How Much Of Hartford’s Revenues Comes From Property & Casualty Insurance: 40%, 60% or 80%?

The Hartford Financial Services Group (NYSE: HIG) is an insurance and financial services company which is one of the largest providers of property & casualty insurance and life insurance products in the U.S. The company is heavily dependent on Property & Casualty (P&C) segment, as it drives more than 60% of Hartford Financial’s revenues. However, P&C revenues have remained largely stagnant over recent years, because of which the percentage revenue share has seen a steep decline.

Trefis has analyzed the importance of Hartford’s Property & Casualty segment to its business model in an interactive dashboard, along with our expectations for the next three. Trefis estimates Hartford Financial’s valuation to be $63 per share which is roughly 10% higher than the current market price. Additionally, you can see more Trefis data for Insurance companies here.

A Quick Look At Hartford Financial’s Revenues

Hartford Financial reported $19 billion in Total Revenues in FY 2018. This included 3 revenue streams:

• Property & Casualty Segment: $11.7 billion in FY 2018 (62% of Total Revenues) – It can be divided into three units:
  • Commercial Property & Casualty: provides workers’ compensation, property, automobile, general liability, fidelity & surety, and professional liability insurance to small and mid-sized businesses.
  • Consumer Property & Casualty: provides automobile, homeowner and umbrella insurance coverage to individuals in the United States.
  • Property & Casualty Investment Income: represents income generated from investment of premiums earned from P&C (Property & Casualty) division into bonds, securities and such assets.
• Group Life Insurance: $6 billion in FY 2018 (32% of Total Revenues) – It offers group life, disability, group retiree health, and voluntary insurance policies. Further, it represents income generated from investing the segment premiums into bonds, securities and such assets.
• Mutual Funds & Corporates: $1.2 billion in FY 2018 (6% of Total Revenues) – Offers mutual funds, exchange-traded products, and investment management services to investors

How Have Hartford Financial’s Revenues Changed Over The Last Three Years And What To Expect In The Next Three?

• Total revenues jumped by 10.4% y-o-y in 2018 driven by a 52%-increase in group life insurance premiums. Overall, revenues have seen steady growth over the last three years.
• We expect the same trend to continue, with Hartford’s revenues growing at an average annual rate of 5% over the next three years.
• This should enable total revenues to cross $22 billion by 2021.

How Have Hartford Financial’s Property & Casualty Segment Revenues Changed Over The Last Three Years?

• Property & Casualty segment revenues remained stagnant over the last three years. It grew by 2% y-o-y to $12 billion in 2017, before returning to $11.7 billion in 2018.
• However, the segment’s share of Total Revenue has dropped from just over 72% in 2016 to below 62% in 2018.
• The reduced contribution to the top line can be attributed to growth in the company’s Group Life Insurance segment, which saw an increase of 74% over the same period.

What To Expect From Property & Casualty Segment Revenues Over The Next Three Years?

• Property & Casualty (P&C) Segment revenues can be divided into 3 revenue streams: Commercial P&C, Consumer P&C and P&C investment income.
  • Commercial P&C premiums are expected to grow at an average annual rate of 4.9% over the next three years. Both Hartford’s workers compensation premiums and premiums from other lines of insurance have seen steady growth over 2016-2018. We expect the trend to continue in subsequent years and enable Commercial P&C premiums to cross $8.1 billion by 2021.
  • Although personal automobile premium has decreased by 13% over the last three years, we expect it to stabilize and remain around the current level of $2.4 billion over the next three. Similarly, homeowner premiums are expected to remain unchanged at $1 billion over 2019-2021. Overall, Consumer P&C premium won’t see much change from the 2018-level of $3.4 billion in the next three years
  • P&C investment income is expected to grow at an average annual rate of 9.4% over the next three years which would result in it crossing $1.6 billion by 2021. It could be further divided into two parts – commercial investment income & consumer investment income.
    • Commercial investment income decreased in 2018 due to the weak investment scenario over the second half of the year weighing on investment income as a % of commercial reserves. However, it should grow at an average annual rate of 10% for the next three years, due to annual growth of 5% in commercial reserves and increase in investment income as a % of commercial reserves. This should result in commercial investment income crossing $1.3 billion by 2021.
    • Although consumer reserves have grown at an annual rate of more than 5% over 2016-2018, we expect this growth to slow down in coming years. Further, investment income as a % of consumer reserves is expected to recover from the 2018 level. Overall, growth in both these key metrics would enable consumer investment income to nudge higher to $300 million by 2021.
• Taken together, we expect P&C Segment Revenues to grow at an average annual rate of 3.9% to cross $13.1 billion by 2021

Although P&C segment is on a growth trajectory, Hartford’s Group Life Insurance segment will outshine it in terms of growth – we expect it to grow at an average annual rate of 7.3% over the coming years. This implies a decrease in P&C segment’s contribution to Hartford’s top line from an estimated 62% in 2019 to just below 60% in 2021.

Per Trefis, Hartford Financial’s Revenues (shows key revenue components) are expected to cross $20.4 billion in 2019 – leading to an EPS of $5.29 for the year. This EPS figure coupled with a P/E multiple of 11.9x, works out to a price estimate of $63 for Hartford Financial’s stock (shows cash and valuation analysis), which is almost 10% ahead of the current market price.

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