|
|
|
|
|
||||||||||||||||
Interest rate swaps and futures
|
8,108
|
|
7,986
|
|
(66
|
)
|
(83
|
)
|
338
|
|
340
|
|
(404
|
)
|
(423
|
)
|
||||||||
Foreign exchange contracts
|
|
|
|
|
|
|
|
|
||||||||||||||||
Foreign currency swaps and forwards
|
362
|
|
213
|
|
(1
|
)
|
(1
|
)
|
1
|
|
—
|
|
(2
|
)
|
(1
|
)
|
||||||||
Credit contracts
|
|
|
|
|
|
|
|
|
||||||||||||||||
Credit derivatives that purchase credit protection
|
7
|
|
61
|
|
—
|
|
1
|
|
—
|
|
1
|
|
—
|
|
—
|
|
||||||||
Credit derivatives that assume credit risk [1]
|
978
|
|
823
|
|
12
|
|
3
|
|
14
|
|
20
|
|
(2
|
)
|
(17
|
)
|
||||||||
Credit derivatives in offsetting positions
|
965
|
|
1,046
|
|
—
|
|
2
|
|
8
|
|
13
|
|
(8
|
)
|
(11
|
)
|
||||||||
Equity contracts
|
|
|
|
|
|
|
|
|
||||||||||||||||
Equity index swaps and options
|
126
|
|
258
|
|
1
|
|
1
|
|
1
|
|
1
|
|
—
|
|
—
|
|
||||||||
Total non-qualifying strategies
|
10,546
|
|
10,387
|
|
(54
|
)
|
(77
|
)
|
362
|
|
375
|
|
(416
|
)
|
(452
|
)
|
||||||||
Total cash flow hedges and non-qualifying strategies
|
$
|
12,875
|
|
$
|
12,730
|
|
$
|
(74
|
)
|
$
|
(90
|
)
|
$
|
499
|
|
$
|
469
|
|
$
|
(573
|
)
|
$
|
(559
|
)
|
Balance Sheet Location
|
|
|
|
|
|
|
|
|
||||||||||||||||
Fixed maturities, available-for-sale
|
$
|
153
|
|
$
|
153
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Other investments
|
1,702
|
|
9,957
|
|
12
|
|
10
|
|
35
|
|
448
|
|
(23
|
)
|
(438
|
)
|
||||||||
Other liabilities
|
11,020
|
|
2,620
|
|
(86
|
)
|
(100
|
)
|
464
|
|
21
|
|
(550
|
)
|
(121
|
)
|
||||||||
Total derivatives
|
$
|
12,875
|
|
$
|
12,730
|
|
$
|
(74
|
)
|
$
|
(90
|
)
|
$
|
499
|
|
$
|
469
|
|
$
|
(573
|
)
|
$
|
(559
|
)
|
[1]
|
The derivative instruments related to this strategy are held for other investment purposes.
|
Offsetting Derivative Assets and Liabilities
|
|||||||||||||||||||||||
|
(i)
|
|
(ii)
|
|
(iii) = (i) - (ii)
|
(iv)
|
|
(v) = (iii) - (iv)
|
|||||||||||||||
|
|
|
|
|
Net Amounts Presented in the Statement of Financial Position
|
|
Collateral Disallowed for Offset in the Statement of Financial Position
|
|
|
||||||||||||||
|
Gross Amounts of Recognized Assets (Liabilities)
|
|
Gross Amounts Offset in the Statement of Financial Position
|
|
Derivative Assets [1] (Liabilities) [2]
|
|
Accrued Interest and Cash Collateral (Received) [3] Pledged [2]
|
|
Financial Collateral (Received) Pledged [4]
|
|
Net Amount
|
||||||||||||
As of March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Other investments
|
$
|
499
|
|
|
$
|
497
|
|
|
$
|
12
|
|
|
$
|
(10
|
)
|
|
$
|
2
|
|
|
$
|
—
|
|
Other liabilities
|
$
|
(573
|
)
|
|
$
|
(478
|
)
|
|
$
|
(86
|
)
|
|
$
|
(9
|
)
|
|
$
|
(85
|
)
|
|
$
|
(10
|
)
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Other investments
|
$
|
469
|
|
|
$
|
466
|
|
|
$
|
10
|
|
|
$
|
(7
|
)
|
|
$
|
1
|
|
|
$
|
2
|
|
Other liabilities
|
$
|
(559
|
)
|
|
$
|
(454
|
)
|
|
$
|
(100
|
)
|
|
$
|
(5
|
)
|
|
$
|
(96
|
)
|
|
$
|
(9
|
)
|
[1]
|
Included in other investments in the Company's Condensed Consolidated Balance Sheets.
|
[2]
|
Included in other liabilities in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative payable associated with each counterparty.
|
[3]
|
Included in other investments in the Company's Condensed Consolidated Balance Sheets and is limited to the net derivative receivable associated with each counterparty.
|
[4]
|
Excludes collateral associated with exchange-traded derivative instruments.
|
Derivatives in Cash Flow Hedging Relationships
|
|||||||
|
Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
|
||||||
|
Three Months Ended March 31,
|
||||||
|
2018
|
|
2017
|
||||
Interest rate swaps
|
$
|
(14
|
)
|
|
$
|
(3
|
)
|
Foreign currency swaps
|
(7
|
)
|
|
—
|
|
||
Total
|
$
|
(21
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
||||
|
Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
|
||||||
|
Three Months Ended March 31,
|
||||||
|
2018
|
|
2017
|
||||
Interest rate swaps
|
|
|
|
||||
Net realized capital gains
|
$
|
1
|
|
|
$
|
4
|
|
Net investment income
|
8
|
|
|
9
|
|
||
Total
|
$
|
9
|
|
|
$
|
13
|
|
Non-Qualifying Strategies Recognized within Net Realized Capital Gains (Losses)
|
||||||
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Foreign exchange contracts
|
|
|
||||
Foreign currency swaps and forwards
|
(3
|
)
|
(7
|
)
|
||
Other non-qualifying derivatives
|
|
|
||||
Interest rate contracts
|
|
|
||||
Interest rate swaps, swaptions, and futures
|
(2
|
)
|
5
|
|
||
Credit contracts
|
|
|
||||
Credit derivatives that purchase credit protection
|
(1
|
)
|
(5
|
)
|
||
Credit derivatives that assume credit risk
|
(8
|
)
|
9
|
|
||
Equity contracts
|
|
|
||||
Equity index swaps and options
|
1
|
|
(1
|
)
|
||
Other
|
|
|
||||
Contingent capital facility put option
|
—
|
|
(1
|
)
|
||
Total other non-qualifying derivatives
|
(10
|
)
|
7
|
|
||
Total [1]
|
$
|
(13
|
)
|
$
|
—
|
|
[1]
|
Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note
5
-
Fair Value Measurements
.
|
Credit Derivatives by Type
|
|||||||||||||||
|
|
|
|
Underlying Referenced Credit
Obligation(s) [1]
|
|
|
|||||||||
|
Notional
Amount
[2]
|
Fair
Value
|
Weighted
Average
Years to
Maturity
|
Type
|
Average
Credit
Rating
|
Offsetting
Notional
Amount [3]
|
Offsetting
Fair
Value [3]
|
||||||||
As of March 31, 2018
|
|||||||||||||||
Single name credit default swaps
|
|
|
|
|
|
|
|
||||||||
Investment grade risk exposure
|
$
|
170
|
|
$
|
4
|
|
5 years
|
Corporate Credit/
Foreign Gov. |
A-
|
$
|
—
|
|
$
|
—
|
|
Basket credit default swaps [4]
|
|
|
|
|
|
|
|
||||||||
Investment grade risk exposure
|
1,252
|
|
10
|
|
4 years
|
Corporate Credit
|
BBB+
|
453
|
|
(1
|
)
|
||||
Investment grade risk exposure
|
12
|
|
(1
|
)
|
6 years
|
CMBS Credit
|
A-
|
2
|
|
—
|
|
||||
Below investment grade risk exposure
|
27
|
|
(6
|
)
|
Less than 1 year
|
CMBS Credit
|
CCC
|
27
|
|
6
|
|
||||
Total [5]
|
$
|
1,461
|
|
$
|
7
|
|
|
|
|
$
|
482
|
|
$
|
5
|
|
As of December 31, 2017
|
|||||||||||||||
Single name credit default swaps
|
|
|
|
|
|
|
|
||||||||
Investment grade risk exposure
|
$
|
130
|
|
$
|
3
|
|
5 years
|
Corporate Credit/
Foreign Gov. |
A-
|
$
|
—
|
|
$
|
—
|
|
Below investment grade risk exposure
|
9
|
|
—
|
|
Less than 1 year
|
Corporate Credit
|
B
|
9
|
|
—
|
|
||||
Basket credit default swaps [4]
|
|
|
|
|
|
|
|
||||||||
Investment grade risk exposure
|
1,137
|
|
2
|
|
3 years
|
Corporate Credit
|
BBB+
|
454
|
|
(2
|
)
|
||||
Below investment grade risk exposure
|
27
|
|
2
|
|
3 years
|
Corporate Credit
|
B+
|
27
|
|
—
|
|
||||
Investment grade risk exposure
|
13
|
|
(1
|
)
|
5 years
|
CMBS Credit
|
A
|
3
|
|
—
|
|
||||
Below investment grade risk exposure
|
30
|
|
(6
|
)
|
Less than 1 year
|
CMBS Credit
|
CCC
|
30
|
|
7
|
|
||||
Total [5]
|
$
|
1,346
|
|
$
|
—
|
|
|
|
|
$
|
523
|
|
$
|
5
|
|
[1]
|
The average credit ratings are based on availability and are generally the midpoint of the available ratings among Moody’s, S&P, Fitch and Morningstar. If no rating is available from a rating agency, then an internally developed rating is used.
|
[2]
|
Notional amount is equal to the maximum potential future loss amount. These derivatives are governed by agreements, clearing house rules and applicable law, which include collateral posting requirements. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.
|
[3]
|
The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.
|
[4]
|
Comprised of swaps of standard market indices of diversified portfolios of corporate and CMBS issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.
|
[5]
|
Excludes investments that contain an embedded credit derivative for which the Company has elected the fair value option. For further discussion, see the Fair Value Option section in Note
5
-
Fair Value Measurements
.
