Hartford Financial Services Group Earnings Call NUGGETS: Sales Process, Interest Rate Risk

On Thursday, Hartford Financial Services Group Inc (NYSE:HIG) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Sales Process

Jay Gelb – Barclays Capital: On the proceeds from the sale of the businesses currently in runoff. Liam, you talked initially about using buybacks or reducing the size of the annuity book, giving us an update there in early 2013, does that mean the sale process might be taking a little longer than you thought and can you frame it out just a bit more in terms of how you’re thinking about deploying those proceeds?

Liam E. McGee – Chairman, President and CEO: First of all, the sales process is proceeding as we expected. As you recall Jay, when we announced our decision to sell the three businesses in March, we also indicated we were prepared. We had done all of our actuarial studies and so the offering memorandum, we are in the marketplace approximately a month after our announcement. I would say that as I said earlier the process is proceeding as we expected. These are attractive businesses and it’s been a competitive process. In terms of the capital plan, we want to get the agreement signed, as I mentioned in my remarks, work with our constituencies. I think the convergence of those things says that we’ll give you a final capital plan in early 2013. So, I would describe everything proceeding as we had expected when we announced things in March.

Jay Gelb – Barclays Capital: Then for the third quarter DAC study, is there any sort of boundaries you can give us on that in terms of what we should be thinking about in terms of potential charges going into that study?

Christopher J. Swift – EVP and CFO: Jay, it’s Chris. I wouldn’t say there is anything other than normal, I’ll call it, expense, mortality, interest rate type assumptions, policyholder behavior, so I wouldn’t say there is any boundaries, it’s just our normal annual update that we’ll go through.

Jay Gelb – Barclays Capital: Year-to-date, how are things tracking along with current assumptions?

Christopher J. Swift – EVP and CFO: I’d say they’re tracking very well.

Interest Rate Risk

John Nadel – Sterne, Agee: So, just as a quick follow-up on the early 2013 Chris, or Liam. It sounds like that’s really just around given us some clarity on the deployment of proceeds. So, nothing really changing in terms of your expectation for timing of actual sale announcements, is that correct?

Liam E. McGee – Chairman, President and CEO: That’s an accurate statement John, so let me reiterate. I want to be crystal clear on this point. The sales processes are proceeding as we expected. We’re pleased to have announced the Woodbury transaction on Tuesday. The Life and Retirement Plan process is proceeding. These are attractive businesses and it’s been a competitive process. We want to present to you and investors an updated more final capital plan, which will include prospective capital management actions. So, I think we’re right on schedule.

John Nadel – Sterne, Agee: So, then a question – maybe two quick ones for Chris. A question on interest rate risk, just on the conference call before this one with the folks (at Met), they sort of gave us an update of looking at instead of a 2% 10-year looking at 1.4% or 1.5% say a 10 years environment. Can you give us a sense to for what that incremental 50 basis points or 60 basis points, lower type rate environment would do to that earnings sensitivity you had provided a few quarters ago?

Christopher J. Swift – EVP and CFO: Happy to, John. Low interest rates, as you know, just are headwind for everyone in financial services but our specific, the way I think about it from a momentum side, the assets that we have on the books, so the maturing cash flows and the new cash flows, if we look at the impacts in ‘13 and ’14, I’d call it roughly the $25 million to $30 million in ‘13 and you could roughly double it from there in ’14, if rates stay low at today’s level.

John Nadel – Sterne, Agee: So that’s the incremental above the original guidance?

Christopher J. Swift – EVP and CFO: Yes, it is the incremental impact, sort of the momentum that we would give up in the run rate earnings.

John Nadel – Sterne, Agee: Then just a last real quick one. On Slide 12, it in your conference call presentation, just can you give some granularity on the VA – I guess the hedge assets didn’t quite keep up with the liability in the quarter. Can you give us just a little bit of granularity on what drove that? Was that equity markets, rates, currency, what?

Christopher J. Swift – EVP and CFO: Again, John, I think the attribution we could work with you offline if that’s really important, but I think the big thing is, generally keep in mind we’re not 100% hedged on the economics. So, there is always going to be a basis difference, you’re always going to have I’ll call it a Japanese impact, because most of our Japanese hedges are in the U.S. legal entity. So I would describe it mostly basis difference from my perspective.