Net investment income decreased primarily due to lower make-whole payments on fixed maturities and prepayment penalties on mortgage loans, as well as lower asset levels and reinvesting at lower interest rates. For further discussion of investment results, see the Net Investment Income (Loss) section within MD&A - Investment Results.
Prior accident year reserve development in 2015 was primarily due to an increase in asbestos reserves of $146 and environmental reserves of $52. For additional information, see MD&A - Critical Accounting Estimates, Reserve Roll-forwards and Development.
Limited partnerships and other alternative investments decreased primarily due to redemptions in hedge fund investments which were reinvested into other asset classes.
Variable annuity hedge program losses included losses on the macro hedge program primarily due to a loss of $25 driven by an improvement in domestic equity markets, partially offset by a gain of $17 related to a decrease in interest rates. These losses were partially offset by gains on the combined GMWB derivatives, net, primarily driven by gains of $25 on liability/model assumption updates and gains of $15 due to increased volatility, partially offset by a loss of $26 resulting from policyholder behavior primarily related to increased surrenders.
Property & Casualty Other Operations excludes net reserves to be transferred to the buyer in connection with the pending sale of the Company's U.K. property and casualty run-off subsidiaries.
Uncollectible reinsurance reserves decreased as a result of giving greater weight to favorable collectability experience in recent calendar periods in estimating future collections.
Homeowners reserves emerged favorably for accident year 2013, primarily related to favorable development on fire and water related claims.
Major Asbestos Defendants- represent the “Top 70” accounts in Tillinghast's published Tiers 1 and 2 and Wellington accounts. Major Asbestos Defendants have the fewest number of asbestos accounts and include reserves related to PPG Industries, Inc. (“PPG”). In May 2016, the Company pre-paid its funding obligation in the amount of $315 as permitted under the settlement agreement, arising from participation in a 2002 settlement of asbestos liabilities of PPG. The Company's funding obligation approximated the amount reserved for this exposure. Major Asbestos Defendants gross asbestos reserves account for approximately 3% of the Company's total Direct gross asbestos reserves as of June 30, 2016. Major Asbestos Defendants gross asbestos reserves accounted for approximately 25% of the Company's total Direct gross asbestos reserves as of June 30, 2015 when reserves for this category included the reserves for PPG.
Discount Rate - The discount rate is the interest rate at which expected future claim cash flows are discounted to determine the present value. A higher selected discount rate results in a lower reserve. If the discount rate is higher than our future investment returns, our invested assets will not earn enough investment income to cover the discount accretion on our claim reserves which would negatively affect our profit. For each incurral year, the discount rates are estimated based on investment yields expected to be earned net of investment expenses. The incurral year is the year in which the claim is incurred and the estimated settlement pattern is determined. Once established, discount rates for each incurral year are unchanged. The weighted average discount rate on LTD reserves was 4.3% and 4.4% in 2016 and 2015, respectively. Had the discount rate for each incurral year been 10 basis points lower at the time they were established, our Group Benefits unpaid loss and loss adjustment expense reserves would be higher by $22, pretax, as of December 31, 2016.
Estimated gross profits (“EGPs”) are used in the valuation and amortization of assets, including DAC and SIA. Portions of EGPs are also used in the valuation of reserves for death and other insurance benefit features on variable annuity and other universal life type contracts.
The Company expects the Commercial Lines combined ratio will be between approximately 92.5 and 94.5 for 2017, compared to 92.8 in 2016, as increases in average claim severity are expected to outpace the effect of overall modest earned pricing increases and a modest reduction in loss cost frequency. Current accident year catastrophes are assumed to be 2.3 points of the combined ratio in 2017 compared to 3.0 points in 2016.
Small Commercial increased primarily in workers’ compensation driven by higher new, renewal and audit premium, as well as in Spectrum package business driven by higher new and renewal premium.
[1] For discussion of prior accident year development, see MD&A - Critical Accounting Estimates, Reserve Roll-forwards and Development.
grow in 2017 provided the Company experiences continued strong fund performance, market appreciation and positive net flows. Assuming normal market conditions, the Company expects earnings growth in 2017, driven by improved earnings in the Mutual Fund business, partially offset by the run-off of the Talcott Resolution assets supporting the Company's legacy variable
Represents the loss from operations and sale of HLIKK in 2014. For additional information, see Note 2 Business Acquisitions, Dispositions and Discontinued Operations of Notes to Consolidated Financial Statements.