|
|
For the three months ended March 31,
|
|||||
|
2018
|
2017
|
||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
23,775
|
|
$
|
22,545
|
|
Reinsurance and other recoverables
|
3,957
|
|
3,488
|
|
||
Beginning liabilities for unpaid losses and loss adjustment expenses, net
|
19,818
|
|
19,057
|
|
||
Provision for unpaid losses and loss adjustment expenses
|
|
|
|
|
||
Current accident year
|
1,640
|
|
1,762
|
|
||
Prior accident year development
|
(32
|
)
|
12
|
|
||
Total provision for unpaid losses and loss adjustment expenses
|
1,608
|
|
1,774
|
|
||
Less: payments
|
|
|
|
|
||
Current accident year
|
327
|
|
352
|
|
||
Prior accident years
|
1,322
|
|
1,300
|
|
||
Total payments
|
1,649
|
|
1,652
|
|
||
Ending liabilities for unpaid losses and loss adjustment expenses, net
|
19,777
|
|
19,179
|
|
||
Reinsurance and other recoverables
|
3,938
|
|
3,478
|
|
||
Ending liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
23,715
|
|
$
|
22,657
|
|
|
For the three months ended March 31,
|
|||||
|
2018
|
2017
|
||||
Workers’ compensation
|
$
|
(25
|
)
|
$
|
(20
|
)
|
Workers’ compensation discount accretion
|
10
|
|
8
|
|
||
General liability
|
8
|
|
10
|
|
||
Package business
|
8
|
|
—
|
|
||
Commercial property
|
(13
|
)
|
1
|
|
||
Professional liability
|
2
|
|
—
|
|
||
Bond
|
—
|
|
(10
|
)
|
||
Automobile liability - Commercial Lines
|
(5
|
)
|
20
|
|
||
Automobile liability - Personal Lines
|
—
|
|
—
|
|
||
Homeowners
|
(12
|
)
|
—
|
|
||
Net asbestos reserves
|
—
|
|
—
|
|
||
Net environmental reserves
|
—
|
|
—
|
|
||
Catastrophes
|
(3
|
)
|
(3
|
)
|
||
Uncollectible reinsurance
|
—
|
|
—
|
|
||
Other reserve re-estimates, net
|
(2
|
)
|
6
|
|
||
Total prior accident year development
|
$
|
(32
|
)
|
$
|
12
|
|
|
For the three months ended March 31,
|
|||||
|
2018
|
2017
|
||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
8,512
|
|
$
|
5,772
|
|
Reinsurance recoverables
|
209
|
|
208
|
|
||
Beginning liabilities for unpaid losses and loss adjustment expenses, net
|
8,303
|
|
5,564
|
|
||
Provision for unpaid losses and loss adjustment expenses
|
|
|
|
|
||
Current incurral year
|
1,185
|
|
678
|
|
||
Prior year's discount accretion
|
62
|
|
52
|
|
||
Prior incurral year development [1]
|
(127
|
)
|
(69
|
)
|
||
Total provision for unpaid losses and loss adjustment expenses [2]
|
1,120
|
|
661
|
|
||
Less: payments
|
|
|
|
|
||
Current incurral year
|
318
|
|
178
|
|
||
Prior incurral years
|
840
|
|
519
|
|
||
Total payments
|
1,158
|
|
697
|
|
||
Ending liabilities for unpaid losses and loss adjustment expenses, net
|
8,265
|
|
5,528
|
|
||
Reinsurance recoverables
|
233
|
|
208
|
|
||
Ending liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
8,498
|
|
$
|
5,736
|
|
[1]
|
Prior incurral year development represents the change in estimated ultimate incurred losses and loss adjustment expenses for prior incurral years on a discounted basis.
|
[2]
|
Includes unallocated loss adjustment expenses of
$41
, and
$24
for the
three months ended
March 31, 2018
and
2017
, respectively, that are recorded in insurance operating costs and other expenses in the Condensed Consolidated Statements of Operations.
|
Changes in Reserves for Future Policy Benefits
[1]
|
|||
Liability balance as of January 1, 2018
|
$
|
713
|
|
Incurred
|
10
|
|
|
Paid
|
(8
|
)
|
|
Change in unrealized investment gains and losses
|
(37
|
)
|
|
Liability balance as of March 31, 2018
|
$
|
678
|
|
Reinsurance recoverable asset, as of January 1, 2018
|
$
|
26
|
|
Incurred
|
8
|
|
|
Paid
|
—
|
|
|
Reinsurance recoverable asset, as of March 31, 2018
|
$
|
34
|
|
Liability balance as of January 1, 2017
|
$
|
322
|
|
Incurred
|
20
|
|
|
Paid
|
(10
|
)
|
|
Change in unrealized investment gains and losses
|
(10
|
)
|
|
Liability balance as of March 31, 2017
|
$
|
322
|
|
Reinsurance recoverable asset, as of January 1, 2017
|
$
|
28
|
|
Incurred
|
2
|
|
|
Paid
|
—
|
|
|
Reinsurance recoverable asset, as of March 31, 2017
|
$
|
30
|
|
Income Tax Rate Reconciliation
|
||||||
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Tax provision at U.S. federal statutory rate [1]
|
$
|
109
|
|
$
|
140
|
|
Tax-exempt interest
|
(17
|
)
|
(30
|
)
|
||
Executive compensation
|
4
|
|
—
|
|
||
Stock-based compensation
|
(2
|
)
|
(7
|
)
|
||
Tax reform
|
(3
|
)
|
—
|
|
||
Other
|
—
|
|
(5
|
)
|
||
Provision for income taxes
|
$
|
91
|
|
$
|
98
|
|
Rollforward of Unrecognized Tax Benefits
|
||||||
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Balance, beginning of period
|
$
|
9
|
|
$
|
12
|
|
Gross increases - tax positions in prior period
|
—
|
|
—
|
|
||
Gross decreases - tax positions in prior period
|
—
|
|
—
|
|
||
Balance, end of period
|
$
|
9
|
|
$
|
12
|
|
Future Tax Benefits
|
||||||||||||
|
As of
|
|
||||||||||
|
March 31, 2018
|
Expiration
|
||||||||||
|
Carryover amount
|
Expected tax benefit, gross
|
Dates
|
Amount
|
||||||||
Net operating loss carryover - U.S.
|
$
|
3,087
|
|
$
|
648
|
|
2020
|
$
|
1
|
|
||
|
|
|
2023
|
-
|
2036
|
$
|
3,086
|
|
||||
Net operating loss carryover - foreign
|
$
|
4
|
|
$
|
—
|
|
No expiration
|
$
|
4
|
|
||
Foreign tax credit carryover
|
$
|
21
|
|
$
|
21
|
|
2023
|
-
|
2024
|
$
|
21
|
|
General business credit carryover
|
$
|
3
|
|
$
|
3
|
|
2031
|
-
|
2037
|
$
|
3
|
|
|
|
|
|
|
Changes in AOCI, Net of Tax for the Three Months Ended March 31, 2018
|
||||||||||||||||||
|
Changes in
|
|||||||||||||||||
|
Net Unrealized Gain on Securities
|
OTTI Losses in OCI
|
Net Gain on Cash Flow Hedging Instruments
|
Foreign Currency Translation Adjustments
|
Pension and Other Postretirement Plan Adjustments
|
AOCI, net of tax
|
||||||||||||
Beginning balance
|
$
|
1,931
|
|
$
|
(3
|
)
|
$
|
18
|
|
$
|
34
|
|
$
|
(1,317
|
)
|
$
|
663
|
|
Cumulative effect of accounting changes, net of tax [1]
|
273
|
|
—
|
|
2
|
|
4
|
|
(284
|
)
|
(5
|
)
|
||||||
Adjusted balance, beginning of period
|
2,204
|
|
(3
|
)
|
20
|
|
38
|
|
(1,601
|
)
|
658
|
|
||||||
OCI before reclassifications
|
(882
|
)
|
(2
|
)
|
(31
|
)
|
(6
|
)
|
1
|
|
(920
|
)
|
||||||
Amounts reclassified from AOCI
|
27
|
|
—
|
|
(13
|
)
|
—
|
|
9
|
|
23
|
|
||||||
OCI, net of tax
|
(855
|
)
|
(2
|
)
|
(44
|
)
|
(6
|
)
|
10
|
|
(897
|
)
|
||||||
Ending balance
|
$
|
1,349
|
|
$
|
(5
|
)
|
$
|
(24
|
)
|
$
|
32
|
|
$
|
(1,591
|
)
|
$
|
(239
|
)
|
|
|
|
|
|
|
|
Changes in AOCI, Net of Tax for the Three Months Ended March 31, 2017
|
||||||||||||||||||
|
Changes in
|
|||||||||||||||||
|
Net Unrealized Gain on Securities
|
OTTI Losses in OCI
|
Net Gain on Cash Flow Hedging Instruments
|
Foreign Currency Translation Adjustments
|
Pension and Other Postretirement Plan Adjustments
|
AOCI, net of tax
|
||||||||||||
Beginning balance
|
$
|
1,276
|
|
$
|
(3
|
)
|
$
|
76
|
|
$
|
6
|
|
$
|
(1,692
|
)
|
$
|
(337
|
)
|
OCI before reclassifications
|
160
|
|
(1
|
)
|
(4
|
)
|
2
|
|
—
|
|
157
|
|
||||||
Amounts reclassified from AOCI
|
(23
|
)
|
—
|
|
(14
|
)
|
—
|
|
10
|
|
(27
|
)
|
||||||
OCI, net of tax
|
137
|
|
(1
|
)
|
(18
|
)
|
2
|
|
10
|
|
130
|
|
||||||
Ending balance
|
$
|
1,413
|
|
$
|
(4
|
)
|
$
|
58
|
|
$
|
8
|
|
$
|
(1,682
|
)
|
$
|
(207
|
)
|
|
|
|
|
|
|
|
Net Periodic Benefit
|
||||||||||||
|
Pension Benefits
|
Other
Postretirement
Benefits
|
||||||||||
|
Three Months Ended March 31,
|
Three Months Ended March 31,
|
||||||||||
|
2018
|
2017
|
2018
|
2017
|
||||||||
Service cost
|
$
|
1
|
|
$
|
1
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
35
|
|
49
|
|
2
|
|
2
|
|
||||
Expected return on plan assets
|
(56
|
)
|
(79
|
)
|
(2
|
)
|
(2
|
)
|
||||
Amortization of prior service credit
|
—
|
|
—
|
|
(1
|
)
|
(1
|
)
|
||||
Amortization of actuarial loss
|
12
|
|
15
|
|
1
|
|
1
|
|
||||
Net periodic benefit
|
$
|
(8
|
)
|
$
|
(14
|
)
|
$
|
—
|
|
$
|
—
|
|
|
|
Carrying Value
as of 3/31/2018
|
Carrying Value
as of 12/31/2017 |
||||
Assets
|
|
|
||||
Cash and investments
|
$
|
29,227
|
|
$
|
30,135
|
|
Reinsurance recoverables
|
20,701
|
|
20,785
|
|
||
Loss accrual [1]
|
(3,195
|
)
|
(3,257
|
)
|
||
Other assets
|
1,425
|
|
1,439
|
|
||
Separate account assets
|
108,393
|
|
115,834
|
|
||
Total assets held for sale
|
156,551
|
|
164,936
|
|
||
Liabilities
|
|
|
||||
Reserve for future policy benefits and unpaid loss and loss adjustment expenses
|
$
|
14,282
|
|
$
|
14,482
|
|
Other policyholder funds and benefits payable
|
28,921
|
|
29,228
|
|
||
Long-term debt
|
142
|
|
142
|
|
||
Other liabilities
|
2,456
|
|
2,756
|
|
||
Separate account liabilities
|
108,393
|
|
115,834
|
|
||
Total liabilities held for sale
|
$
|
154,194
|
|
$
|
162,442
|
|
[1]
|
Represents the estimated accrued loss on sale of the Company's life and annuity run-off business.
