What To Expect From Hartford’s Q1 Results

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HIG: Hartford Financial Services Group logo
HIG
Hartford Financial Services Group

Hartford Financial (NYSE:HIG) is scheduled to report its Q1 2017 earnings on Thursday, April 27th. The company announced mixed fourth quarter 2016 results, with core earnings easily exceeding market expectations but revenues missing estimates. The company’s core earnings of $1.08 per share beat estimates by 14 cents on a 9% rise in investment income and positive impact of share repurchases, which offset the 23% decline in Property and Casualty core earnings. The rise in investment income was attributed to higher income from limited partnerships (LPs) and other alternative investments.

However, Hartford’s performance in the first three quarters of 2016 overall was quite disappointing. The company’s core earnings declined 24% 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.

In the first quarter, we expect Hartford’s revenues to have grown in mid single digits on slightly better investment income. We expect earnings growth to trail top line growth owing to higher catastrophe losses, similar to what Travelers (NYSE:TRV) experienced in the first quarter.hig-25
P&C Insurance Business In Focus

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Hartford currently has three major lines of businesses – property and casualty insurance, group life insurance and investments. The P&C insurance division contributes about 70% of the company’s revenues and 66% of its core earnings. Hartford has a 1.85% share in the U.S. P&C insurance market in terms of premiums earned, and offers both commercial and consumer insurance products. In the commercial segment, Hartford is the second largest player in the worker’s compensation space in the country, behind Travelers (NYSE:TRV). The consumer P&C insurance division is comprised of personal automobile and homeowners’ multiperil products. [1]

In 2016, the company’s P&C business suffered a 23% decline in core earnings owing to weak underwriting results. The division’s underwriting gains declined from $354 million in 2015 to a loss of $8 million in 2016 due to higher catastrophe losses and higher prior accident year development. This led the division’s combined ratio – the ratio of claims and expenses to premiums earned – to increase by 350 basis points to 100.1%. A ratio above 100% indicates underwriting losses, whereas below 100% means the company is making an underwriting profit. Considering catastrophe losses are likely to have remained high in Q1 2017, the division’s combined ratio is again expected to come in around 100%.

Hartford’s commercial lines division is expected to report a slight improvement in its combined ratio, owing to better unemployment data which impacts the company’s workers’ compensation business. The U.S. unemployment rate was 4.8%, 4.7% and 4.5% in the three months of the first quarter this year, significantly better than figures in Q1 2016 when the rate hovered between 4.9 – 5.0%. This is a good indicator for growth in this line of business for Hartford. We expect improving macroeconomic conditions to benefit the workers’ compensation insurance market, and Hartford – being the second biggest player in this segment – should be able to benefit from the economic recovery. ((Unemployment Rate – Bureau of Labor Statistics Data))

Have more questions about HIG? Please refer to our complete analysis for HIG

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Notes:
  1. 2016 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM, NAIC, March 27 2017 []