from lower than expected insolvencies in the insurance industry as well as an increase in debt service costs in 1996.
The Individual Life Insurance division, which focuses on the high end estate and business planning markets, sells a variety of life insurance products, including variable life, universal life, interest-sensitive whole life, and term life insurance policies.
Core earnings of $46 in 1997 decreased $33, or 42%, from 1996. The decrease in core earnings from 1996 was due to a $33 decrease in after-tax underwriting results of the automobile line at ITT London & Edinburgh and unfavorable foreign exchange of $5 in the Netherlands, due to the strengthening of the U.S. dollar.
In 1996, core earnings of $48 decreased $21, or 30%, over 1995 primarily due to decreased underwriting results and heightened competition in the United Kingdom market, partially offset by growth in net investment income. The strengthening of the U.S. dollar in 1996 had a negative foreign exchange impact on core earnings of $2.
Net investment income, before-tax $ 777 $ 661 $ 646 Net investment income, after-tax $ 619 $ 531 $ 478 [1] Yield on average invested assets, before-tax [2] 5.9% 5.5% 5.8% Yield on average invested assets, after-tax [1] [2] 4.7% 4.4% 4.3% Net realized capital gains, $ 231 $ 15 $ 29 before-tax - ---------------------------------------------------------------- [1] Due to the significant holdings in tax-exempt investments, after-tax net investment income and yield are included. [2] Represents net investment income (excluding net realized capital gains) divided by average invested assets at cost (fixed maturities at amortized cost).
For the year ended December 31, 1997, before-tax net investment income totaled $1.5 billion, unchanged from 1996. Before-tax yields on average invested assets decreased to 7.6% in 1997 from 7.7% in 1996. The decrease in before-tax yields was primarily attributable to declining market interest rates and a reduction in policy loan yields.
U.S. Gov't/Gov't agencies $ 2,907 10.6% $ 2,003 7.6% AAA 4,252 15.4% 6,047 23.1% AA 2,990 10.9% 3,704 14.1% A 9,351 33.9% 8,936 34.1% BBB 5,966 21.7% 4,467 17.0% BB & below 205 0.7% 155 0.6% Short-term 1,880 6.8% 911 3.5% - ---------------------------------------------------------------- TOTAL FIXED MATURITIES $ 27,551 100.0% $ 26,223 100.0% - ----------------------------------------------------------------
Change in Net Economic Value December 31, 1997 -------------------------------- Basis point shift - 100 + 100 - ------------------------------- --------------- ----------------
Capital resources and liquidity represent the overall financial strength of The Hartford and its ability to generate strong cash flows from each of the business segments and borrow funds at competitive rates to meet operating and growth needs. The capital structure of The Hartford consists of debt, minority interest and equity, summarized as follows:
In 1996, total capitalization excluding unrealized gain on securities, net of tax, increased by $335 from 1995 as a result of additional net borrowings, partially offset by the net loss and dividends declared on The Hartford's common stock. The Company's debt to equity and debt to capitalization ratios (both excluding unrealized gain on securities, net of tax) increased in 1996 as compared to 1995, primarily as a result of increased debt.