Hartford Financial Services Group Inc. (HIG) reported second-quarter 2013 operating earnings of $324 million or 66 cents per share, lagging the Zacks Consensus Estimate of 71 cents. Operating earnings outperformed the year-ago earnings of $274 million or 56 cents per share.
Improved performances in the Property & Casualty, Group Benefits, Mutual Funds and Corporate segments primarily drove Hartford Financial’s earnings, partially offset by lower earnings in the Talcott Resolution segment.
However, Hartford Financial’s net loss in the reported quarter was $190 million or 42 cents per share, compared with net loss of $101 million or 26 cents per share in the comparable quarter last year.
Hartford Financial’s results for the reported quarter include a post-tax net realized capital loss of $413 million, post-tax loss from discontinued operations of $126 million resulting from the agreement to sell Hartford Life International Limited, post-tax unlock benefit of $36 million, post-tax restructuring and other costs of $12 million, post-tax gain on dispositions of $1 million and post-tax unfavorable prior-year development of $95 million.
The results for Hartford Financial’s year-ago quarter included post-tax loss on extinguishment on debt of $587 million, post-tax unfavorable prior-year development of $32 million and post-tax realized capital gains of $369 million.
Total revenue of Hartford Financial for the reported quarter stood at $5.47 billion, increasing from $4.57 billion in the year-ago quarter. Total revenue also surpassed the Zacks Consensus Estimate of $2.78 billion.
Segment Results
Hartford Financial’s segments include Property & Casualty (P&C), Group Benefits, Mutual Funds, Talcott Resolution and Corporate segments.
Property & Casualty: This segment generated core earnings of $140 million, up 39% from $101 million in the second quarter of 2012. The improvement came on the back of better underwriting results. P&C reported net income of $136 million in the reported quarter, up 62% from $84 million in the year-ago period.
P&C written premiums increased 1% from the year-ago quarter to $2.5 billion. Meanwhile, combined ratio improved to 105.4 from 107.5 in the year-ago quarter. The combined ratio, excluding catastrophes and prior-year development, improved to 91.8 from 93.6 in the prior-year quarter.
Investment income increased 6% to $338 million, while underwriting loss improved to $132 million from $183 million in the year-ago quarter. This segment reported catastrophe loss of $186 million in the reported quarter, compared with $290 million in the second quarter of 2012.
Group Benefits: This segment of Hartford Financial generated core earnings of $37 million in the reported quarter, increasing from $34 million in the year-ago quarter due to improved results in the group long-term disability business. Net income came in at $61 million, increasing 74% from $35 million in the prior-year quarter, driven by higher core earnings and realized capital gains.
Group Benefits’ fully insured premiums declined 13% to $822 million from $950 million in the comparable quarter of 2012. Meanwhile, loss ratio improved to 75.7% from 78.6% in the year-ago quarter.
Mutual Funds: Core earnings of Hartford Financial’s Mutual Funds segment increased 5% year over year to $20 million from $19 million in the prior-year quarter. Net income of this segment increased 11% to $20 million from $18 million in the prior-year due to increased revenues, partially offset by higher distribution expenses and state taxes. Asset under management was $63.6 billion as of Jun 30, 2013, up 7% from the year-ago quarter.
Talcott Resolution: Hartford Financial’s Talcott Resolution’s core earnings came in at $196 million, down 2% from $200 million in the second quarter of 2012. The segment reported net loss of $332 million, narrower than the net loss of $440 million in the year-ago quarter.
Corporate: Hartford Financial’s Corporate segment’s core loss amounted to $69 million, shrinking 14% from $80 million in the prior-year quarter, due to reduced interest expenses. Corporate segment’s net loss was reported at $75 million, narrower than $678 million in the year-ago quarter.
Restructuring and other costs amounted to $12 million, declining from $18 million in the second quarter of 2012. Interest expenses declined 13% to $100 million from $115 million in the year-ago quarter due to debt repayment in the reported quarter and debt refinancing in the second quarter of 2012.
Financial Update
Hartford Financial's total invested assets, excluding trading securities, were $82.2 billion on Jun 30, 2013, compared with $105.3 billion on Dec 31, 2012 due to the divestiture of the Retirement Plans and Individual Life businesses. Net investment income, excluding trading securities, for the reported quarter was about $867 million, down 21% year over year.
Hartford Financial’s shareholder equity stood at $19 billion as of Jun 30, 2013, down 15% from $22.4 billion as of Dec 31, 2012. Book value per share declined to $38.59 as of Jun 30, 2013 from $45.80 as of Dec 31, 2012. Excluding accumulated other comprehensive income (AOCI), Hartford Financial’s book value decreased to $38.44 per share as of Mar 31, 2013 from $40.00 per share as of Dec 31, 2012.
Securities Update
During the quarter, Hartford Financial spent $118 million to repurchase 3.4 million shares and 0.9 million warrants.
Dividend Update
On Jun 26, 2013, the board of Hartford Financial announced the decision to increase its quarterly dividendby 50% to 15 cents per share, payable on Oct 1, 2013.
Zacks Rank
Hartford Financial carries a Zacks Rank #3 (Hold). Other multi-line insurers worth considering are AXA Group (AXAHY), Horace Mann Educators Corp. (HMN) and Enstar Group Ltd. (ESGR). All these companies carry a Zacks Rank #1 (Strong Buy).
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