2000 1999 1998 - ----------------------------------------------------------------- Basic earnings per share $4.42 $3.83 $4.36 Weighted average common shares outstanding 220.6 224.9 232.8 Diluted earnings per share $4.34 $3.79 $4.30 Weighted average common shares outstanding and dilutive potential common shares 224.4 227.5 236.2 Return on equity [1] 15.4% 15.3% 18.7% - ----------------------------------------------------------------- [1] Calculated by dividing net income by average equity excluding unrealized gain (loss), after-tax.
Worldwide Life's profitability depends largely on the amount of assets under management, the level of fully insured premiums, the adequacy of product pricing and underwriting discipline, claims management and operating efficiencies, and its ability to earn target spreads between earned investment rates on general account assets and credited rates to customers.
2000 COMPARED TO 1999 -- Revenues increased $454, or 8%, primarily related to the growth across each of Worldwide Life's primary operating segments, particularly the Investment Products and Group Benefits segments, where revenues increased $339, or 17%, and $183, or 9%, respectively. The revenue growth in the Investment Products segment was primarily due to higher fee income in the individual annuity and retail mutual fund operations as related average assets under management in 2000 were higher than 1999. The Group Benefits segment experienced higher earned premiums due to strong sales and persistency. The Individual Life segment also contributed to the revenue increase as a result of strong sales and favorable persistency. Partially offsetting the growth in revenues was the decrease in COLI revenues primarily related to the declining block of leveraged COLI business.
Benefits, claims and expenses increased $352, or 7%, primarily related to the growth in Worldwide Life's principal operating segments described above. Core earnings increased $165, or 35%, led by the Investment Products segment where core earnings increased $94, or 28%. Additionally, core earnings related to each of the remaining three operating segments increased 10% or more. Worldwide Life also recorded a benefit related to the settlement of certain federal tax matters of $24 in 2000 (see Note 15 (d) of Notes to Consolidated Financial Statements). This benefit, along with an $8 benefit related to state income taxes, resulted in $32 of tax benefits for the year ended December 31, 2000. Additionally, net realized capital losses increased due to portfolio rebalancing. Excluding the tax items and net realized capital losses, earnings increased $133, or 28%.
Benefits, claims and expenses increased $211, or 12%, primarily due to higher benefits, claims and claim adjustment expenses, which, excluding buyouts, increased $187, or 11%, due to the growth in this segment. The loss ratio (loss costs as a percentage of earned premiums and other), excluding buyouts, remained consistent at 82%, indicating a continuation of favorable mortality and morbidity experience. In addition, the expense ratio (ratio of insurance operating costs and other
Underwriting results improved $18, or 2.9 combined ratio points, primarily the result of reduced loss ratios due to the continued effective execution of pricing actions and lower catastrophe losses. A decrease in the expense ratio, despite field and claim reorganization costs, also contributed to the lower combined ratio.
Underwriting results decreased $12, with a corresponding 1.5 point increase in the combined ratio. Excluding the finite risk account referred to above, which had no significant impact on underwriting results in 1998, the decrease in underwriting results was due primarily to loss development in 1999 from business written principally in 1998, partially offset by recoveries under the aggregate stop loss treaty.
Indexed -- Products in this category are similar to the fixed rate asset accumulation vehicles but require the life operations to pay a rate that is determined by an external index. The amount and/or timing of cash flows will therefore vary based on the level of the particular index. The primary risks inherent in these products are similar to the fixed rate asset accumulation vehicles, with the additional risk that changes in the index may adversely affect profitability. Product examples include indexed-guaranteed investment contracts with an estimated duration of up to two years.
The Hartford's total capitalization, excluding unrealized gain (loss) on securities, net of tax, increased by $129 in 1999 from 1998. This change primarily was the result of earnings, partially offset by dividends declared on The Hartford's common stock and the effect of treasury stock acquired, net of reissuances for incentive and stock purchase plans.
1999 COMPARED TO 1998 -- Operating cash flow decreased slightly in 1999 compared to 1998. The change in both investing and financing cash flows was primarily the result of an increase in disbursements for investment type contracts related to the leveraged COLI block of business.
On January 25, 2001, The Hartford agreed to acquire the U.S. individual life insurance, annuity and mutual fund businesses of Fortis for $1.12 billion in cash. The Company will effect the acquisition through several reinsurance agreements with subsidiaries of Fortis and the purchase of 100% of the stock of Fortis Advisors, Inc. and Fortis Investors, Inc., wholly-owned subsidiaries of Fortis. The Fortis transaction, which is subject to insurance regulatory approval and other customary conditions, is expected to be completed in the second quarter of 2001. The acquisition will be reported as a purchase transaction. The Company plans to finance the transaction through the issuance of debt and equity securities. (For additional information, see Note 17 of Notes to Consolidated Financial Statements.)
The NAIC adopted the Codification of Statutory Accounting Principles ("Codification") in March 1998. The effective date for the statutory accounting guidance was January 1, 2001. Each of The Hartford's domiciliary states has adopted Codification, and the Company has made the necessary changes in its statutory reporting required for implementation. The Company has determined that the overall impact of applying the new guidance will result in a one-time statutory cumulative transition benefit of approximately $250 in statutory surplus.