Commercial - ---------- 1996 1995 1994 - ---------------------------------------------------------------- Written premiums $ 3,211 $ 3,335 $ 3,427 Underwriting results $ (201) $ (227) $ (119) Combined ratio 105.7 106.6 102.5 - ----------------------------------------------------------------
1995 underwriting results decreased $15 compared with 1994 due primarily to HartRe's participation in the IRI pool which suffered its largest single loss. HartRe's share of that single loss was $32. Excluding the impact of this loss, HartRe generated an underwriting gain of $10 and a combined ratio of 97.4 in 1995.
block of business as insurance in force increased to $52 billion in 1996 from $48 billion in 1995. Total benefits, claims and expenses increased $54, or 15%, to $404 in 1996 from $350 in 1995. This increase reflects the increase in the block of individual life insurance business offset partially by favorable mortality results. The combination of business growth and favorable mortality experience resulted in an increase in core earnings of $7, or 19%, to $44 in 1996 from $37 in 1995.
Sales of leveraged COLI were $867 and $306 in 1995 and 1994, respectively. Revenues increased $474, or 23%, in 1995, primarily due to a $353 increase related to COLI premiums. Total benefits, claims and expenses increased $442, or 22%, in 1995 of which $344 related to COLI. The additional growth in the COLI and group insurance business, expense reductions associated with the decision to exit the fully insured medical business, and factors similar to those discussed above for 1996 caused core earnings in this division to increase $21, or 47%, to $66 in 1995 from $45 in 1994.
In accordance with the insurance laws and regulations under which Life operates, life insurance subsidiaries of The Hartford establish actuarially determined reserves to meet their obligations on their outstanding life and disability insurance contracts, as well as reserves for their universal life and investment contracts. Reserves for life insurance and disability contracts are based on mortality and morbidity tables in general use in the United States, modified to reflect The Hartford's experience. Management believes that these reserves, with additions from premiums to be received, and with interest on such reserves compounded annually at certain assumed rates, will be sufficient to meet The Hartford's policy obligations at their maturities or in the event of an insured's death. Reserves for universal life insurance and investment products represent policy account balances before applicable surrender charges.
The Hartford believes that the environmental and asbestos reserves reported at December 31, 1996 are a reasonable estimate of the ultimate remaining liability for these claims based upon known facts, current assumptions and The Hartford's methodologies. Future social, economic, legal or legislative developments may alter the original intent of policies and the scope of coverage. The Hartford will continue to evaluate new developments and methodologies as they become available for use in supplementing the Company's ongoing analysis and review of its environmental and asbestos exposures. These future reviews may result in a change in reserves, impacting The Hartford's results of operations in the period in which the reserve estimates are changed. While the effects of future changes in facts, legal and other issues could have a material effect on future results of operations, The Hartford does not expect such changes would have a material effect on its liquidity or financial condition.
================================================================================ INVESTMENTS ================================================================================ An important element of the financial results of The Hartford is return on invested assets. The Hartford's investment activities are divided between the reportable segments of North American Property & Casualty, Life, International, and Runoff. The investment portfolios for these operations are managed based on the underlying characteristics and nature of their respective liabilities.
FIXED MATURITIES BY TYPE - ------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------- FAIR FAIR TYPE VALUE PERCENT VALUE PERCENT - -------------------------------------------------------------------
Liability Hedging -- Several products obligate the Life segment to credit a - ------------------ return to the contract holder which is indexed to a market rate. In order to hedge risks associated with these products, the Life segment typically enters into interest rate swaps to convert the contract rate into a rate that trades in a more liquid and efficient market. This hedging strategy enables the Life segment to customize contract terms and conditions to customer objectives and satisfies the segment's asset/liability matching policy. Additionally, interest rate swaps are used to convert certain fixed contract rates into floating rates, thereby allowing them to be appropriately matched against floating rate assets. The notional amount of derivatives used for liability hedging as of December 31, 1996 and 1995 was $749 and $565, respectively.
FIXED MATURITIES BY TYPE --------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------- FAIR FAIR TYPE VALUE PERCENT VALUE PERCENT - ----------------------------------------------------------------
================================================================================ CAPITAL RESOURCES AND LIQUIDITY ================================================================================ 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 and equity, summarized as follows:
In 1995, total capitalization excluding unrealized gain (loss), net of tax, increased by $378 from 1994 as a result of earnings of $559, additional net borrowings of $410 and capital contributions of $250, partially offset by dividends declared of $779 on The Hartford common stock held by ITT prior to December 20, 1995 and redemption of subsidiary preferred stock totaling $86.
During 1996, cash provided by operating activities decreased from the prior year due primarily to increased policy acquisition costs related to strong growth in the Life segment. During 1995, cash provided by operating activities improved over 1994 due to increased revenues and collections on reinsurance recoverables. The changes in cash provided by both investing and financing activities between years were primarily due to declines in investment-type contracts written in the Life segment coupled with increases in investment-type contract maturities resulting in cash (used) provided of $(390), $530 and $2,584 for the years ended December 31, 1996, 1995 and 1994, respectively. These funds, along with cash reserves, were invested in securities held by The Hartford. Operating cash flows in each of the last three years have been more than adequate to meet liquidity requirements.