|
|
For the periods ended March 31,
|
|||||
|
2018
|
2017
|
||||
Revenues
|
|
|
||||
Earned premiums
|
$
|
27
|
|
$
|
36
|
|
Fee income and other
|
232
|
|
223
|
|
||
Net investment income
|
312
|
|
318
|
|
||
Net realized capital losses
|
21
|
|
(45
|
)
|
||
Total revenues
|
592
|
|
532
|
|
||
Benefits, losses and expenses
|
|
|
|
|||
Benefits, losses and loss adjustment expenses
|
328
|
|
333
|
|
||
Amortization of DAC
|
41
|
|
19
|
|
||
Insurance operating costs and other expenses [1]
|
101
|
|
94
|
|
||
Total benefits, losses and expenses
|
470
|
|
446
|
|
||
Income before income taxes
|
122
|
|
86
|
|
||
Income tax expense
|
15
|
|
11
|
|
||
Income from operations of discontinued operations, net of tax
|
107
|
|
75
|
|
||
Net realized capital gain on disposal, net of tax
|
62
|
|
—
|
|
||
Income from discontinued operations, net of tax
|
$
|
169
|
|
$
|
75
|
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Net cash provided by operating activities from discontinued operations
|
$
|
267
|
|
$
|
342
|
|
Net cash (used in) provided by investing activities from discontinued operations
|
$
|
(187
|
)
|
$
|
(467
|
)
|
Net cash (used in) provided by financing activities from discontinued operations [1]
|
$
|
(340
|
)
|
$
|
105
|
|
Cash paid for interest
|
$
|
2
|
|
$
|
2
|
|
Description
|
Page
|
Key Performance Measures and Ratios
|
|
Commercial
Lines
|
|
Personal Lines
|
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Net income
|
$
|
597
|
|
$
|
378
|
|
Less: Net realized capital gains (losses) excluded from core earnings, before tax
|
(30
|
)
|
23
|
|
||
Less: Integration and transaction costs associated with acquired business, before tax
|
(12
|
)
|
—
|
|
||
Less: Income tax benefit (expense)
|
9
|
|
(8
|
)
|
||
Less: Income from discontinued operations, after tax
|
169
|
|
75
|
|
||
Core earnings
|
$
|
461
|
|
$
|
288
|
|
Net Income
|
Net Income per Diluted Share
|
Book Value per Diluted Share
|
Net Investment Income
|
Annualized Investment Yield After tax
|
Written Premiums
|
Combined Ratio
|
Net Income Margin - Group Benefits
|
|
Three Months Ended March 31,
|
|||||||
|
2018
|
2017
|
Change
|
|||||
Earned premiums
|
$
|
3,927
|
|
$
|
3,438
|
|
14
|
%
|
Fee income
|
323
|
|
278
|
|
16
|
%
|
||
Net investment income
|
451
|
|
410
|
|
10
|
%
|
||
Net realized capital gains (losses)
|
(30
|
)
|
24
|
|
NM
|
|
||
Other revenues
|
20
|
|
19
|
|
5
|
%
|
||
Total revenues
|
4,691
|
|
4,169
|
|
13
|
%
|
||
Benefits, losses and loss adjustment expenses
|
2,695
|
|
2,424
|
|
11
|
%
|
||
Amortization of deferred policy acquisition costs
|
342
|
|
344
|
|
(1
|
%)
|
||
Insurance operating costs and other expenses
|
1,037
|
|
919
|
|
13
|
%
|
||
Interest expense
|
80
|
|
80
|
|
—
|
%
|
||
Amortization of other intangible assets
|
18
|
|
1
|
|
NM
|
|
||
Total benefits, losses and expenses
|
4,172
|
|
3,768
|
|
11
|
%
|
||
Income from continuing operations before income taxes
|
519
|
|
401
|
|
29
|
%
|
||
Income tax expense
|
91
|
|
98
|
|
(7
|
%)
|
||
Income from continuing operations, net of tax
|
428
|
|
303
|
|
41
|
%
|
||
Income from discontinued operations, net of tax
|
169
|
|
75
|
|
125
|
%
|
||
Net income
|
$
|
597
|
|
$
|
378
|
|
58
|
%
|
•
|
Current accident year losses and loss adjustment expenses before catastrophes in Property & Casualty decreased
$75
, before tax, primarily resulting from the effect of lower Personal Lines earned premium and lower Personal Lines automobile liability loss costs.
|
•
|
Current accident year catastrophe losses of
$103
, before tax, for the
three months ended
March 31, 2018
, compared to
|
•
|
Net prior accident year reserve development in Property & Casualty was favorable
$32
, before tax, for the
three months ended
March 31, 2018
, compared to unfavorable net reserve development of
$12
, before tax, for the prior year period. Prior accident year development in 2018 primarily included a decrease in reserves for workers’ compensation and homeowners claims. Prior accident year development in 2017 was largely due to an increase in commercial automobile liability. For additional information, see MD&A - Critical Accounting Estimates, Reserve Rollforwards and Development.
|
Composition of Invested Assets
|
|||||||||||
|
March 31, 2018
|
|
December 31, 2017
|
||||||||
|
Amount
|
Percent
|
|
Amount
|
Percent
|
||||||
Fixed maturities, available-for-sale ("AFS"), at fair value
|
$
|
35,924
|
|
80.9
|
%
|
|
$
|
36,964
|
|
81.9
|
%
|
Fixed maturities, at fair value using the fair value option ("FVO")
|
38
|
|
0.1
|
%
|
|
41
|
|
0.1
|
%
|
||
Equity securities, at fair value [1]
|
1,123
|
|
2.5
|
%
|
|
|
|
||||
Equity securities, AFS, at fair value [1]
|
|
|
|
1,012
|
|
2.3
|
%
|
||||
Mortgage loans
|
3,221
|
|
7.2
|
%
|
|
3,175
|
|
7.0
|
%
|
||
Limited partnerships and other alternative investments
|
1,649
|
|
3.7
|
%
|
|
1,588
|
|
3.5
|
%
|
||
Other investments [2]
|
92
|
|
0.2
|
%
|
|
96
|
|
0.2
|
%
|
||
Short-term investments
|
2,385
|
|
5.4
|
%
|
|
2,270
|
|
5.0
|
%
|
||
Total investments
|
$
|
44,432
|
|
100.0
|
%
|
|
$
|
45,146
|
|
100.0
|
%
|
[1]
|
Effective January 1, 2018, with the adoption of new accounting standards for financial instruments, equity securities, AFS were reclassified to equity securities at fair value and are excluded from the table above as of March 31, 2018.
|
[2]
|
Primarily relates to derivative instruments.
|
Net Investment Income
|
||||||||||
|
Three Months Ended March 31,
|
|||||||||
|
2018
|
2017
|
||||||||
(Before tax)
|
Amount
|
Yield [1]
|
Amount
|
Yield [1]
|
||||||
Fixed maturities [2]
|
$
|
349
|
|
3.9
|
%
|
$
|
319
|
|
4.0
|
%
|
Equity securities
|
6
|
|
2.3
|
%
|
5
|
|
2.1
|
%
|
||
Mortgage loans
|
33
|
|
4.1
|
%
|
30
|
|
4.1
|
%
|
||
Limited partnerships and other alternative investments
|
73
|
|
18.6
|
%
|
58
|
|
15.5
|
%
|
||
Other [3]
|
8
|
|
|
15
|
|
|
||||
Investment expense
|
(18
|
)
|
|
(17
|
)
|
|
||||
Total net investment income
|
$
|
451
|
|
4.2
|
%
|
$
|
410
|
|
4.2
|
%
|
Total net investment income excluding limited partnerships and other alternative investments
|
$
|
378
|
|
3.7
|
%
|
$
|
352
|
|
3.8
|
%
|
[1]
|
Yields calculated using annualized net investment income divided by the monthly average invested assets at amortized cost as applicable, excluding repurchase agreement and securities lending collateral , if any, and derivatives book value.
|
[2]
|
Includes net investment income on short-term investments.
|
[3]
|
Primarily includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.
|
Net Realized Capital Gains (Losses)
|
||||||
|
Three Months Ended March 31,
|
|||||
(Before tax)
|
2018
|
2017
|
||||
Gross gains on sales
|
$
|
19
|
|
$
|
61
|
|
Gross losses on sales
|
(57
|
)
|
(46
|
)
|
||
Equity securities [1]
|
16
|
|
—
|
|
||
Net other-than-temporary impairment ("OTTI") losses recognized in earnings [2]
|
—
|
|
(1
|
)
|
||
Transactional foreign currency revaluation
|
1
|
|
6
|
|
||
Non-qualifying foreign currency derivatives
|
(3
|
)
|
(7
|
)
|
||
Other, net [3]
|
(6
|
)
|
11
|
|
||
Net realized capital gains (losses)
|
$
|
(30
|
)
|
$
|
24
|
|
[1]
|
Effective January 1, 2018, with adoption of new accounting standards for equity securities at fair value, includes all changes in fair value and trading gains and losses for equity securities.
|
[2]
|
See Other-Than-Temporary Impairments within the Investment Portfolio Risks and Risk Management section of the MD&A.
|
[3]
|
Primarily consists of changes in value of non-qualifying derivatives and including credit derivatives.
|
•
|
property and casualty insurance product reserves, net of reinsurance;
|
•
|
group benefit long-term disability (LTD) reserves, net of reinsurance;
|
•
|
evaluation of goodwill for impairment;
|
•
|
valuation of investments and derivative instruments including evaluation of other-than-temporary impairments on available-for-sale securities and valuation allowances on mortgage loans;
|
•
|
valuation allowance on deferred tax assets; and
|
•
|
contingencies relating to corporate litigation and regulatory matters.
|
|
Commercial
Lines
|
Personal
Lines
|
Property & Casualty Other Operations
|
Total Property & Casualty Insurance
|
||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
18,893
|
|
$
|
2,294
|
|
$
|
2,588
|
|
$
|
23,775
|
|
Reinsurance and other recoverables
|
3,147
|
|
71
|
|
739
|
|
3,957
|
|
||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net
|
15,746
|
|
2,223
|
|
1,849
|
|
19,818
|
|
||||
Provision for unpaid losses and loss adjustment expenses
|
|
|
|
|
||||||||
Current accident year before catastrophes
|
971
|
|
566
|
|
—
|
|
1,537
|
|
||||
Current accident year ("CAY") catastrophes ("CATS")
|
69
|
|
34
|
|
—
|
|
103
|
|
||||
Prior accident year development ("PYD")
|
(19
|
)
|
(13
|
)
|
—
|
|
(32
|
)
|
||||
Total provision for unpaid losses and loss adjustment expenses
|
1,021
|
|
587
|
|
—
|
|
1,608
|
|
||||
Less: payments
|
893
|
|
688
|
|
68
|
|
1,649
|
|
||||
Ending liabilities for unpaid losses and loss adjustment expenses, net
|
15,874
|
|
2,122
|
|
1,781
|
|
19,777
|
|
||||
Reinsurance and other recoverables
|
3,146
|
|
62
|
|
730
|
|
3,938
|
|
||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
19,020
|
|
$
|
2,184
|
|
$
|
2,511
|
|
$
|
23,715
|
|
Earned premiums and fee income
|
$
|
1,720
|
|
$
|
869
|
|
|
|
||||
Loss and loss expense paid ratio [1]
|
51.9
|
|
79.2
|
|
|
|
||||||
Loss and loss expense incurred ratio
|
59.7
|
|
68.3
|
|
|
|
||||||
Prior accident year development (pts) [2]
|
(1.1
|
)
|
(1.5
|
)
|
|
|
[1]
|
The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
|
[2]
|
“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.
