Hartford Financial Services Group’s (NYSE:HIG) decision to focus on Property and Casualty and Group Benefits  appears to be the right move given the current market scenario. The company has been divesting its operations in its individual annuity, individual life, retirement plans and Woodbury financial services, on the advice of hedge fund manager and major shareholder, John Paulson. (See Hedge Fund Manager Paulson Tells Hartford to Split Company in Two) The company signed an agreement last month to sell its individual annuities new business capabilities to Forethought Financial Group, Inc., a Houston based financial services company.  We look below at how the current market conditions affect the Hartford’s operations.
Last Year’s Disasters Return Profitable
Property and Casualty insurance companies such as AIG (NYSE:AIG), MetLife (NYSE:MET), Prudential Financial (NYSE:PRU) and Manulife Financial (NYSE:MFC), around the world suffered significant losses last year due to a high number of natural disasters such as Hurricane Irene which had devastating repercussions on all walks of life across the globe. Uncertain climatic conditions and a string of environmental catastrophes have had a huge impact on the public psyche in recent years as more and more people are inclined to protect their assets through insurance.
This was evident in the Hartford’s first quarter results, as renewal prices for P&C Commercial increased by 7%, to the highest level since 2003, showing increased demand for the insurance products offered. 
Businesses No Small Fry
Small commercial businesses are the primary target for the Hartford’s P&C division as the company has established itself as the market leader in providing insurance solutions to the aforementioned. The potential offered in this domain is huge as the economy recovers bringing business growth as well as a boost from the Jobs Act passed by the Obama administration last year, comes to effect.
The Jobs Act grants start-ups easier access to funds, particularly through crowdfunding online by allowing non-accredited investors to participate in funding.  This will encourage entrepreneurs in raising capital and will also help reduce unemployment figures, in turn helping insurance companies by increasing product sales. The Hartford observed a y-o-y increase of 8% in net premiums written to small businesses in the first quarter, this year and we expect this trend to continue through our forecast period.
Alarm Bells Ringing In Cyberspace
Hartford has recently launched a data breach coverage to protect small businesses as the company’s research revealed that an alarming 66% of data breaches resulting in loss of sensitive information involve businesses with less 100 employees.  We expect the cyber risk coverage initiative to be successful as awareness regarding data security rises amongst small business owners. Nearly half (47%) the owners surveyed by the Hartford revealed that is impossible for them to safeguard data with nearly two-thirds (61%) acknowledging the impact that a breach would have on their customer relationships. 
We have a price estimate of $19 on Hartford Financial’s stock, about 10% above the current market price.Notes:
- The Hartford Financial Services Group, Inc. Conference Call Presentation, March 21, 2012 [↩]
- The Hartford Signs Agreement To Sell Individual Annuity New Business Capabilities, Press Release, April 26th, 2012 [↩]
- The Hartford Financial Services Group’s CEO Discusses Q1 2012 Results – Earnings Call Transcript, Seeking Alpha, May 3rd, 2012 [↩]
- JOBS Act To Jumpstart The Job Market, Forbes, 5th April, 2012 [↩]
- The Hartford Launches Data Breach Coverage For Small Businesses, Press Release, September 19th, 2011 [↩]
- Small Business Owners — Despite Being Increasingly Targeted — Believe Data Breach Unlikely, Press Release, June 6th, 2012 [↩]