Hartford Lags Est but Grows Y/Y (HIG) (MET)

Zacks

Hartford Financial Services Group Inc. (HIG) reported third-quarter 2012 operating earnings of $378.0 million or 78 cents per share, significantly lagging the Zacks Consensus Estimate of 82 cents. Operating earnings, however, surpassed the year-ago earnings of $50.0 million or 8 cents per share.

Hartford’s net income in the reported quarter was $401 million or 83 cents per share, surging from $60 million or 11 cents per share in the comparable quarter last year.

Results include current accident year catastrophe loss of $7 million, deferred acquisition cost unlock charge of $23 million, net prior-year property & casualty (P&C) loss and loss adjustment expense reserve releases of $21 million, current accident year loss re-estimation of $25 million in P&C Commercial, restructuring and other costs of $34 million in the reported quarter.

The year-over-year improvement in earnings was attributable to enhanced results across all lines of business. While the net profits of the Commercial Markets, Consumer Markets, Wealth Management and Runoff Operations segment improved on a year-over-year basis, the Corporate and Other segment reported lower losses compared to the prior-year quarter.

Total revenue for the reported quarter stood at $6.44 billion, increasing from $4.52 billion in the year-ago quarter. However, it was lower than the Zacks Consensus Estimate of $6.61 billion.

Segment Results

Commercial Markets: The segment reported net income of $194 million in the reported quarter, soaring 149% from $78 million in the year-ago period.

P&C Commercial operating income witnessed an 84% rise to $160 million from $87 million in the prior-year quarter, mainly due to lower catastrophe losses and sustained pricing and underwriting initiatives.

However, P&C Commercial’s written premiums stayed almost at par with the year-ago quarter level of $1.55 billion. The combined ratio, excluding catastrophes and prior-year development, improved to 97.5% from 99.4% in the prior-year quarter.

Group Benefits’ operating earnings in the third quarter of 2012 were $23 million, up 15% from $20 million in the third quarter of 2011.

Group Benefits’ fully insured premiums declined 7% to $926 million from $1.0 billion in the comparable quarter of 2011. Meanwhile, loss ratio improved to 79.3% from 80.1% in the year-ago quarter.

Consumer Markets: This segment generated net income of $94 million in the reported quarter against a net loss of $16 million in the prior-year quarter. Operating income amounted to $93 million, improving from operating loss of $10 million in the prior-year quarter.

Written premiums were $960 million, down marginally from $964 million in the prior-year period, while combined ratio, excluding catastrophes and prior-year development, was 93.3% as against 95.5% in the year-ago period.

Wealth Management: Net income at this segment improved to $22 million from the prior-year net loss of $8 million. Operating income, excluding DAC unlock and restructuring and other expenses, was $63 million, decreasing marginally from $65 million in the year-ago quarter.

Runoff Operations: Hartford established this segment in the fourth quarter of 2011 to include the P&C Other Operations and Life Other Operations. The segment reported net income of $169 million in the quarter, compared with $113 million in the year-ago quarter.

Corporate and Other: This segment’s net loss was reported at $78 million, contracting from $107 million in the year-ago quarter.

Financial Update

Hartford's total invested assets, excluding trading securities, were $107.2 billion on September 30, 2012, compared with $105.4 billion on September 30, 2011. Net investment income, excluding trading securities, was about $1.03 billion, reflecting a 3% year-over-year decrease.

Shareholders’ equity stood at $23.4 billion as of September 30, 2012, reflecting a 9% upside from $21.4 billion as of September 30, 2011. Book value per share improved to $48.13 as of September 30, 2012 from $43.81 as of September 30, 2011. Excluding accumulated other comprehensive income (AOCI), Hartford’s book value decreased to $41.35 per share as of September 30, 2012 from $41.44 per share as of September 30, 2011.

Peer Take

Hartford’s competitor, MetLife Inc. (MET) reported third-quarter 2012 operating earnings per share of $1.32, comfortably beating both the Zacks Consensus Estimate of $1.28 and substantially surpassing the year-ago quarter’s earnings of 91 cents. Operating earnings surged 47% year over year to $1.42 billion.

The upbeat results were primarily due higher net investment income, as well as lower-than-expected operating expenses. This was partially offset by significantly reduced top-line growth driven by unfavorable impact of foreign exchange rates and low interest rate environment that led to underperformance across Europe, Middle East and EMEA as well as generated higher derivative losses.

Zacks Rank

Hartford carries a Zacks #3 Rank, which translates into a short-term Hold rating.

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