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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 26, 2005
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THE HARTFORD FINANCIAL SERVICES GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-13958 13-3317783
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
The Hartford Financial Services Group, Inc.
Hartford Plaza
Hartford, Connecticut 06115-1900
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 547-5000
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
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ITEM 7.01 REGULATION FD DISCLOSURE.
In connection with its release of earnings for the fourth quarter of 2004, The
Hartford Financial Services Group, Inc. hereby furnishes an update regarding the
litigation and regulatory developments disclosure set forth in the Company's
quarterly report on Form 10-Q for the period ended September 30, 2004.
LITIGATION
The Hartford Financial Services Group, Inc. and its subsidiaries (collectively,
"The Hartford" or the "Company") is involved in claims litigation arising in
the ordinary course of business, both as a liability insurer defending
third-party claims brought against insureds and as an insurer defending coverage
claims brought against it. The Hartford accounts for such activity through the
establishment of unpaid claim and claim adjustment expense reserves. Subject to
the uncertainties discussed below under the caption "Asbestos and Environmental
Claims," management expects that the ultimate liability, if any, with respect to
such ordinary-course claims litigation, after consideration of provisions made
for potential losses and costs of defense, will not be material to the
consolidated financial condition, results of operations or cash flows of The
Hartford.
The Hartford is also involved in other kinds of legal actions, some of which
assert claims for substantial amounts. These actions include, among others,
putative state and federal class actions seeking certification of a state or
national class. Such putative class actions have alleged, for example,
underpayment of claims or improper underwriting practices in connection with
various kinds of insurance policies, such as personal and commercial automobile,
property, and inland marine; improper sales practices in connection with the
sale of life insurance and other investment products; and improper fee
arrangements in connection with mutual funds. The Hartford also is involved in
individual actions in which punitive damages are sought, such as claims alleging
bad faith in the handling of insurance claims. Management expects that the
ultimate liability, if any, with respect to such lawsuits, after consideration
of provisions made for estimated losses, will not be material to the
consolidated financial condition of The Hartford. Nonetheless, given the large
or indeterminate amounts sought in certain of these actions, and the inherent
unpredictability of litigation, it is possible that an adverse outcome in
certain matters could, from time to time, have a material adverse effect on the
Company's consolidated results of operations or cash flows in particular
quarterly or annual periods.
Broker Compensation Litigation - On October 14, 2004, the New York Attorney
General's Office filed a civil complaint (the "NYAG Complaint") against Marsh
Inc. and Marsh & McLennan Companies, Inc. (collectively, "Marsh") alleging,
among other things, that certain insurance companies, including The Hartford,
participated with Marsh in arrangements to submit inflated bids for business
insurance and paid contingent commissions to ensure that Marsh would direct
business to them. The Hartford is not joined as a defendant in the action. Since
the filing of the NYAG Complaint, several private actions have been filed
against the Company asserting claims arising from the allegations of the NYAG
Complaint.
Two securities class actions have been filed in the United States District Court
for the District of Connecticut alleging claims against the Company and five of
its executive officers under Section 10(b) of the Securities Exchange Act and
SEC Rule 10b-5. The complaints allege on behalf of a putative class of
shareholders that the Company and the five named individual defendants, as
control persons of the Company, "disseminated false and misleading financial
statements" by concealing that "the Company was paying illegal and concealed
`contingent commissions' pursuant to illegal `contingent commission
agreements.'" The class period alleged is November 5, 2003 through October 13,
2004, the day before the NYAG Complaint was filed. The complaints seek damages
and attorneys' fees. The Company and the individual defendants dispute the
allegations and intend to defend these actions vigorously.
In addition, three putative class actions have been filed in the same court on
behalf of participants in the Company's 401(k) plan against The Hartford,
Hartford Fire Insurance Company, the Company's Pension Fund Trust and Investment
Committee, the Company's Pension Administration Committee, the Company's Chief
Financial Officer, and John/Jane Does 1-15. The suits assert claims under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), alleging
that the Company and the other named defendants breached their fiduciary duties
to plan participants by, among other things, failing to inform them of the risk
associated with investment in the Company's stock as a result of the activity
alleged in the NYAG Complaint. The class period alleged is November 5, 2003
through the present. The complaints seek restitution of losses to the plan,
declaratory and injunctive relief, and attorneys' fees. All defendants dispute
the allegations and intend to defend these actions vigorously.
