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Investment Overview for Hartford Financial (NYSE:HIG)
Below are key drivers of Hartford's value that present opportunities for upside or downside to the current Trefis price estimate:
US Property & Casualty Insurance
- Hartford's share of US Property & Casualty Market: Hartford's share of the market was about 2% in 2011. We currently forecast a steady increase in market share as the company plans to increase focus on this division. There could be 13% upside to the Trefis price estimate if the market share were to reach 3.5%, on the back on the increased focus.
- Hartford's Property & Casualty Insurance Operating Margin: The operating margin fell sharply in 2011 as the company was hit hard by catastrophe losses due to events in the U.S. These losses have declined significantly in the first half of 2012. We expect margins to improve to about 13% by the end of our forecast period. There could be a 17% downside to the Trefis price estimate if margins fail to recover and reach only 7% by the end of the Trefis forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for Hartford at the top of the page.
The Hartford Financial Services Group (Hartford) is an insurance and financial services company. Hartford is one of largest providers of investment products, individual life, group life and group disability insurance products, as well as property and casualty insurance products in the U.S. Additionally, the company has operations in Japan, the United Kingdom, Canada, Brazil and Ireland.
Hartford's most valuable business is its U.S. Property & Casualty (P&C) business, followed by investment of insurance premiums collected across all its insurance products in assets such as bonds, equities and mortgages.
Hartford's U.S. Property & Casualty insurance business is the company's largest source of value. This is due to the significance of the U.S. P&C market, which we estimate will reach about $608 billion in 2011.
Hartford is one of the leading P&C insurance providers in the U.S., controlling around 2% of the highly competitive market. Hartford collected about $10 billion in premiums and fees related to P&C insurance policies in the year 2011 and we estimate that these revenues will grow at a rate of 3% to 4% annually.
Yield on Invested Insurance Premiums
Insurance companies like Hartford invest the insurance premiums that they collect in order to generate growth in their insurance assets and better finance potential future insurance claims.
The value generated by Hartford's investment business is significant due to the amount of insurance assets that the company manages. We estimate that Hartford will have about $90 billion in assets invested in fixed maturity investments (like bonds) in 2012. The yield from this investment will be subject to low interest rates prevalent in the U.S. We expect yield of just above 3% on those assets. Furthermore, the company will have smaller, but potentially higher returning investments in mortgage-backed securities.
Hartford has announced plans to divest its retirement and life insurance operations. We will keep a close eye on proceedings and update our model once the divestiture is completed and the terms of the deal have been disclosed.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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