Hartford 2016 Review: Net Investment Income In Focus

Hartford Financial’s (NYSE:HIG) stock is up about 20% in the last year after strong third quarter results offset weak first and second quarter earnings. In the nine months ending September 30, 2016, the company’s core earnings declined 24% year-over-year (y-o-y) to $920 million on the back of weak underwriting results across businesses, especially the property and casualty (P&C) insurance business, and a decline in net investment income. This decline in investment income was attributed to lower income from limited partnerships (LPs) and other alternative investments. The table below provides a breakdown of the company’s results so far. 

Investment Income Declines On Lower Yield In LPs

Hartford’s net investment income declined 6% in the first three quarters to $2.2 billion, owing to a 34% y-o-y decline in income from limited partnerships (LPs) and other alternative investments to $141 million. Going forward, the company will need to improve its yield from LPs and other alternative investments, which declined from 8% in full year 2015 to 7.3% in the first nine months of 2016.

Interestingly, the company was not impacted much from the persistent low interest rate environment, as government securities are only about 10% of its fixed maturity investments, which contribute over 80% to net investment income.

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