Variable annuity annualized full surrender rate declined to 7.1%. This decrease was primarily due to no in-force management initiatives in 2016 as well as the continued aging of the block, and is consistent with variable annuity industry trends.
Variable annuity annualized full surrender rate for the year ended December 31, 2015 declined to 9.6% compared to 13.5% for the year ended December 31, 2014. This decline was primarily due to lower surrenders from in-force management initiatives as well as in-force management initiatives in prior years which accelerated surrenders resulting in lower surrender rates post initiatives.
In addition to the policies and procedures outlined above, the Company uses reinsurance to transfer certain risks to reinsurance companies based on specific geographic or risk concentrations. A variety of traditional reinsurance products are used as part of the Company's risk management strategy, including excess of loss occurrence-based products that reinsure property and workers compensation exposures, and individual risk or quota share arrangements, that reinsure losses from specific classes or lines of business. The Company has no significant finite risk contracts in place and the statutory surplus benefit from all such prior year contracts is immaterial.
Management The objective of the Company’s enterprise credit risk management strategy is to identify, quantify, and manage credit risk on an aggregate portfolio basis and to limit potential losses in accordance with an established credit risk management policy. The Company primarily manages its credit risk by holding a diversified mix of investment grade issuers and counterparties across its investment, reinsurance, and insurance portfolios. Potential losses are also limited within portfolios by diversifying across geographic regions, asset types, and sectors.
The Company may also use credit default swaps to manage credit exposure or to assume credit risk to enhance yield.
decrease the Company’s estimated future gross profits, resulting in a DAC unlock charge. See Estimated Gross Profits within the Critical Accounting Estimates section of the MD&A for further information.
Assets under management Mutual Funds and variable annuities businesses may experience lower earnings during equity market declines because fee income is earned based upon the value of assets under management.
Management The open foreign currency exposure of non-U.S. dollar denominated investments will most commonly be reduced through the sale of the assets or through hedges using
bond portfolio and were primarily comprised of general obligation and revenue bonds.
$340 common stockholders dividends, subject to the discretion of the Board of Directors
During the year ended December 31, 2016, the Company repurchased 30.8 million common shares for $1,330. During the period January 1, 2017 through February 22, 2017, the Company repurchased 4.0 million common shares for $192.
On July 29, 2016, The Hartford filed with the Securities and Exchange Commission (the “SEC”) an automatic shelf registration statement (Registration No. 333-212778) for the potential offering and sale of debt and equity securities. The registration statement allows for the following types of securities to be offered: debt securities, junior subordinated debt securities, preferred stock, common stock, depositary shares, warrants, stock purchase contracts, and stock purchase units. In that The Hartford is a well-known seasoned issuer, as defined in Rule 405 under the Securities Act of 1933, the registration statement went effective immediately upon filing and The Hartford may offer and sell an unlimited amount of securities under the registration
While subject to variability period to period, claim frequency and severity patterns and the level of policy surrenders continue to be within historical norms and, therefore, the Company’s insurance operations’ current liquidity position is considered to be sufficient to meet anticipated demands over the next twelve months. For a discussion and tabular presentation of the Company’s current contractual obligations by period, refer to Off-Balance Sheet Arrangements and Aggregate Contractual Obligations within the Capital Resources and Liquidity section of the MD&A.
Cash provided by investing activities in 2016 primarily related to net proceeds from available-for-sale securities of $2.7 billion, partially offset by net payments for short-term investments of $1.4 billion. Cash provided by investing activities in 2015 primarily relates to net proceeds from short-term investments of $3.1 billion, partially offset by net payments for available-for-sale securities of $1.9 billion and additions to property and equipment of $307.
under U.S. STAT is generally addressed by the Commissioners’ Annuity Reserving Valuation Methodology and the related Actuarial Guidelines, while under U.S. GAAP, those same living benefits are either embedded derivatives recorded at fair value or are recorded as additional minimum guarantee benefit reserves. The sensitivity of these life insurance reserves to changes in equity markets, as applicable, will be different between U.S. GAAP and U.S. STAT.