Key Takeaways And Trends From Hartford’s Q1 Results

Hartford Financial (NYSE: HIG) reported strong first quarter results, as both its revenue and earnings per share beat market expectations. Consequently, the stock price has gone up by about 5% since the earnings release. The company’s revenues grew by 14% year-over-year to $4.8 billion, largely driven by double-digit growth in both the Group Benefits and Mutual Funds businesses. Even though P&C segment revenue declined by 2% year-on-year on account of lower premiums generated from the Personal Lines business, the overall performance was decent as combined ratios improved. Moreover, the company’s core EPS increased 67% to $1.27 on the back of top-line growth and lower tax rate.

Our interactive dashboard details our forecasts and estimates for the company. Below we outline the key takeaways from Hartford’s Q1.

Group Benefits And Mutual Funds Businesses Saw Impressive Growth

• Group Benefits – Boosted by the acquisition of Aetna’s group life and disability business, earned premiums for the business grew 66% year-over-year. Moreover, favorable incidence trends and better recoveries improved the loss ratio by 30 basis points.
• Property & Casualty – The company’s largest segment consists of two major business – Commercial Lines and Personal Lines. Commercial Lines delivered a strong performance, as written premiums grew 2%, mainly due to growth in small commercial and middle market businesses. Also, the business’ underlying combined ratio improved by 50 basis points on the back of pricing improvements and margin improvements in the auto business. However, the growth in Commercial Lines was offset by the decline in the Personal Lines business. Personal Lines’ written premium declined 9% as new business dwindled.
• Mutual Funds – The 12% growth in AUM was driven by market appreciation and positive net flows. Consequently, the company generated higher investment management fees.

Future Outlook

We expect the company to see modest growth in Q2, largely due to organic growth in premiums. P&C Commercial Lines benefited from higher renewal written pricing, which provided a boost to the premiums generated per policy. In this sub-segment, we expect the top line to be driven by growth in the Small Commercial, Middle Market, and Specialty Commercial business. The company has also made progress on the technology front by expanding the functionalities of the ICON quoting platform. However, Personal Lines will experience pressure in the next quarter. Although the company is investing more in the marketing efforts, we expect the conversion rate to be low in the upcoming quarter. In Group Benefits, the Aetna acquisition has made Hartford one of the biggest players in the Life and Disability business and has deepened Hartford’s penetration in mid-size and large companies. With complete integration, we expect the company to realize the full potential of the deal in 2018, which will drive growth in earned premiums. Furthermore, Aetna’s expertise in the business should help the renewal retention rate.

We expect the company to generate about $4.8 billion in revenue in the second quarter. However, we expect Hartford’s core margin to decline slightly in the near term because of marketing efforts to put back its Personal Lines business on track. We forecast Core Income of about $414.5 million, or EPS of about $1.14.

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