We issued an updated research report on The Hartford Financial Services Group, Inc. HIG on Jun 30, 2015.
The Hartford has been vending non-core businesses to concentrate on its U.S. operations and enhance its operating leverage. Apart from lowering expenses, boosting profitability and improving returns to shareholders, these divestitures have also been enhancing the company’s financial flexibility by freeing up more capital.
Following the industry trend, The Hartford has stabilized significantly. Since mid-2010, the insurer has been witnessing an improved earnings performance, positive credit trends and strengthened capital and liquidity position. The company expects to generate higher core earnings in 2015, driven by growth from the P&C, Group Benefits and Mutual Funds segments.
The company focuses on expanding its product portfolio and underwriting capabilities to bolster bottom-line growth. Also, the company has been consistently enhancing distribution effectiveness, improving customer experience and operating efficiency, which is expected to boost earnings further. The latest development in this regard is the new professional liability insurance launched this month to cater to small businesses and agents. This new coverage is aimed to protect small businesses if and when they are sued by customers slapping charges for a negligent act, error or omission.
The Hartford boasts a strong financial position that enables it to engage in share buybacks and deleverage its portfolio. The company also scores strongly with credit rating agencies. Moreover, The Hartford has been recording improvement in new business premiums in its auto and home product lines of businesses.
However, amid the positives, The Hartford’s exposure to catastrophic events raises caution. Notably, tough weather conditions had caused combined ratio to deteriorate in the last reported quarter. Additionally, the unpredictable nature of such weather-related events continues to raise caution for the coming quarters, thereby posing operating risks.
Moreover, the company’s investment income has been declining and the recent movement in treasury yields is expected to continue to weigh on this metric. Also, a weak Talcott Resolution segment and the challenging regulatory environment are headwinds.
The Hartford is scheduled to release its second-quarter 2015 earnings on Jul 27. The Zacks Consensus Estimate for the same is pegged at 77 cents per share, which reflects a year-over-year improvement of 149.60%.
The Hartford currently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the multiline insurance space include American International Group, Inc. AIG, Cigna Corp. CI and Ping An Insurance (Group) Company of China, Ltd. PNGAY. All three stocks hold a Zacks Rank #2 (Buy).
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