|
|
Commercial
Lines
|
Personal
Lines |
||||
Wind and hail
|
$
|
7
|
|
$
|
12
|
|
Winter Storms
|
62
|
|
22
|
|
||
Total Catastrophe Losses
|
$
|
69
|
|
$
|
34
|
|
|
Commercial Lines
|
Personal
Lines
|
Property & Casualty Other Operations
|
Total Property & Casualty Insurance
|
||||||||
Workers’ compensation
|
$
|
(25
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(25
|
)
|
Workers’ compensation discount accretion
|
10
|
|
—
|
|
—
|
|
10
|
|
||||
General liability
|
8
|
|
—
|
|
—
|
|
8
|
|
||||
Package business
|
8
|
|
—
|
|
—
|
|
8
|
|
||||
Commercial property
|
(13
|
)
|
—
|
|
—
|
|
(13
|
)
|
||||
Professional liability
|
2
|
|
—
|
|
—
|
|
2
|
|
||||
Bond
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Automobile liability
|
(5
|
)
|
—
|
|
—
|
|
(5
|
)
|
||||
Homeowners
|
—
|
|
(12
|
)
|
—
|
|
(12
|
)
|
||||
Net asbestos reserves
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Net environmental reserves
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Catastrophes
|
(8
|
)
|
5
|
|
—
|
|
(3
|
)
|
||||
Uncollectible reinsurance
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Other reserve re-estimates, net
|
4
|
|
(6
|
)
|
—
|
|
(2
|
)
|
||||
Total prior accident year development
|
$
|
(19
|
)
|
$
|
(13
|
)
|
$
|
—
|
|
$
|
(32
|
)
|
|
|
|
|
|
|
Commercial
Lines
|
Personal
Lines
|
Property & Casualty Other Operations
|
Total Property & Casualty Insurance
|
||||||||
Beginning liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
17,950
|
|
$
|
2,094
|
|
$
|
2,501
|
|
$
|
22,545
|
|
Reinsurance and other recoverables
|
3,037
|
|
25
|
|
426
|
|
3,488
|
|
||||
Beginning liabilities for unpaid losses and loss adjustment expenses, net
|
14,913
|
|
2,069
|
|
2,075
|
|
19,057
|
|
||||
Provision for unpaid losses and loss adjustment expenses
|
|
|
|
|
||||||||
Current accident year before catastrophes
|
968
|
|
644
|
|
—
|
|
1,612
|
|
||||
Current accident year catastrophes
|
71
|
|
79
|
|
—
|
|
150
|
|
||||
Prior accident year development
|
15
|
|
(4
|
)
|
1
|
|
12
|
|
||||
Total provision for unpaid losses and loss adjustment expenses
|
1,054
|
|
719
|
|
1
|
|
1,774
|
|
||||
Less: payments
|
863
|
|
710
|
|
79
|
|
1,652
|
|
||||
Ending liabilities for unpaid losses and loss adjustment expenses, net
|
15,104
|
|
2,078
|
|
1,997
|
|
19,179
|
|
||||
Reinsurance and other recoverables
|
3,042
|
|
25
|
|
411
|
|
3,478
|
|
||||
Ending liabilities for unpaid losses and loss adjustment expenses, gross
|
$
|
18,146
|
|
$
|
2,103
|
|
$
|
2,408
|
|
$
|
22,657
|
|
Earned premiums and fee income
|
$
|
1,698
|
|
$
|
945
|
|
|
|
||||
Loss and loss expense paid ratio [1]
|
50.8
|
|
75.1
|
|
|
|
||||||
Loss and loss expense incurred ratio
|
62.4
|
|
77.0
|
|
|
|
||||||
Prior accident year development (pts) [2]
|
0.9
|
|
(0.4
|
)
|
|
|
[1]
|
The “loss and loss expense paid ratio” represents the ratio of paid losses and loss adjustment expenses to earned premiums.
|
[2]
|
“Prior accident year development (pts)” represents the ratio of prior accident year development to earned premiums.
|
|
Commercial
Lines
|
Personal
Lines |
||||
Wind and hail
|
$
|
70
|
|
$
|
76
|
|
Winter storms
|
1
|
|
3
|
|
||
Total Catastrophe Losses
|
$
|
71
|
|
$
|
79
|
|
|
Commercial Lines
|
Personal
Lines
|
Property & Casualty Other Operations
|
Total Property & Casualty Insurance
|
||||||||
Workers’ compensation
|
$
|
(20
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(20
|
)
|
Workers’ compensation discount accretion
|
8
|
|
—
|
|
—
|
|
8
|
|
||||
General liability
|
10
|
|
—
|
|
—
|
|
10
|
|
||||
Commercial property
|
1
|
|
—
|
|
—
|
|
1
|
|
||||
Bond
|
(10
|
)
|
—
|
|
—
|
|
(10
|
)
|
||||
Automobile liability
|
20
|
|
—
|
|
—
|
|
20
|
|
||||
Catastrophes
|
—
|
|
(3
|
)
|
—
|
|
(3
|
)
|
||||
Other reserve re-estimates, net
|
6
|
|
(1
|
)
|
1
|
|
6
|
|
||||
Total prior accident year development
|
$
|
15
|
|
$
|
(4
|
)
|
$
|
1
|
|
$
|
12
|
|
|
|
|
|
|
|
Asbestos
|
Environmental
|
||||
March 31, 2018
|
|
|
||||
Property and Casualty Other Operations
|
$
|
1,113
|
|
$
|
176
|
|
Commercial Lines and Personal Lines
|
71
|
|
55
|
|
||
Ending liability — net
|
$
|
1,184
|
|
$
|
231
|
|
December 31, 2017
|
|
|
||||
Property and Casualty Other Operations
|
$
|
1,143
|
|
$
|
182
|
|
Commercial Lines and Personal Lines
|
72
|
|
55
|
|
||
Ending liability — net
|
$
|
1,215
|
|
$
|
237
|
|
|
|
Asbestos
|
Environmental
|
Total A&E
|
||||||
Gross
|
|
|
|
|||||||
|
Direct
|
$
|
1,378
|
|
$
|
327
|
|
$
|
1,705
|
|
|
Assumed Reinsurance
|
419
|
|
46
|
|
465
|
|
|||
|
Total
|
1,797
|
|
373
|
|
2,170
|
|
|||
Ceded- other than NICO
|
(430
|
)
|
(40
|
)
|
(470
|
)
|
||||
Ceded - NICO ADC
|
(183
|
)
|
(102
|
)
|
(285
|
)
|
||||
Net
|
$
|
1,184
|
|
$
|
231
|
|
$
|
1,415
|
|
|
Asbestos
|
Environmental
|
||||
2018
|
|
|
||||
Beginning liability—net
|
$
|
1,215
|
|
$
|
237
|
|
Losses and loss adjustment expenses incurred
|
—
|
|
—
|
|
||
Losses and loss adjustment expenses paid
|
(31
|
)
|
(6
|
)
|
||
Reclassification of allowance for uncollectible reinsurance
|
—
|
|
—
|
|
||
Ending liability – net
|
$
|
1,184
|
|
$
|
231
|
|
2017
|
|
|
||||
Beginning liability—net
|
$
|
1,363
|
|
$
|
292
|
|
Losses and loss adjustment expenses incurred
|
—
|
|
—
|
|
||
Losses and loss adjustment expenses paid
|
(44
|
)
|
(28
|
)
|
||
Reclassification of allowance for uncollectible reinsurance [1]
|
1
|
|
—
|
|
||
Ending liability – net
|
$
|
1,320
|
|
$
|
264
|
|
•
|
Direct Insurance-
includes primary and excess coverage. Of the two categories of claims, direct policies tend to have the greatest factual development from which to estimate the Company’s exposures.
|
•
|
Assumed Reinsurance-
includes both “treaty” reinsurance (covering broad categories of claims or blocks of business) and “facultative” reinsurance (covering specific risks or individual policies of primary or excess insurance companies). Assumed Reinsurance exposures are less predictable than direct insurance exposures because the Company does not generally receive notice of a reinsurance claim until the underlying direct insurance claim is mature. This causes a delay in the receipt of information at the reinsurer level and adds to the uncertainty of estimating related reserves.
|
|
Asbestos
|
Environmental
|
One year net survival ratio
|
8.7
|
7.0
|
Three year net survival ratio- excluding PPG
|
7.5
|
4.7
|
One year gross survival ratio
|
9.8
|
9.5
|
Three year gross survival ratio - excluding PPG settlement
|
8.7
|
6.6
|
|
Asbestos
|
Environmental
|
||||||||||
|
Paid
Losses & LAE |
Incurred
Losses & LAE |
Paid
Losses & LAE |
Incurred
Losses & LAE |
||||||||
Gross
|
$
|
42
|
|
$
|
—
|
|
$
|
6
|
|
$
|
—
|
|
Ceded- other than NICO
|
(11
|
)
|
—
|
|
—
|
|
—
|
|
||||
Ceded - NICO ADC
|
—
|
|
—
|
|
—
|
|
—
|
|
||||
Net
|
$
|
31
|
|
$
|
—
|
|
$
|
6
|
|
$
|
—
|
|
COMMERCIAL LINES
|
|
Three Months Ended March 31,
|
|||||||
|
2018
|
2017
|
Change
|
|||||
Written premiums
|
$
|
1,851
|
|
$
|
1,821
|
|
2
|
%
|
Change in unearned premium reserve
|
140
|
|
133
|
|
5
|
%
|
||
Earned premiums
|
1,711
|
|
1,688
|
|
1
|
%
|
||
Fee income
|
9
|
|
10
|
|
(10
|
%)
|
||
Losses and loss adjustment expenses
|
|
|
|
|
||||
Current accident year before catastrophes
|
971
|
|
968
|
|
—
|
%
|
||
Current accident year catastrophes [1]
|
69
|
|
71
|
|
(3
|
%)
|
||
Prior accident year development [1]
|
(19
|
)
|
15
|
|
NM
|
|
||
Total losses and loss adjustment expenses
|
1,021
|
|
1,054
|
|
(3
|
%)
|
||
Amortization of deferred policy acquisition costs
|
257
|
|
249
|
|
3
|
%
|
||
Underwriting expenses
|
324
|
|
323
|
|
—
|
%
|
||
Dividends to policyholders
|
4
|
|
4
|
|
—
|
%
|
||
Underwriting gain
|
114
|
|
68
|
|
68
|
%
|
||
Net investment income [2]
|
258
|
|
243
|
|
6
|
%
|
||
Net realized capital gains (losses) [2]
|
(8
|
)
|
11
|
|
(173
|
%)
|
||
Other income
|
2
|
|
1
|
|
100
|
%
|
||
Income before income taxes
|
366
|
|
323
|
|
13
|
%
|
||
Income tax expense [3]
|
68
|
|
92
|
|
(26
|
%)
|
||
Net income
|
$
|
298
|
|
$
|
231
|
|
29
|
%
|
[1]
|
For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property and Casualty Insurance Product Reserves, Net of Reinsurance.
|
[2]
|
For discussion of consolidated investment results, see MD&A - Investment Results.
|
[3]
|
For discussion of income taxes, see Note
12
-
Income Taxes
of Notes to Condensed Consolidated Financial Statements.
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
New business premium
|
$
|
337
|
|
$
|
313
|
|
Standard commercial lines policy count retention
|
82
|
%
|
85
|
%
|
||
Standard commercial lines renewal written price increase
|
2.5
|
%
|
3.2
|
%
|
||
Standard commercial lines renewal earned price increase
|
3.3
|
%
|
2.4
|
%
|
||
Standard commercial lines policies in-force as of end of period (in thousands)
|
1,337
|
|
1,347
|
|
[1]
|
Standard commercial lines consists of small commercial and middle market. Standard commercial premium measures exclude Maxum, middle market specialty programs and livestock lines of business.
