The Hartford reported a second quarter 2009 net loss of $15 million
compared with second quarter 2008 net income of $543 million.
Second quarter 2009 results benefited from a deferred acquisition cost
(DAC) unlock gain of $358 million, after tax, from the impact of rising
global equity markets in the second quarter on the company's quarterly
revision of its estimates of future gross profits in its life
operations. Estimates of future gross profits are used in the
determination of certain asset and liability balances, including DAC
and benefits, loss and loss adjustment expenses for insurance
contracts.
According to Investopedia, "Deferred acquisition costs represent the costs
that an insurer spends to acquire a customer when it issues a
policy. Those costs are capitalized on the balance sheet or as an asset
and then expensed over the life of the policy as the premium is earned.
When a company establishes this account it must make assumptions about
investment returns, mortality, policy lapses and expenses. If actual
experience differs materially from these assumptions used, then the
company must "unlock" its deferred acquisition costs to reflect
reality.
If a company has lower investment returns than what
was modeled into its assumptions, then it must accelerate the
recognition of the deferred acquisition costs, and take a charge to
reflect it. Since this is an asset account, it reduces book value."
Read the Powerpoint presentation to shareholders of The Hartford's Q2 2009 results
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