Hartford Financial’s stock (NYSE: HIG) has gained approximately 5% YTD as compared to the 5% drop in the S&P500 index over the same period. Further, at its current price of $72 per share, it has an upside potential of 15% to its fair value of $83 – Trefis’ estimate for Hartford Financial’s valuation. The property & casualty (P&C) insurance giant recently released its fourth-quarter results, surpassing the consensus estimates for revenues and earnings. It reported total revenues of $5.8 billion, which is 9% more than Q4 2020. This was because of an increase in net realized investment gains from $102 million to $212 million, followed by a 7% y-o-y growth in the total premiums. The premiums mainly benefited from a 12% y-o-y rise in the commercial lines P&C segment. Overall, the adjusted net income increased 36% y-o-y to $724 million, leading to a quarterly EPS of $2.10. The improvement in profitability numbers was because of a reduction in total benefits & expenses as a % of revenues from 87.8% to 84.5%.
The company’s total revenues increased 9% y-o-y to $22.4 billion in 2021. It was primarily driven by a 5% growth in the premiums and other considerations coupled with a 25% increase in the net investment income. The premiums and other considerations benefited from a 7% rise in the commercial lines P&C segment, followed by a 3% growth in group benefits and a 20% jump in the Hartford funds divisions. Notably, the Hartford funds’ growth was driven by higher Assets under Management (AuM) – up 13% y-o-y to $157.9 billion. Altogether, the revenue growth coupled with lower total benefits & expenses – down from 90% to 87%, translated into a 37% increase in the adjusted net income to $2.3 billion.
Insurance companies invest premiums into fixed income securities and other avenues to drive additional income, which is very important for their profitability. While the investment yields were down due to the Covid-19 crisis, we expect the improvement in the interest rates to increase the yields. Further, premiums and fees income is likely to grow with the recovery in the economy. Overall, Hartford Financial revenues are expected to remain around $22.5 billion in FY2022. Additionally, HIG’s adjusted net income margin is likely to hover around the 2021 levels, resulting in an adjusted net income of $2.4 billion and an annual EPS of $7.07. This coupled with a P/E multiple of just below 12x will lead to the valuation of $83.
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|S&P 500 Return||0%||-5%||102%|
|Trefis Multi-Strategy Portfolio||0%||-8%||262%|
 Month-to-date and year-to-date as of 4/8/2022
 Cumulative total returns since the end of 2016