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
Change
|
|||
Loss and loss adjustment expense ratio
|
|
|
|
|||
Current accident year before catastrophes
|
56.8
|
|
57.3
|
|
(0.5
|
)
|
Current accident year catastrophes
|
4.0
|
|
4.2
|
|
(0.2
|
)
|
Prior accident year development
|
(1.1
|
)
|
0.9
|
|
(2.0
|
)
|
Total loss and loss adjustment expense ratio
|
59.7
|
|
62.4
|
|
(2.7
|
)
|
Expense ratio
|
33.4
|
|
33.3
|
|
0.1
|
|
Policyholder dividend ratio
|
0.2
|
|
0.2
|
|
—
|
|
Combined ratio
|
93.3
|
|
96.0
|
|
(2.7
|
)
|
Current accident year catastrophes and prior year development
|
2.9
|
|
5.1
|
|
(2.2
|
)
|
Underlying combined ratio
|
90.4
|
|
90.9
|
|
(0.5
|
)
|
•
|
Small commercial written premium growth for 2018 was primarily due to higher new business premium, renewal written price increases and growth from Maxum, partially offset by the effect of lower policy retention.
|
•
|
Middle market written premiums increased in 2018 due to growth in new business and higher renewal premium, due in part to renewal written pricing increases, partially offset by lower policy retention.
|
•
|
Specialty commercial written premiums in 2018 were down modestly driven by declines in bond and national accounts, partially offset by growth in financial products.
|
PERSONAL LINES
|
|
Three Months Ended March 31,
|
|||||||
Underwriting Summary
|
2018
|
2017
|
Change
|
|||||
Written premiums
|
$
|
807
|
|
$
|
889
|
|
(9
|
%)
|
Change in unearned premium reserve
|
(52
|
)
|
(45
|
)
|
(16
|
%)
|
||
Earned premiums
|
859
|
|
934
|
|
(8
|
%)
|
||
Fee income
|
10
|
|
11
|
|
(9
|
%)
|
||
Losses and loss adjustment expenses
|
|
|
|
|||||
Current accident year before catastrophes
|
566
|
|
644
|
|
(12
|
%)
|
||
Current accident year catastrophes [1]
|
34
|
|
79
|
|
(57
|
%)
|
||
Prior accident year development [1]
|
(13
|
)
|
(4
|
)
|
NM
|
|
||
Total losses and loss adjustment expenses
|
587
|
|
719
|
|
(18
|
%)
|
||
Amortization of DAC
|
71
|
|
81
|
|
(12
|
%)
|
||
Underwriting expenses
|
143
|
|
137
|
|
4
|
%
|
||
Amortization of other intangible assets
|
1
|
|
1
|
|
—
|
%
|
||
Underwriting gain
|
67
|
|
7
|
|
NM
|
|
||
Net servicing income [2]
|
4
|
|
3
|
|
33
|
%
|
||
Net investment income [3]
|
40
|
|
36
|
|
11
|
%
|
||
Net realized capital gains [3]
|
—
|
|
2
|
|
(100
|
%)
|
||
Other income
|
(1
|
)
|
(1
|
)
|
—
|
%
|
||
Income before income taxes
|
110
|
|
47
|
|
134
|
%
|
||
Income tax expense [4]
|
21
|
|
14
|
|
50
|
%
|
||
Net income
|
$
|
89
|
|
$
|
33
|
|
170
|
%
|
[1]
|
For discussion of current accident year catastrophes and prior accident year development, see MD&A - Critical Accounting Estimates, Property & Casualty Insurance Product Reserves, Net of Reinsurance.
|
[2]
|
Includes servicing revenues of
$19
for the
three months ended
March 31,
2018
and
2017
and includes servicing expenses of
$15
and
$16
, for the
three months ended
March 31,
2018
and
2017
, respectively.
|
[3]
|
For discussion of consolidated investment results, see MD&A - Investment Results.
|
[4]
|
For discussion of income taxes, see Note
12
-
Income Taxes
of Notes to Condensed Consolidated Financial Statements.
|
|
Three Months Ended March 31,
|
|||||||
Written Premiums
|
2018
|
2017
|
Change
|
|||||
Product Line
|
|
|
|
|||||
Automobile
|
$
|
581
|
|
$
|
645
|
|
(10
|
%)
|
Homeowners
|
226
|
|
244
|
|
(7
|
%)
|
||
Total
|
$
|
807
|
|
$
|
889
|
|
(9
|
%)
|
Earned Premiums
|
|
|
|
|||||
Product Line
|
|
|
|
|||||
Automobile
|
$
|
600
|
|
$
|
654
|
|
(8
|
%)
|
Homeowners
|
259
|
|
280
|
|
(8
|
%)
|
||
Total
|
$
|
859
|
|
$
|
934
|
|
(8
|
%)
|
|
Three Months Ended March 31,
|
|||||
Premium Measures
|
2018
|
2017
|
||||
Policies in-force end of period (in thousands)
|
|
|
||||
Automobile
|
1,641
|
|
1,905
|
|
||
Homeowners
|
1,008
|
|
1,144
|
|
||
New business written premium
|
|
|
||||
Automobile
|
$
|
37
|
|
$
|
42
|
|
Homeowners
|
$
|
9
|
|
$
|
12
|
|
Policy count retention
|
|
|
||||
Automobile
|
80
|
%
|
82
|
%
|
||
Homeowners
|
82
|
%
|
82
|
%
|
||
Renewal written price increase
|
|
|
||||
Automobile
|
9.7
|
%
|
10.3
|
%
|
||
Homeowners
|
9.5
|
%
|
8.9
|
%
|
||
Renewal earned price increase
|
|
|
||||
Automobile
|
10.7
|
%
|
8.2
|
%
|
||
Homeowners
|
8.9
|
%
|
8.2
|
%
|
|
Three Months Ended March 31,
|
|||||
Underwriting Ratios
|
2018
|
2017
|
Change
|
|||
Loss and loss adjustment expense ratio
|
|
|
|
|||
Current accident year before catastrophes
|
65.9
|
|
69.0
|
|
(3.1
|
)
|
Current accident year catastrophes
|
4.0
|
|
8.5
|
|
(4.5
|
)
|
Prior year development
|
(1.5
|
)
|
(0.4
|
)
|
(1.1
|
)
|
Total loss and loss adjustment expense ratio
|
68.3
|
|
77.0
|
|
(8.7
|
)
|
Expense ratio
|
23.9
|
|
22.3
|
|
1.6
|
|
Combined ratio
|
92.2
|
|
99.3
|
|
(7.1
|
)
|
Current accident year catastrophes and prior year development
|
2.5
|
|
8.1
|
|
(5.6
|
)
|
Underlying combined ratio
|
89.8
|
|
91.2
|
|
(1.4
|
)
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
Change
|
|||
Automobile
|
|
|
|
|
||
Combined ratio
|
93.1
|
|
97.5
|
|
(4.4
|
)
|
Underlying combined ratio
|
94.2
|
|
96.6
|
|
(2.4
|
)
|
Homeowners
|
|
|
|
|
||
Combined ratio
|
89.8
|
|
103.4
|
|
(13.6
|
)
|
Underlying combined ratio
|
78.9
|
|
78.9
|
|
—
|
|
PROPERTY & CASUALTY OTHER OPERATIONS
|
|
Three Months Ended March 31,
|
|||||||
Underwriting Summary
|
2018
|
2017
|
Change
|
|||||
Losses and loss adjustment expenses
|
|
|
|
|
||||
Prior accident year development [1]
|
—
|
|
1
|
|
(100
|
%)
|
||
Total losses and loss adjustment expenses
|
—
|
|
1
|
|
(100
|
%)
|
||
Underwriting expenses
|
3
|
|
5
|
|
(40
|
%)
|
||
Underwriting loss
|
(3
|
)
|
(6
|
)
|
50
|
%
|
||
Net investment income [2]
|
24
|
|
31
|
|
(23
|
%)
|
||
Net realized capital gains (losses) [2]
|
(1
|
)
|
4
|
|
(125
|
%)
|
||
Other income
|
—
|
|
2
|
|
(100
|
%)
|
||
Income before income taxes
|
20
|
|
31
|
|
(35
|
%)
|
||
Income tax expense [3]
|
3
|
|
7
|
|
(57
|
%)
|
||
Net income
|
$
|
17
|
|
$
|
24
|
|
(29
|
%)
|
GROUP BENEFITS
|
Operating Summary
|
||||||||
|
Three Months Ended March 31,
|
|||||||
|
2018
|
2017
|
Change
|
|||||
Premiums and other considerations
|
$
|
1,401
|
|
$
|
835
|
|
68
|
%
|
Net investment income [1]
|
121
|
|
95
|
|
27
|
%
|
||
Net realized capital gains (losses) [1]
|
(25
|
)
|
8
|
|
NM
|
|
||
Total revenues
|
1,497
|
|
938
|
|
60
|
%
|
||
Benefits, losses and loss adjustment expenses
|
1,085
|
|
651
|
|
67
|
%
|
||
Amortization of DAC
|
10
|
|
8
|
|
25
|
%
|
||
Insurance operating costs and other expenses
|
321
|
|
220
|
|
46
|
%
|
||
Amortization of other intangible assets
|
17
|
|
—
|
|
NM
|
|
||
Total benefits, losses and expenses
|
1,433
|
|
879
|
|
63
|
%
|
||
Income before income taxes
|
64
|
|
59
|
|
8
|
%
|
||
Income tax expense [2]
|
10
|
|
14
|
|
(29
|
)%
|
||
Net income
|
$
|
54
|
|
$
|
45
|
|
20
|
%
|
[1]
|
For discussion of consolidated investment results, see MD&A - Investment Results.
|
[2]
|
For discussion of income taxes, see Note
12
-
Income Taxes
of Notes to the Consolidated Financial Statements.
|
Premiums and Other Considerations
|
||||||||
|
Three Months Ended March 31,
|
|||||||
|
2018
|
2017
|
Change
|
|||||
Fully insured – ongoing premiums
|
$
|
1,357
|
|
$
|
805
|
|
69
|
%
|
Buyout premiums
|
—
|
|
11
|
|
(100
|
)%
|
||
Fee income
|
44
|
|
19
|
|
132
|
%
|
||
Total premiums and other considerations
|
$
|
1,401
|
|
$
|
835
|
|
68
|
%
|
Fully insured ongoing sales, excluding buyouts
|
$
|
454
|
|
$
|
211
|
|
115
|
%
|
Margin
|
||||||
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
Change
|
|||
Net income margin
|
3.6
|
%
|
4.9
|
%
|
(1.3
|
)
|
Less: Net realized capital gains (losses) excluded from core earnings, after tax
|
(1.4
|
)%
|
0.6
|
%
|
(2.0
|
)
|
Less: Integration and transaction costs associated with acquired business, after tax
|
(0.6
|
)%
|
—
|
%
|
(0.6
|
)
|
Core earnings margin
|
5.6
|
%
|
4.3
|
%
|
1.3
|
|
MUTUAL FUNDS
|
|
Three Months Ended March 31,
|
|||||||
|
2018
|
2017
|
Change
|
|||||
Fee income and other revenue
|
$
|
258
|
|
$
|
237
|
|
9
|
%
|
Net investment income
|
1
|
|
1
|
|
—
|
%
|
||
Total revenues
|
259
|
|
238
|
|
9
|
%
|
||
Amortization of DAC
|
4
|
|
6
|
|
(33
|
)%
|
||
Operating costs and other expenses [1]
|
212
|
|
197
|
|
8
|
%
|
||
Total benefits, losses and expenses
|
216
|
|
203
|
|
6
|
%
|
||
Income before income taxes
|
43
|
|
35
|
|
23
|
%
|
||
Income tax expense
|
9
|
|
12
|
|
(25
|
)%
|
||
Net income
|
$
|
34
|
|
$
|
23
|
|
48
|
%
|
|
|
|
|
|||||
Daily average total Mutual Funds segment AUM
|
$
|
117,301
|
|
$
|
101,114
|
|
16
|
%
|
Return on Assets ("ROA") [2]
|
|
|
|
|||||
Net income
|
11.9
|
|
9.2
|
|
29
|
%
|
||
Core Earnings
|
11.9
|
|
9.2
|
|
29
|
%
|
[1]
|
2017 includes distribution costs of
$46
that were previously netted against fee income and are now presented gross in insurance operating costs and other expenses.
