Hartford Financial Executive Insights: Annuity Biz, U.S. Nest

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

Annuity Business

Mark Finkelstein – Evercore Partners: Liam, in your opening remarks you talked constructively about some alternatives on the VA side, whether it’s reinsurance or what have you. Can you expand on those comments? I guess what I’m interested in is, how would you weigh the probability of success and how meaningful could one of these structures be in terms of capital release?

A Closer Look: Hartford Financial Earnings Cheat Sheet>>

Liam E. McGee – Chairman, President and CEO: Mark, it’s early. What I expressed was we have received interest from a variety of parties on different parts of the book and different parts of the block. Our team is working hard evaluating those options. We do think some of them will materialize over time, but I think it’s also important, as I said in my comments as well, Mark, that we will balance the short-term economics with the ultimate goal of getting them off our books. So, it’s early in the process. I think we’re constructively optimistic with the level of interest that’s being presented, the kind of thinking that our teammates are doing on it, with the assistance of advisors in some cases that some of these transactions will materialize over time.

Mark Finkelstein – Evercore Partners: I guess my follow-up would just be on the annuity business as well. I guess, we’ve seen markets go higher level, a little bit of interest rate volatility. But, I guess, what is the opportunity to kind of re-strike some of the options and reduce that cost at this stage? Is that a – do we need markets to go higher from here or is there opportunity to reduce that long-term cost at this stage?

Liam E. McGee – Chairman, President and CEO: I’ll make a comment and then Chris would like to add something as well. As Chris said in his remarks, we are looking at the hedges – we refer them as a dynamic hedging program, particularly in Japan. So, with the markets having appreciated as they have, particularly equity markets and although it’s backed up a little bit, the yen weakening is offset by lower interest rates. I would tell you, we evaluate our hedging levels on a daily basis led by our HIMCO teammates and our Chief Risk Officer, Bob Rupp now in conjunction with our Runoff group. So, we look at it every single day and there may be opportunities because of strengthening market levels to reduce it. Chris, other things you might to say?

Christopher J. Swift – EVP and CFO: I think it’s exactly right. I think Mark we’re very sensitive on the economic cost side. So, particularly as markets reach 1,400, 1,450 on the S&P and beyond, there are definitely opportunities to be much more cost effective. So I think you should take away that we’re working hard to appropriately balance risk and economics like we have always said.

Money Nest in the U.S.

John Nadel – Sterne, Agee: I have a question on the VA business as well. In the U.S., in particular, but in Japan as well, your net amount at risk and in the (money nest) if I focus on the living benefit guarantees came down very nicely quarter-over-quarter. My question is for the U.S., can you give us a guesstimate on about how much higher do you think markets need to move for that level of in the (money nest) to essentially be wiped out or move to zero?

Christopher J. Swift – EVP and CFO: John, thanks for the question. In the U.S., if you look at sort of the cohorts of when we put a lot of business on the books ’05, ’06, ’07, ’08, I mean, we are approaching that level just by the nature of the disclosure that we made. So, to me, when you get into ’14, ’15 level of 1,500, I think you would be virtually at breakeven from in the moneyness perspective.

John Nadel – Sterne, Agee: Then on the Japan side, I assume, is that going to be – should we be looking more at that being influenced more by the yen than necessarily market levels?

Christopher J. Swift – EVP and CFO: Yeah. I have always said about 50% of sort of just the risk comes from yen-dollar, yen-euro.

John Nadel – Sterne, Agee: Then just a separate question is. I am interested in a move out that you mentioned in the annualized surrender rate on the U.S. VA book. Obviously, one month doesn’t necessarily make a trend, but I was wondering if you have any granularity on the composition of that higher surrender rate, specifically what proportion of those lapses reflected contracts where the living benefit guaranty was in the money. Has that changed? I think historically you have mentioned it’s around 40% of lapses were in the money.

David N. Levenson – President, Wealth Management: So, John, it’s Dave Levenson. So, for April, as you know, we’ve been – we were running the 20% annualized lapse rate. As we look at the weekly numbers, that has been pretty consistent. So, we’ve seen it maybe moderate slightly. I think over time we’ll have a much better read on that. As far as lapses in the money versus out of the money, your 40% to 50% number is right on.