Potential upside & downside to trefis price
Hartford Financial Company
- Property And Casualty (Commercial P&C, Consumer Property And Casualty, Property & Casualty Investment Income) constitutes 76% of the Trefis price estimate for Hartford Financial's stock.
- Group Life Insurance (Group Life Insurance Premiums, Group Life Investment Income) constitutes 20% of the Trefis price estimate for Hartford Financial's stock.
WHAT HAS CHANGED?
Latest EarningIn Q2 2021, Hartford reported Total Revenues of $5.6 billion, 10% more than the year-ago period. This was mainly driven by a 71% growth in net investment income coupled with higher Net realized capital gains (losses). Further, earned premiums and fees income increased 7% y-o-y in the quarter.
Impact of coronavirus outbreak
Hartford Financial has suffered as states and countries are on lockdown due to Coronavirus pandemic. This restricted the growth of insurance premium for the company as business and individuals were focused on short term. Further, the company saw a slight increase in insurance claims. In addition to this, the insurance companies are heavily dependent on income from investment of insurance premiums for their profitability, which suffered due to lower interest rate environment driven by economic slowdown. While the Q2, Q3 and Q4 2020 results were on the similar lines, the company's results for Q1 and Q2 FY2021 witnessed some increase due to higher net investment income. Overall, we expect the total premiums to remain stagnant in FY2021, and net investment income to see some growth driven by slight improvement in investment yields.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICEBelow 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 Total U.S. Worker's Compensation Premiums: Hartford's Workers Compensation accounts for close to 30% of the net premiums in the Property & Casualty insurance space in the U.S. We expect total premium for this division to increase to $14.2 billion by the end of our forecast period due to the economic recovery in the U.S. market and the declining unemployment rate. If, however, the unemployment rates start to increase again and the economic recovery is not up to market expectations, the total worker's compensation premiums for Hartford could decline to $13.2 billion by the end of our forecast period. This presents a nearly 10% downside to our price estimate for Hartford.For additional details, select a driver above or select a division from the interactive Trefis split for Hartford at the top of the page.
BUSINESS SUMMARYThe Hartford Financial Services Group (Hartford) is an insurance and financial services company. Hartford is one of the largest providers of property and casualty insurance products and life insurance products in the U.S., with a market share of 1.72% and 1.44%, respectively. The company also sells mutual funds and exchange-traded funds in domestic and international markets.
SOURCES OF VALUEHartford's most valuable business is its U.S. Property & Casualty (P&C) business, followed by the 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, which wrote about $361 billion in premiums among the top 20 insurers in 2017.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 $11 billion in premiums and fees related to P&C insurance policies in the year 2017, and we estimate that these revenues will grow at a rate of 4-6% for the forecast period.
Yield on Invested Insurance PremiumsInsurance companies like Hartford invest their insurance premiums in bonds, securities, and such assets 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 strategyHartford 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. That said, a series of catastrophes hurt the company's performance. As a result, the combined ratio in 2017 was 100%.