|
[2]
|
Represents annualized earnings divided by a daily average of assets under management, as measured in basis points.
|
|
Three Months Ended March 31,
|
|||||||
|
2018
|
2017 [1]
|
Change
|
|||||
Mutual Fund and ETP AUM - beginning of period
|
$
|
99,090
|
|
$
|
81,507
|
|
22
|
%
|
Sales - mutual fund
|
6,177
|
|
7,218
|
|
(14
|
)%
|
||
Redemptions - mutual fund
|
(5,693
|
)
|
(5,885
|
)
|
3
|
%
|
||
Net flows - ETP
|
194
|
|
22
|
|
NM
|
|
||
Net flows - mutual fund and ETP
|
678
|
|
1,355
|
|
(50
|
)%
|
||
Change in market value and other
|
115
|
|
4,214
|
|
(97
|
)%
|
||
Mutual fund and ETP AUM - end of period
|
99,883
|
|
87,076
|
|
15
|
%
|
||
Life and annuity run-off business held for sale
|
15,614
|
|
16,123
|
|
(3
|
)%
|
||
Total Mutual Funds segment AUM
|
$
|
115,497
|
|
$
|
103,199
|
|
12
|
%
|
|
March 31, 2018
|
March 31, 2017
|
Change
|
|||||
Equity
|
$
|
64,702
|
|
$
|
54,683
|
|
18
|
%
|
Fixed Income
|
14,378
|
|
13,973
|
|
3
|
%
|
||
Multi-Strategy Investments [1]
|
20,137
|
|
18,142
|
|
11
|
%
|
||
Exchange-traded Products
|
666
|
|
278
|
|
140
|
%
|
||
Mutual Fund and ETP AUM
|
$
|
99,883
|
|
$
|
87,076
|
|
15
|
%
|
CORPORATE
|
|
Three Months Ended March 31,
|
|||||||
Operating Summary
|
2018
|
2017
|
Change
|
|||||
Fee income
|
$
|
2
|
|
$
|
1
|
|
100
|
%
|
Net investment income
|
7
|
|
4
|
|
75
|
%
|
||
Net realized capital gains (losses)
|
4
|
|
(1
|
)
|
NM
|
|
||
Total revenues
|
13
|
|
4
|
|
NM
|
|
||
Benefits, losses and loss adjustment expenses [1]
|
2
|
|
—
|
|
NM
|
|
||
Insurance operating costs and other expenses
|
15
|
|
18
|
|
(17
|
%)
|
||
Interest expense [2]
|
80
|
|
80
|
|
—
|
%
|
||
Total benefits, losses and expenses
|
97
|
|
98
|
|
(1
|
%)
|
||
Loss before income taxes
|
(84
|
)
|
(94
|
)
|
11
|
%
|
||
Income tax benefit [3]
|
(20
|
)
|
(41
|
)
|
51
|
%
|
||
Loss from continuing operations, net of tax
|
(64
|
)
|
(53
|
)
|
21
|
%
|
||
Income from discontinued operations, net of tax
|
169
|
|
75
|
|
125
|
%
|
||
Net income
|
$
|
105
|
|
$
|
22
|
|
NM
|
|
[1]
|
Represents benefits expense on life and annuity business retained by the Company.
|
[2]
|
For discussion of debt, see Note
11
-
Debt
of Notes to Consolidated Financial Statements.
|
[3]
|
For discussion of income taxes, see Note
12
-
Income Taxes
of Notes to the Consolidated Financial Statements.
|
|
•
|
risk identification and assessment;
|
•
|
the development of risk appetites, tolerances, and limits;
|
•
|
risk monitoring; and
|
•
|
internal and external risk reporting.
|
Coverage
|
Effective for the period
|
% of layer(s) reinsurance
|
Per occurrence limit
|
|
Retention
|
||||
Property losses arising from a single catastrophe event [1] [2]
|
1/1/2018 to 1/1/2019
|
89%
|
$
|
850
|
|
|
$
|
350
|
|
Property catastrophe losses from a Personal Lines Florida hurricane
|
6/1/2017 to 6/1/2018
|
90%
|
$
|
102
|
|
[3]
|
$
|
31
|
|
Workers compensation losses arising from a single catastrophe event [4]
|
1/1/2018 to 12/31/2018
|
80%
|
$
|
350
|
|
|
$
|
100
|
|
[1]
|
Certain aspects of our principal catastrophe treaty have terms that extend beyond the traditional one year term. While the overall treaty is placed at 89%, each layer's placement varies slightly.
|
[2]
|
$100 of the property occurrence treaty can alternatively be used as part of the Property Aggregate treaty referenced below.
|
[3]
|
The per occurrence limit on the FHCF treaty is $102 for the 6/1/2017 to 6/1/2018 treaty year based on the Company's election to purchase the required coverage from FHCF. Coverage is based on the best available information from FHCF, which was updated in January 2018.
|
[4]
|
In addition to the limit shown, the workers compensation reinsurance includes a non-catastrophe, industrial accident layer, providing coverage for 80% of a $30 per event limit in excess of a $20 retention.
|
|
As of March 31, 2018
|
As of December 31, 2017
|
||||
Paid loss and loss adjustment expenses
|
$
|
79
|
|
$
|
84
|
|
Unpaid loss and loss adjustment expenses
|
3,478
|
|
3,496
|
|
||
Gross reinsurance recoverables
|
$
|
3,557
|
|
$
|
3,580
|
|
Less: Allowance for uncollectible reinsurance
|
(104
|
)
|
(104
|
)
|
||
Net reinsurance recoverables
|
$
|
3,453
|
|
$
|
3,476
|
|
Reinsurance Recoverables
|
As of March 31, 2018
|
As of December 31, 2017
|
||||
Future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable
|
$
|
242
|
|
$
|
236
|
|
Less: Allowance for uncollectible reinsurance [1]
|
—
|
|
—
|
|
||
Net reinsurance recoverables
|
$
|
242
|
|
$
|
236
|
|
•
|
Investing in a portfolio of high-quality and diverse securities;
|
•
|
Selling investments subject to credit risk;
|
•
|
Hedging through use of credit default swaps;
|
•
|
Clearing transactions through central clearing houses that require daily variation margin;
|
•
|
Entering into contracts only with strong creditworthy institutions
|
•
|
Requiring collateral; and
|
•
|
Non-renewing policies/contracts or reinsurance treaties.
|
Fixed Maturities by Credit Quality
|
||||||||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||
|
Amortized Cost
|
Fair Value
|
Percent of Total Fair Value
|
Amortized Cost
|
Fair Value
|
Percent of Total Fair Value
|
||||||||||
United States Government/Government agencies
|
$
|
4,998
|
|
$
|
4,972
|
|
13.8
|
%
|
$
|
4,492
|
|
$
|
4,536
|
|
12.3
|
%
|
AAA
|
5,681
|
|
5,812
|
|
16.2
|
%
|
5,864
|
|
6,072
|
|
16.4
|
%
|
||||
AA
|
6,750
|
|
6,942
|
|
19.3
|
%
|
7,467
|
|
7,810
|
|
21.1
|
%
|
||||
A
|
8,697
|
|
8,873
|
|
24.7
|
%
|
8,510
|
|
8,919
|
|
24.1
|
%
|
||||
BBB
|
7,742
|
|
7,839
|
|
21.8
|
%
|
7,632
|
|
7,931
|
|
21.5
|
%
|
||||
BB & below
|
1,462
|
|
1,486
|
|
4.2
|
%
|
1,647
|
|
1,696
|
|
4.6
|
%
|
||||
Total fixed maturities, AFS
|
$
|
35,330
|
|
$
|
35,924
|
|
100
|
%
|
$
|
35,612
|
|
$
|
36,964
|
|
100
|
%
|
Securities by Type
|
||||||||||||||||||||||||||||
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||||||||||||
|
Cost or Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
Percent of Total Fair Value
|
Cost or Amortized Cost
|
Gross Unrealized Gains
|
Gross Unrealized Losses
|
Fair Value
|
Percent of Total Fair Value
|
||||||||||||||||||
Asset-backed securities ("ABS")
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Consumer loans
|
$
|
797
|
|
$
|
5
|
|
$
|
(3
|
)
|
$
|
799
|
|
2.2
|
%
|
$
|
925
|
|
$
|
7
|
|
$
|
(2
|
)
|
$
|
930
|
|
2.5
|
%
|
Other
|
114
|
|
1
|
|
(3
|
)
|
112
|
|
0.3
|
%
|
194
|
|
2
|
|
—
|
|
196
|
|
0.5
|
%
|
||||||||
Collateralized debt obligations ("CDOs")
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
CLOs
|
1,145
|
|
1
|
|
(2
|
)
|
1,144
|
|
3.2
|
%
|
1,257
|
|
3
|
|
—
|
|
1,260
|
|
3.4
|
%
|
||||||||
CMBS
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Agency [1]
|
1,308
|
|
10
|
|
(27
|
)
|
1,291
|
|
3.6
|
%
|
1,199
|
|
16
|
|
(14
|
)
|
1,201
|
|
3.2
|
%
|
||||||||
Bonds
|
1,685
|
|
17
|
|
(26
|
)
|
1,676
|
|
4.6
|
%
|
1,726
|
|
32
|
|
(9
|
)
|
1,749
|
|
4.7
|
%
|
||||||||
Interest only (“IOs”)
|
341
|
|
7
|
|
(4
|
)
|
344
|
|
1.0
|
%
|
379
|
|
10
|
|
(3
|
)
|
386
|
|
1.0
|
%
|
||||||||
Corporate
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Basic industry
|
499
|
|
19
|
|
(6
|
)
|
512
|
|
1.4
|
%
|
523
|
|
28
|
|
(1
|
)
|
550
|
|
1.5
|
%
|
||||||||
Capital goods
|
1,093
|
|
29
|
|
(14
|
)
|
1,108
|
|
3.1
|
%
|
1,050
|
|
44
|
|
(4
|
)
|
1,090
|
|
2.9
|
%
|
||||||||
Consumer cyclical
|
888
|
|
18
|
|
(12
|
)
|
894
|
|
2.5
|
%
|
857
|
|
33
|
|
(2
|
)
|
888
|
|
2.4
|
%
|
||||||||
Consumer non-cyclical
|
1,621
|
|
25
|
|
(33
|
)
|
1,613
|
|
4.5
|
%
|
1,643
|
|
46
|
|
(7
|
)
|
1,682
|
|
4.6
|
%
|
||||||||
Energy
|
1,069
|
|
27
|
|
(14
|
)
|
1,082
|
|
3.0
|
%
|
1,056
|
|
43
|
|
(3
|
)
|
1,096
|
|
3.0
|
%
|
||||||||
Financial services
|
2,932
|
|
37
|
|
(48
|
)
|
2,921
|
|
8.1
|
%
|
2,722
|
|
77
|
|
(10
|
)
|
2,789
|
|
7.5
|
%
|
||||||||
Tech./comm.