Two corporate derivative actions also have been filed in the same court. The
complaints, brought in each case by a shareholder on behalf of the Company
against its directors and an executive officer, allege that the defendants knew
adverse non-public information about the activities alleged in the NYAG
Complaint and concealed and misappropriated that information to make profitable
stock trades, thereby breaching their fiduciary duties, abusing their control,
committing gross mismanagement, wasting corporate assets, and unjustly enriching
themselves. The complaints seek damages, injunctive relief, disgorgement, and
attorneys' fees. All defendants dispute the allegations and intend to defend
these actions vigorously.
Six putative class actions also have been filed by alleged policyholders in
federal district courts, one in the Southern District of New York, two in the
Eastern District of Pennsylvania, and three in the Northern District of
Illinois, against several brokers and insurers, including the Company. These
actions assert, on behalf of a class of persons who purchased insurance through
the broker defendants, claims under the Sherman Act and state law, and in some
cases the Racketeer Influenced and Corrupt Organizations Act ("RICO"), arising
from the conduct alleged in the NYAG Complaint. The class period alleged is 1994
through the date of class certification, which has not yet occurred. The
complaints seek treble damages, injunctive and declaratory relief, and
attorneys' fees. A putative class action also has been filed in the Circuit
Court for Cook County, Illinois, Chancery Division, on behalf of a class of all
persons who purchased insurance from a class of defendant insurers. This state
court action asserts unjust enrichment claims arising from
the conduct alleged in the NYAG Complaint and seeks restitution of premiums,
imposition of a constructive trust, and declaratory and injunctive relief. The
class period alleged is 1994 through the present. The Company has removed the
Cook County action to the United States District Court for the Northern District
of Illinois. The Company disputes the allegations in all of these actions and
intends to defend the actions vigorously.
Additional complaints may be filed against the Company in various courts
alleging claims under federal or state law arising from the conduct alleged in
the NYAG Complaint. The Company's ultimate liability, if any, in the pending and
possible future suits is highly uncertain and subject to contingencies that are
not yet known, such as how many suits will be filed, in which courts they will
be lodged, what claims they will assert, what the outcome of investigations by
the New York Attorney General's Office and other regulatory agencies will be,
the success of defenses that the Company may assert, and the amount of
recoverable damages if liability is established. In the opinion of management,
it is possible that an adverse outcome in one or more of these suits could have
a material adverse effect on the Company's consolidated results of operations or
cash flows in particular quarterly or annual periods.
Asbestos and Environmental Claims - As discussed in Note 16 of Notes to
Consolidated Financial Statements under the caption "Asbestos and Environmental
Claims," included in The Hartford's 2003 Form 10-K Annual Report, The Hartford
continues to receive asbestos and environmental claims that involve significant
uncertainty regarding policy coverage issues. Regarding these claims, The
Hartford continually reviews its overall reserve levels and reinsurance
coverages, as well as the methodologies it uses to estimate its exposures.
Because of the significant uncertainties that limit the ability of insurers and
reinsurers to estimate the ultimate reserves necessary for unpaid losses and
related expenses, particularly those related to asbestos, the ultimate
liabilities may exceed the currently recorded reserves. Any such additional
liability (or any range of additional amounts) cannot be reasonably estimated
now but could be material to The Hartford's future consolidated operating
results, financial condition and liquidity.
REGULATORY DEVELOPMENTS
In June 2004, the Company received a subpoena from the New York Attorney
General's Office in connection with its inquiry into compensation arrangements
between brokers and carriers. In mid-September 2004 and subsequently, the
Company has received additional subpoenas from the New York Attorney General's
Office, which relate more specifically to possible anti-competitive activity
among brokers and insurers. In October through December 2004, the Company
received subpoenas or other information requests from Attorneys General and
regulatory agencies in more than a dozen jurisdictions regarding broker
compensation and possible anti-competitive activity. The Company may receive
additional subpoenas and other information requests from Attorneys General or
other regulatory agencies regarding similar issues. The Company also has
received a subpoena from the New York Attorney General's Office requesting
information related to the Company's underwriting practices with respect to
legal professional liability insurance. In addition, the Company has received a
request for information from the
New York Attorney General's Office concerning the Company's compensation
arrangements in connection with the administration of workers compensation
plans. The Company intends to continue cooperating fully with these
investigations, and is conducting an internal review, with the assistance of
outside counsel, regarding the issues under investigation.
