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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 U.S. Property & Casualty Market: Hartford's share of the market has been around 2% (in terms of premiums earned) for the past few years. We currently forecast a marginal increase in market share as the company increasingly focuses on improving profitability in this division. Additionally, a low interest rate environment hasn't supported the company on making gains on investment income and thus inhibited market share expansion. But an ongoing economic recovery and eventual interest rate hikes in the long term will give Hartford room to potentially increase market share.
- Hartford's Property & Casualty Insurance Operating Margin: The operating margin fell sharply in 2011 as the company was hit hard by losses due to catastrophe events in the U.S. These losses have since declined. P&C operating margins improved to 13% in 2013. We expect these margins to steadily improve to around 15% through the end of Trefis forecast period. There could be about 20% downside to the Trefis price estimate if margins fell to just 12% in the coming years. But margins increasing to 17% levels would swing the Trefis price upwards by as much as 10%.
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 collection 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 P&C insurance in the U.S. market, valued at nearly $550 billion among the top 25 insurers in 2013.
Hartford is one of the leading P&C insurance providers in the U.S., controlling around 2% of the highly competitive market. Hartford earned about $10.8 billion in premiums and fees related to P&C insurance policies in the year 2013 and we estimate that these revenues will grow at a rate of 2-3% for the forecast period.
Yield on Invested Insurance Premiums
Insurance companies like Hartford invest their insurance premiums in bonds, securities and such assets 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. Low interest rates have hit the returns on investments adversely, and this is expected to improve gradually.
Post Divestiture shift in strategy
Hartford announced the sale of its retirement plans business to Massachusetts Mutual Life Insurance Company (MassMutual) while the individual life insurance business was acquired by Prudential Financial (NYSE:PRU)in 2012. Following this divestiture of non-core business units, Hartford has stated its realigned strategy to focus on Property & Casualty, Group Life Insurance businesses and Mutual Funds. As a result of an increased focus on the Property and Casualty business, Hartford's underwriting profitability has improved, with a combined ratio of around 95%.
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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