|
1,546
|
|
58
|
|
(26
|
)
|
1,578
|
|
4.4
|
%
|
1,618
|
|
87
|
|
(9
|
)
|
1,696
|
|
4.6
|
%
|
||||||||
Transportation
|
522
|
|
8
|
|
(6
|
)
|
524
|
|
1.5
|
%
|
555
|
|
18
|
|
—
|
|
573
|
|
1.6
|
%
|
||||||||
Utilities
|
2,133
|
|
72
|
|
(46
|
)
|
2,159
|
|
6.0
|
%
|
2,097
|
|
110
|
|
(19
|
)
|
2,188
|
|
5.9
|
%
|
||||||||
Other
|
247
|
|
1
|
|
(5
|
)
|
243
|
|
0.7
|
%
|
249
|
|
4
|
|
(1
|
)
|
252
|
|
0.7
|
%
|
||||||||
Foreign govt./govt. agencies
|
1,076
|
|
22
|
|
(16
|
)
|
1,082
|
|
3.0
|
%
|
1,071
|
|
43
|
|
(4
|
)
|
1,110
|
|
3.0
|
%
|
||||||||
Municipal bonds
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Taxable
|
561
|
|
21
|
|
(11
|
)
|
571
|
|
1.6
|
%
|
537
|
|
30
|
|
(5
|
)
|
562
|
|
1.5
|
%
|
||||||||
Tax-exempt
|
10,491
|
|
520
|
|
(38
|
)
|
10,973
|
|
30.5
|
%
|
11,206
|
|
724
|
|
(7
|
)
|
11,923
|
|
32.3
|
%
|
||||||||
RMBS
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Agency
|
1,492
|
|
6
|
|
(29
|
)
|
1,469
|
|
4.1
|
%
|
1,530
|
|
10
|
|
(4
|
)
|
1,536
|
|
4.2
|
%
|
||||||||
Non-agency
|
394
|
|
3
|
|
(3
|
)
|
394
|
|
1.1
|
%
|
227
|
|
3
|
|
—
|
|
230
|
|
0.6
|
%
|
||||||||
Alt-A
|
53
|
|
3
|
|
—
|
|
56
|
|
0.2
|
%
|
58
|
|
4
|
|
—
|
|
62
|
|
0.2
|
%
|
||||||||
Sub-prime
|
1,125
|
|
42
|
|
—
|
|
1,167
|
|
3.2
|
%
|
1,170
|
|
46
|
|
—
|
|
1,216
|
|
3.3
|
%
|
||||||||
U.S. Treasuries
|
2,198
|
|
35
|
|
(21
|
)
|
2,212
|
|
6.2
|
%
|
1,763
|
|
46
|
|
(10
|
)
|
1,799
|
|
4.9
|
%
|
||||||||
Fixed maturities, AFS
|
35,330
|
|
987
|
|
(393
|
)
|
35,924
|
|
100
|
%
|
35,612
|
|
1,466
|
|
(114
|
)
|
36,964
|
|
100
|
%
|
||||||||
Equity securities
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Financial services
|
|
|
|
|
|
115
|
|
19
|
|
—
|
|
134
|
|
13.3
|
%
|
|||||||||||||
Other
|
|
|
|
|
|
792
|
|
102
|
|
(16
|
)
|
878
|
|
86.7
|
%
|
|||||||||||||
Equity securities, AFS [2]
|
|
|
|
|
|
907
|
|
121
|
|
(16
|
)
|
1,012
|
|
100
|
%
|
|||||||||||||
Total AFS securities
|
$
|
35,330
|
|
$
|
987
|
|
$
|
(393
|
)
|
$
|
35,924
|
|
|
$
|
36,519
|
|
$
|
1,587
|
|
$
|
(130
|
)
|
$
|
37,976
|
|
|
||
Fixed maturities, FVO
|
|
|
|
$
|
38
|
|
|
|
|
|
$
|
41
|
|
|
||||||||||||||
Equity securities, at fair value [2]
|
|
|
|
$
|
1,123
|
|
|
|
|
|
|
|
[1]
|
Includes securities with pools of loans issued by the Small Business Administration which are backed by the full faith and credit of the U.S. government.
|
[2]
|
Effective January 1, 2018, with the adoption of new accounting standards for financial instruments, equity securities, AFS were reclassified to equity securities, at fair value.
|
Financial Services by Credit Quality
|
|||||||||||||||||||
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||
|
Amortized Cost
|
Fair Value
|
Net Unrealized Gain/(Loss)
|
|
Amortized Cost
|
Fair Value
|
Net Unrealized Gain/(Loss)
|
||||||||||||
AAA
|
$
|
20
|
|
$
|
21
|
|
$
|
1
|
|
|
$
|
25
|
|
$
|
26
|
|
$
|
1
|
|
AA
|
158
|
|
160
|
|
2
|
|
|
147
|
|
150
|
|
3
|
|
||||||
A
|
1,487
|
|
1,478
|
|
(9
|
)
|
|
1,525
|
|
1,575
|
|
50
|
|
||||||
BBB
|
1,181
|
|
1,175
|
|
(6
|
)
|
|
1,061
|
|
1,089
|
|
28
|
|
||||||
BB & below
|
86
|
|
87
|
|
1
|
|
|
79
|
|
83
|
|
4
|
|
||||||
Total [1]
|
$
|
2,932
|
|
$
|
2,921
|
|
$
|
(11
|
)
|
|
$
|
2,837
|
|
$
|
2,923
|
|
$
|
86
|
|
[1]
|
Includes equity, AFS securities with an amortized cost and fair value of
$115
and
$134
as of
December 31, 2017
. Effective January 1, 2018, with the adoption of new accounting guidance for financial instruments, equity securities, AFS were reclassified to equity securities, at fair value and are excluded from the table above as of
March 31, 2018
.
|
Exposure to CMBS Bonds as of March 31, 2018
|
||||||||||||||||||||||||||||||||||||
|
AAA
|
AA
|
A
|
BBB
|
BB and Below
|
Total
|
||||||||||||||||||||||||||||||
Vintage Year [1]
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
||||||||||||||||||||||||
2008 & Prior
|
$
|
29
|
|
$
|
29
|
|
$
|
5
|
|
$
|
5
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9
|
|
$
|
9
|
|
$
|
43
|
|
$
|
43
|
|
2009
|
—
|
|
—
|
|
2
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
2
|
|
||||||||||||
2010
|
18
|
|
18
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
18
|
|
18
|
|
||||||||||||
2011
|
39
|
|
41
|
|
—
|
|
—
|
|
2
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
41
|
|
43
|
|
||||||||||||
2012
|
17
|
|
17
|
|
9
|
|
8
|
|
—
|
|
—
|
|
5
|
|
5
|
|
—
|
|
—
|
|
31
|
|
30
|
|
||||||||||||
2013
|
3
|
|
3
|
|
11
|
|
11
|
|
36
|
|
37
|
|
1
|
|
—
|
|
—
|
|
—
|
|
51
|
|
51
|
|
||||||||||||
2014
|
286
|
|
288
|
|
36
|
|
36
|
|
43
|
|
42
|
|
5
|
|
4
|
|
5
|
|
5
|
|
375
|
|
375
|
|
||||||||||||
2015
|
136
|
|
134
|
|
111
|
|
111
|
|
155
|
|
158
|
|
20
|
|
21
|
|
3
|
|
4
|
|
425
|
|
428
|
|
||||||||||||
2016
|
175
|
|
169
|
|
107
|
|
105
|
|
78
|
|
80
|
|
9
|
|
9
|
|
—
|
|
—
|
|
369
|
|
363
|
|
||||||||||||
2017
|
131
|
|
127
|
|
142
|
|
138
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
273
|
|
265
|
|
||||||||||||
2018
|
46
|
|
47
|
|
5
|
|
5
|
|
6
|
|
6
|
|
—
|
|
—
|
|
—
|
|
—
|
|
57
|
|
58
|
|
||||||||||||
Total
|
$
|
880
|
|
$
|
873
|
|
$
|
428
|
|
$
|
421
|
|
$
|
320
|
|
$
|
325
|
|
$
|
40
|
|
$
|
39
|
|
$
|
17
|
|
$
|
18
|
|
$
|
1,685
|
|
$
|
1,676
|
|
Credit protection
|
30.8%
|
21.4%
|
14.3%
|
11.7%
|
40.9%
|
25.0%
|
Exposure to CMBS Bonds as of December 31, 2017
|
||||||||||||||||||||||||||||||||||||
|
AAA
|
AA
|
A
|
BBB
|
BB and Below
|
Total
|
||||||||||||||||||||||||||||||
Vintage Year [1]
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
||||||||||||||||||||||||
2008 & Prior
|
$
|
32
|
|
$
|
32
|
|
$
|
5
|
|
$
|
6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
9
|
|
$
|
9
|
|
$
|
46
|
|
$
|
47
|
|
2009
|
—
|
|
—
|
|
2
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2
|
|
2
|
|
||||||||||||
2010
|
18
|
|
19
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
18
|
|
19
|
|
||||||||||||
2011
|
40
|
|
42
|
|
—
|
|
—
|
|
2
|
|
2
|
|
—
|
|
—
|
|
—
|
|
—
|
|
42
|
|
44
|
|
||||||||||||
2012
|
17
|
|
18
|
|
9
|
|
9
|
|
—
|
|
—
|
|
5
|
|
5
|
|
—
|
|
—
|
|
31
|
|
32
|
|
||||||||||||
2013
|
—
|
|
—
|
|
11
|
|
11
|
|
36
|
|
38
|
|
—
|
|
—
|
|
—
|
|
—
|
|
47
|
|
49
|
|
||||||||||||
2014
|
284
|
|
292
|
|
36
|
|
37
|
|
43
|
|
43
|
|
4
|
|
4
|
|
5
|
|
5
|
|
372
|
|
381
|
|
||||||||||||
2015
|
206
|
|
207
|
|
111
|
|
112
|
|
155
|
|
159
|
|
25
|
|
25
|
|
3
|
|
3
|
|
500
|
|
506
|
|
||||||||||||
2016
|
201
|
|
200
|
|
107
|
|
107
|
|
78
|
|
81
|
|
9
|
|
9
|
|
—
|
|
—
|
|
395
|
|
397
|
|
||||||||||||
2017
|
131
|
|
131
|
|
142
|
|
141
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
273
|
|
272
|
|
||||||||||||
Total
|
$
|
929
|
|
$
|
941
|
|
$
|
423
|
|
$
|
425
|
|
$
|
314
|
|
$
|
323
|
|
$
|
43
|
|
$
|
43
|
|
$
|
17
|
|
$
|
17
|
|
$
|
1,726
|
|
$
|
1,749
|
|
Credit
protection |
30.8%
|
21.4%
|
14.1%
|
11.3%
|
41.0%
|
25.1%
|
[1]
|
The vintage year represents the year the pool of loans was originated.