On October 14, 2004, the New York Attorney General's Office filed a civil
complaint against Marsh & McLennan Companies, Inc., and Marsh, Inc.
(collectively, "Marsh"). The complaint alleges, among other things, that certain
insurance companies, including the Company, participated with Marsh in
arrangements to submit inflated bids for business insurance and paid contingent
commissions to ensure that Marsh would direct business to them. The Company is
not joined as a defendant in the action. Although no regulatory action has been
initiated against the Company in connection with the allegations described in
the civil complaint, it is possible that the New York Attorney General's Office
or one or more other regulatory agencies may pursue action against the Company
or one or more of its employees in the future. The potential timing of any such
action is difficult to predict. If such an action is brought, it could have a
material adverse effect on the Company.
On October 29, 2004, the New York Attorney General's Office informed the Company
that the Attorney General is conducting an investigation with respect to the
timing of the previously disclosed sale by Thomas Marra, a director and
executive officer of the Company, of 217,074 shares of the Company's common
stock on September 21, 2004. The sale occurred shortly after the issuance of two
additional subpoenas dated September 17, 2004 by the New York Attorney General's
Office. The Company has engaged outside counsel to review the circumstances
related to the transaction and is fully cooperating with the New York Attorney
General's Office. On the basis of the review, the Company has determined that
Mr. Marra complied with the Company's applicable internal trading procedures and
has found no indication that Mr. Marra was aware of the additional subpoenas at
the time of the sale.
There continues to be significant federal and state regulatory activity relating
to financial services companies, particularly mutual funds companies. These
regulatory inquiries have focused on a number of mutual fund issues, including
market timing and late trading, revenue sharing and directed brokerage, fees,
transfer agents and other fund service providers, and other mutual-fund related
issues. The Company has received requests for information and subpoenas from the
Securities and Exchange Commission ("SEC"), subpoenas from the New York Attorney
General's Office, requests for information from the Connecticut Securities and
Investments Division of the Department of Banking, and requests for information
from the New York Department of Insurance, in each case requesting documentation
and other information regarding various mutual fund regulatory issues.
The SEC's Division of Enforcement and the New York Attorney General's Office are
investigating aspects of the Company's variable annuity and mutual fund
operations related to market timing. The Company's mutual funds are available
for purchase by the separate accounts of different variable life insurance
policies, variable annuity products,
and funding agreements, and they are offered directly to certain qualified
retirement plans. Although existing products contain transfer restrictions
between subaccounts, some products, particularly older variable annuity
products, do not contain restrictions on the frequency of transfers. In
addition, as a result of the settlement of litigation against the Company with
respect to certain owners of older variable annuity products, the Company's
ability to restrict transfers by these owners is limited. The SEC's Division of
Enforcement also is investigating aspects of the Company's variable annuity and
mutual fund operations related to directed brokerage and revenue sharing. The
Company discontinued the use of directed brokerage in recognition of mutual fund
sales in late 2003. The Company also has received a subpoena from the New York
Attorney General's Office requesting information related to the Company's group
annuity products. The Company continues to cooperate fully with the SEC, the New
York Attorney General's Office and other regulatory agencies.
A number of companies have announced settlements of enforcement actions with
various regulatory agencies, primarily the SEC and the New York Attorney
General's Office, which have included a range of monetary penalties and
restitution. While no such action has been initiated against the Company, the
SEC, and the New York Attorney General's Office are likely to take some action
at the conclusion of the on-going investigations related to market timing and
directed brokerage. The potential timing of any such action is difficult to
predict. If such an action is brought, it could have a material adverse effect
on the Company's consolidated results of operations or cash flows in particular
quarterly or annual periods. Under generally accepted accounting policies in the
United States, if an event occurs between the date of this report and the
Company's filing of its Annual Report on Form 10-K which results in the Company
being able to estimate its potential liability for any such action, the Company
would be required to record the resulting charge in its results of operations
for the fourth quarter of 2004.
