By Ben Fox Rubin and Leslie Scism
Hartford Financial Services Group Inc. (>> Hartford Financial Services Group Inc) restated its third-quarter 2012 results, resulting in a loss for the year instead of a profit, due to an accounting error related to a sale of its life insurance operations.
Hartford submitted an amended filing with the Securities and Exchange Commission to correct the company's preliminary calculation of "the gain or loss relating to the Individual Life business transaction," according to a company announcement late Friday.
Late last year, Prudential Financial Inc. (>> Prudential Financial Inc) agreed to acquire Hartford's individual life-insurance business for $615 million in cash, allowing Hartford to free up almost $1 billion in capital held to support the life insurance business.
The original accounting error was made internally, and it was found internally, a Hartford spokeswoman said. Deloitte & Touche LLP, its independent auditor, had reviewed the third-quarter results as filed with the SEC. Deloitte will remain as the company's auditor, the spokeswoman said.
Phone calls and emails to Deloitte seeking comment weren't immediately returned.
Internally, "we have increased the level of review and validation work performed by our management and accounting professionals," the spokeswoman said.
The correction resulted in the company now posting a full-year 2012 loss of $38 million and shareholders' equity of $22.4 billion, compared with its previously reported annual income last year of $350 million and shareholders' equity of $22.8 billion.
The company said its 2012 core earnings of $1.4 billion are unchanged.
"We regret the error, but importantly the adjustments have no impact on our reported 2012 core earnings, statutory results or surplus, and announced capital management plan," Chief Executive Liam E. McGee said.
In addition, the company said it determined "there was a material weakness in its internal control over financial reporting at September 30, 2012, which was remediated as of December 31, 2012."
In September of last year, Hartford estimated the Individual Life transaction would not generate a material gain or loss under generally accepted accounting principles. Following the identification of the error, the company estimates the transaction will result in a loss of $393 million, after tax.
The estimate is subject to change, pending a few other adjustments.
"The error resulted from the omission of the impact of certain reinsurance recoverable balances on the gain/loss calculations for the transaction," the company said.
In February, the insurer announced plans to reduce debt by $1 billion, and its board authorized a $500 million stock repurchase program. Hartford also said that it won approval from state insurance regulators to pay a $1.2 billion dividend by the end of the current quarter from Connecticut-based life-insurance units to the parent company.
Mr. McGee said the moves will help balance a number of critical goals. Those include paying down debt, returning capital to shareholders and further strengthening financial flexibility to reduce risk from past sales of annuities.
The 200-year-old insurer has been completing a major overhaul to refocus on its property-casualty, group-benefits and mutual-funds operations while shedding businesses amid pressure from some shareholders.
Shares closed Friday at $23.68 and were unchanged after hours. The stock is up 12% over the past three months.
Write to Ben Fox Rubin at [email protected] and Leslie Scism at [email protected]