|
Commercial Mortgage Loans
|
|||||||||||||||||||||||
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
Amortized Cost [1]
|
|
Valuation Allowance
|
|
Carrying Value
|
|
Amortized Cost [1]
|
|
Valuation Allowance
|
|
Carrying Value
|
||||||||||||
Whole loans
|
$
|
3,222
|
|
|
$
|
(1
|
)
|
|
$
|
3,221
|
|
|
$
|
3,176
|
|
|
$
|
(1
|
)
|
|
$
|
3,175
|
|
Total
|
$
|
3,222
|
|
|
$
|
(1
|
)
|
|
$
|
3,221
|
|
|
$
|
3,176
|
|
|
$
|
(1
|
)
|
|
$
|
3,175
|
|
Available For Sale Investments in Municipal Bonds
|
|||||||||||||||||||
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||
|
Amortized Cost
|
|
Fair Value
|
|
Weighted Average Credit Quality
|
|
Amortized Cost
|
|
Fair Value
|
|
Weighted Average Credit Quality
|
||||||||
General Obligation
|
$
|
1,586
|
|
|
$
|
1,656
|
|
|
AA
|
|
$
|
1,976
|
|
|
$
|
2,087
|
|
|
AA
|
Pre-Refunded [1]
|
1,894
|
|
|
1,986
|
|
|
AAA
|
|
1,960
|
|
|
2,067
|
|
|
AAA
|
||||
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Transportation
|
1,682
|
|
|
1,786
|
|
|
A+
|
|
1,638
|
|
|
1,790
|
|
|
A+
|
||||
Health Care
|
1,227
|
|
|
1,277
|
|
|
AA-
|
|
1,278
|
|
|
1,359
|
|
|
AA-
|
||||
Water & Sewer
|
1,032
|
|
|
1,074
|
|
|
AA
|
|
1,069
|
|
|
1,131
|
|
|
AA
|
||||
Education
|
1,054
|
|
|
1,071
|
|
|
AA
|
|
1,079
|
|
|
1,130
|
|
|
AA
|
||||
Leasing [2]
|
801
|
|
|
833
|
|
|
AA-
|
|
809
|
|
|
858
|
|
|
AA-
|
||||
Sales Tax
|
535
|
|
|
573
|
|
|
AA
|
|
537
|
|
|
590
|
|
|
AA
|
||||
Power
|
396
|
|
|
420
|
|
|
AA-
|
|
442
|
|
|
478
|
|
|
AA-
|
||||
Housing
|
22
|
|
|
23
|
|
|
A
|
|
79
|
|
|
82
|
|
|
AA-
|
||||
Other
|
823
|
|
|
845
|
|
|
AA-
|
|
876
|
|
|
913
|
|
|
AA-
|
||||
Total Revenue
|
7,572
|
|
|
7,902
|
|
|
AA-
|
|
7,807
|
|
|
8,331
|
|
|
AA-
|
||||
Total Municipal
|
$
|
11,052
|
|
|
$
|
11,544
|
|
|
AA
|
|
$
|
11,743
|
|
|
$
|
12,485
|
|
|
AA
|
[1]
|
Pre-Refunded bonds are bonds for which an irrevocable trust containing sufficient U.S. treasury, agency, or other securities has been established to fund the remaining payments of principal and interest.
|
[2]
|
Leasing revenue bonds are generally the obligations of a financing authority established by the municipality that leases facilities back to a municipality. The notes are typically secured by lease payments made by the municipality that is leasing the facilities financed by the issue. Lease payments may be subject to annual appropriation by the municipality or the municipality may be obligated to appropriate general tax revenues to make lease payments.
|
Investments in Limited Partnerships and Other Alternative Investments
|
|||||||||||
|
March 31, 2018
|
|
December 31, 2017
|
||||||||
|
Amount
|
Percent
|
|
Amount
|
Percent
|
||||||
Hedge funds
|
$
|
34
|
|
2.1
|
%
|
|
$
|
22
|
|
1.4
|
%
|
Real estate funds
|
506
|
|
30.7
|
%
|
|
486
|
|
30.6
|
%
|
||
Private equity and other funds
|
721
|
|
43.7
|
%
|
|
693
|
|
43.6
|
%
|
||
Other alternative investments [1]
|
388
|
|
23.5
|
%
|
|
387
|
|
24.4
|
%
|
||
Total
|
$
|
1,649
|
|
100
|
%
|
|
$
|
1,588
|
|
100
|
%
|
Unrealized Loss Aging for AFS Securities Continuously Depressed Over 20%
|
|||||||||||||||||||||||||||||
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||||||||
Consecutive Months
|
Items
|
|
Cost or Amortized Cost
|
|
Fair Value
|
|
Unrealized Loss
|
|
Items
|
|
Cost or Amortized Cost
|
|
Fair Value
|
|
Unrealized Loss
|
||||||||||||||
Three months or less
|
2
|
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
30
|
|
|
$
|
14
|
|
|
$
|
10
|
|
|
$
|
(4
|
)
|
Greater than three to six months
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
10
|
|
|
7
|
|
|
(3
|
)
|
||||||
Greater than six to nine months
|
2
|
|
|
6
|
|
|
4
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Twelve months or more
|
38
|
|
|
12
|
|
|
7
|
|
|
(5
|
)
|
|
47
|
|
|
13
|
|
|
7
|
|
|
(6
|
)
|
||||||
Total
|
42
|
|
|
$
|
20
|
|
|
$
|
12
|
|
|
$
|
(8
|
)
|
|
89
|
|
|
$
|
37
|
|
|
$
|
24
|
|
|
$
|
(13
|
)
|
Other-than-temporary Impairments Recognized in Earnings by Security Type
|
||||||
|
Three months ended March 31,
|
|||||
|
2018
|
2017
|
||||
Credit Impairments
|
|
|
||||
CMBS
|
$
|
—
|
|
$
|
1
|
|
Equity Impairments
|
—
|
|
—
|
|
||
Intent-to-Sell Impairments
|
—
|
|
—
|
|
||
Total
|
$
|
—
|
|
$
|
1
|
|
|
|
•
|
$1.1 billion
in fixed maturities, short-term investments and cash at HFSG Holding Company
|
•
|
Borrowings available under a commercial paper program to a maximum of
$1 billion
. As of
March 31, 2018
there was
no
commercial paper outstanding
|
•
|
A senior unsecured five-year revolving credit facility that provides for borrowing capacity up to
$1 billion
of unsecured credit through October 31, 2019, though, as discussed below, upon and subject to, among other conditions, the closing of the sale of the life and annuity run-off business, the amount of the facility will be reduced to
$750
and the term will be extended to March 29, 2023.
No
borrowings were outstanding as of
March 31, 2018
.
|
|
•
|
$500
junior subordinated debt expected to be called in June of 2018
|
•
|
$413 maturing debt payment due in January of 2019
|
•
|
$270
of interest on debt, of which
$3
is related to debt included in liabilities held for sale.
|
•
|
$365
of common stockholders dividends, subject to the discretion of the Board of Directors
|
|
•
|
The Company does not currently have an equity repurchase authorization in 2018.
|
|
•
|
The Company has dividend capacity of
$1.4 billion
from its property and casualty subsidiaries and expects to pay net dividends of $350 to HFSG Holding Company in 2018. During the first three months of 2018, there were no property and casualty dividends.
|
•
|
Hartford Life and Accident Insurance Company ("HLA") has no dividend capacity for 2018 and does not anticipate paying dividends to the HFSG Holding Company.
|
•
|
In connection with the announced sale of the life and annuity run-off business,
Hartford Life Insurance Company ("HLIC")
expects to pay a pre-closing dividend to the Company of up to
$300
, subject to approval by the Connecticut Insurance Commissioner. Other intercompany transactions with HLI will be net settled
|
Capital Structure
|
||||||||
|
March 31, 2018
|
December 31, 2017
|
Change
|
|||||
Short-term debt (includes current maturities of long-term debt)
|
$
|
413
|
|
$
|
320
|
|
29
|
%
|
Long-term debt
|
4,755
|
|
4,678
|
|
2
|
%
|
||
Total debt
|
5,168
|
|
4,998
|
|
3
|
%
|
||
Stockholders’ equity excluding accumulated other comprehensive income (loss), net of tax (“AOCI”)
|
13,382
|
|
12,831
|
|
4
|
%
|
||
AOCI, net of tax
|
(239
|
)
|
663
|
|
(136
|
)%
|
||
Total stockholders’ equity
|
$
|
13,143
|
|
$
|
13,494
|
|
(3
|
)%
|
Total capitalization
|
$
|
18,311
|
|
$
|
18,492
|
|
(1
|
)%
|
Debt to stockholders’ equity
|
39
|
%
|
37
|
%
|
|
|||
Debt to capitalization
|
28
|
%
|
27
|
%
|
|
|
Three Months Ended March 31,
|
|||||
|
2018
|
2017
|
||||
Net cash provided by operating activities
|
$
|
712
|
|
$
|
225
|
|
Net cash used for investing activities
|
$
|
(242
|
)
|
$
|
(1,208
|
)
|
Net cash provided by (used for) financing activities
|
$
|
(677
|
)
|
$
|
436
|
|
Cash – end of period
|
$
|
228
|
|
$
|
101
|
|
|
|
|
|
|
See Exhibits Index on page
|
110
.
|
|
|
The Hartford Financial Services Group, Inc.
|
||
|
|
(Registrant)
|
||
|
|
|||
Date:
|
April 26, 2018
|
/s/ Scott R. Lewis
|
||
|
|
Scott R. Lewis
|
||
|
|
Senior Vice President and Controller
|
||
|
|
(Chief accounting officer and duly
authorized signatory)
|
•
|
not become associated during the [performance period] [vesting period] with any entity, whether as a principal, partner, employee, agent, consultant, or director, that is actively engaged in selling or providing, either directly or indirectly, in any geographical area [within the U.S.] where The Hartford’s products are sold or its services are provided, any products or services that are the same as or similar to products or services that as of the date of your retirement are being sold or provided, either directly or indirectly, by The Hartford, and
|
•
|
provide certification and (if required) evidence satisfactory to the Executive Vice President, Human Resources that you have complied with this restriction (the “Restriction on Competition”).
|
|
|
|
|
Form S-3 Registration No.
|
|
|
Form S-8 Registration Nos.
|
|
|
|
|
333-212778
|
|
|
333-105707
|
|
|
|
333-49170
|
|
|
|
333-105706
|
|
|
|
333-34092
|
|
|
|
033-80665
|
|
|
|
333-12563
|
|
|
|
333-125489
|
|
|
|
333-157372
|
|
|
|
333-160173
|
|
|
|
333-168537
|
|
|
|
333-197671
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of The Hartford Financial Services Group, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
April 26, 2018
|
/s/ Christopher J. Swift
|
|
|
Christopher J. Swift
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of The Hartford Financial Services Group, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
April 26, 2018
|
/s/ Beth A Bombara
|
|
|
Beth A Bombara
|
|
|
Executive Vice President and Chief Financial Officer
|
1)
|
The Report fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934; and
|
2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
April 26, 2018
|
/s/ Christopher J. Swift
|
|
|
Christopher J. Swift
|
|
|
Chief Executive Officer
|
1)
|
The Report fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934; and
|
2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
April 26, 2018
|
/s/ Beth A Bombara
|
|
|
Beth A Bombara
|
|
|
Executive Vice President and Chief Financial Officer
|