On October 21, 2004, the Financial Services Agency ("FSA"), the Company's
primary regulator in Japan, issued regulations concerning new reserving
methodologies and Solvency Margin Ratio ("SMR") standards for variable annuity
contracts. The regulations allow a "Standard" methodology and an "Alternative"
methodology to determine required reserve levels and SMR standards. On December
27, 2004, the FSA also issued administrative guidelines that describe the
detailed requirements under the two methodologies. The regulations are scheduled
to become effective on April 1, 2005.
The new reserve methodologies and SMR standards would only apply to capital
requirements for Japanese regulatory purposes, and are not directly related to
results under accounting principles generally accepted in the United States. At
this time, the Company has decided to adopt the Standard methodology. While
management is still evaluating the impact of the regulations on the Company's
Japanese operations, at this time, based on the Company's assessment, the
Standard methodology would require $400 - $650 million of additional capital
during 2005. This estimate assumes that the Company will successfully employ
various capital management strategies within its discretion and control, which
may include, but are not limited to, product re-filing. The Company also is
currently evaluating certain reinsurance strategies which have the potential to
reduce the
additional capital required to $100 million. These reinsurance strategies would
be subject to regulatory approval, which may not be granted.
As provided in General Instruction B.2 of Form 8-K, the information contained in
this Form 8-K shall not be deemed to be "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, nor shall it be deemed to be
incorporated by reference in any filing under the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific reference in such a
filing.
Some of the statements in this Form 8-K should be considered forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
These include statements about our future results of operations. We caution
investors that these forward-looking statements are not guarantees of future
performance, and actual results may differ materially. Investors should consider
the important risks and uncertainties that may cause actual results to differ.
These important risks and uncertainties include the difficulty in predicting the
Company's potential exposure for asbestos and environmental claims and related
litigation; the possible occurrence of terrorist attacks; the response of
reinsurance companies under reinsurance contracts and the availability, pricing
and adequacy of reinsurance to protect the Company against losses; changes in
the stock markets, interest rates or other financial markets, including the
potential effect on the Company's statutory capital levels; the inability to
effectively mitigate the impact of equity market volatility on the Company's
financial position and results of operations arising from obligations under
annuity product guarantees; the difficulty in predicting the Company's potential
exposure arising out of regulatory proceedings or private claims relating to
incentive compensation or payments made to brokers and alleged anti-competitive
conduct; the uncertain effect on the Company of regulatory and market-driven
changes in practices relating to the payment of incentive compensation to
brokers and other distribution intermediaries, including changes that have been
announced and those which may occur in the future; the uncertain effect on the
Company of the Jobs and Growth Tax Relief Reconciliation Act of 2003, in
particular the reduction in tax rates on long-term capital gains and most
dividend distributions; the possibility of more unfavorable loss experience than
anticipated; the incidence and severity of catastrophes, both natural and
man-made; stronger than anticipated competitive activity; unfavorable judicial
or legislative developments, including the possibility that the Terrorism Risk
Insurance Act of 2002 is not extended beyond 2005; the potential effect of
domestic and foreign regulatory developments, including those which could
increase the Company's business costs and required capital levels; the
possibility of general economic and business conditions that are less favorable
than anticipated; the Company's ability to distribute its products through
distribution channels, both current and future; the uncertain effects of
emerging claim and coverage issues; the effect of assessments and other
surcharges for guaranty funds and second-injury funds and other mandatory
pooling arrangements; a downgrade in the Company's claims-paying, financial
strength or credit ratings; the ability of the Company's subsidiaries to pay
dividends to the Company; and others discussed in our Quarterly Reports on Form
10-Q, our 2003 Annual Report on Form 10-K and the other
filings we make with the Securities and Exchange Commission. We assume no
obligation to update the information set forth in this Form 8-K, which speaks as
of the date issued.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Date: January 26, 2005 By: /s/ Neal S. Wolin
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Name: Neal S. Wolin
Title: Executive Vice President
and General Counsel