On Feb 24, 2015, we issued an updated research report on The Hartford Financial Services Group, Inc. (HIG). The company recently reported its fourth-quarter 2014 earnings that surpassed the Zacks Consensus Estimate and improved year over year on better Property and Casualty (P&C) underwriting results, decline in Corporate losses and reduction in share count.
Following the industry trend The Hartford has stabilized significantly since mid-2010 with improved earnings performance. The company also anticipates its earnings to increase in 2015 driven by growth from P&C, Group Benefits and Mutual Funds segments. Additionally, the company expects to come up with new industry verticals in middle market to strengthen its global presence.
The Hartford has been divesting businesses from its Variable Annuity (VA) block to concentrate on its core operations and enhance operating leverage. The company vended its Japan annuity company Hartford Life Insurance K.K. (“HLIKK”) in 2014 that led to an income tax benefit of $350 million in 2014. The deal is also likely to generate capital benefit that can be used toward capital deployments.
The Hartford’s capital appreciations, repayment of government funds and measures to de-risk its balance sheet have increased its financial strength. This has helped it deploy capital efficiently through share repurchases and dividend payouts and the fourth quarter was also no exception. The Hartford also scores strongly with the credit rating agencies.
However, The Hartford is substantially exposed to catastrophic events. Catastrophe losses increased in 2014 due to winter storms and unfavorable weather conditions across various U.S. geographic regions. Moreover, the company’s 2015 catastrophe loss guidance is nearly 32% higher than that reported in 2014.
The company also has a soft investment portfolio. Net investment income has been declining, and owing to the recent movement in treasury yields, a reversal in the trend is unlikely. The Hartford’s Talcott Resolution segment has been a drag for quite some time and 2014 was no exception either.
The Hartford currently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the multiline insurance space include Assured Guaranty Ltd. (AGO), MGIC Investment Corp. (MTG) and Cigna Corp (CI). While Assured Guaranty and MGIC Investment sport a Zacks Rank #1 (Strong Buy), Cigna holds a Zacks Rank #2 (Buy).
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