Hartford Earnings Will Give Us A Read On P&C And Small Business Trends

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HIG: Hartford Financial Services Group logo
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Hartford Financial Services Group

Hartford Financial Services Group (NYSE:HIG) will report its earnings for the second quarter of 2012 on Wednesday, August 1. The company has been increasingly focused on its property and casualty business while divesting its life insurance and annuity operations.

See our full analysis of Hartford Financial here

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Property and Casualty Losses Down

The property and casualty insurance business, which accounts for 28% of our price estimate for Hartford’s stock, had a rough time in 2011. Catastrophe losses in the second quarter of 2011 totaled $447 million before tax.

This year, the industry has suffered considerably due to storms in Dallas, the Ohio River Valley and Mid-Atlantic states. (See Dallas Storms Are A Bad Sign For Insurance Companies) The Southwestern Insurance Information Service estimates the Dallas hailstorms to cost as much as $2 billion, which is a significant amount considering that insurance losses due to hail, winds and floods across the U.S. over the 20 years ending in 2010 were just around $14 billion. [1]

Hartford, however, adopted a prudent approach to underwriting this quarter and expects $280 million to $300 million in catastrophe losses, a considerable improvement over last year. [2]

Split in Company

Hartford recently sold its individual annuities new business capabilities to Forethought Financial Group, Inc., a Houston-based financial services company. [3] The company continues to divest operations in individual annuity, individual life, retirement plans and Woodbury financial services, following the advice of hedge fund manager and major shareholder John Paulson. We will keep a close eye on the announcement on Wednesday as the company is expected to provide some insights on this front. U.S retirement plans and annuities have been quite crucial to Hartford’s operations so far; the division accounts for 25% of our price estimate. We will revise our forecast based on the earnings numbers.

Gains from Small Businesses

Small businesses, accounting for 50% of the American workforce, are a key focus area for Hartford as a recent survey by the company revealed that that around 30% of companies in the U.S. with less than 50 employees are likely to soon opt for employee benefits such as group life, disability or long-term care coverage as their businesses expand. [4] To capitalize on this trend, the insurance company has launched initiatives including data breach coverage for small businesses. Hartford observed a year-on-year increase of 8% in net premiums written to small businesses in the first quarter, and we expect this trend to continue through our forecast period.

We have a price estimate of $19 on Hartford Financial’s stock, about 10% above the current market price.

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Notes:
  1. Dallas hailstorms pack up to $2 billion wallop, msnbc, June 14th, 2012 []
  2. The Hartford Announces Second Quarter 2012 Estimate of Catastrophe Losses, Press Release, 17th July, 2012 []
  3. The Hartford Signs Agreement To Sell Individual Annuity New Business Capabilities, Press Release, April 26th, 2012 []
  4. The Hartford Enhances Sales Support For Benefits Brokers In The Small Business Marketplace, The Hartford Newsroom, June 25th, 2012 []