Hartford Financial’s stock (NYSE: HIG) has lost approximately 7% YTD as compared to the 24% drop in the S&P500 index over the same period. Further, at its current price of $64 per share, it has an upside potential of 32% to its fair value of $85 – Trefis’ estimate for Hartford Financial’s valuation. The property & casualty (P&C) insurance giant posted mixed results in the first quarter of 2022, with earnings beating the consensus but revenues missing the mark. It reported total revenues of $5.4 billion – up 2% y-o-y, primarily driven by a 7% rise in the earned premiums. The premiums mainly benefited from an 11% increase in the property & casualty (P&C) commercial lines segment, followed by a 5% growth in the group insurance unit. That said, the increase was partially offset by a drop in net realized gains (losses) from $80 million to -$145 million. Also, the net investment income (NII) for the period was flat. It was mainly due to lower yield on fixed maturity investments, offsetting the gains from limited partnerships and other alternative investments, and higher invested assets. Altogether, the adjusted net income jumped 80% y-o-y to $440 million in the quarter. It was because of a favorable decrease in the total benefits, losses, and expenses.
The company’s top-line improved 9% y-o-y to $22.4 billion in 2021. It was driven by a 5% growth in the total earned premiums, fees, and other considerations, coupled with a 25% rise in the NII and higher net realized capital gains. While the growth in premiums was driven by P&C commercial lines and group benefits segments, fee income advanced due to higher average assets under management (AuM) in Hartford Funds. Similarly, the NII profited from higher income from limited partnerships & other alternative investments, an increase in invested assets, and an improvement in yields from equity investments. Overall, the revenue growth coupled with lower total benefits & expenses resulted in a 37% increase in the adjusted net income to $2.3 billion.
Net investment income (NII) is very important for any insurance company for its profitability. We expect the fixed maturity investments to suffer in 2022 due to higher interest rates, negatively impacting the NII. Further, premiums and fees income is likely to grow with a recovery in the economy. Overall, Hartford Financial revenues are forecast to remain around $22.25 billion in FY2022. Additionally, HIG’s adjusted net income margin is likely to see some improvement in the year, resulting in an adjusted net income of $2.34 billion and an annual GAAP EPS of $6.87. This coupled with a P/E multiple of just above 12x will lead to the valuation of $85.
|S&P 500 Return||-11%||-24%||84%|
|Trefis Multi-Strategy Portfolio||-12%||-29%||184%|
 Month-to-date and year-to-date as of 6/17/2022
 Cumulative total returns since the end of 2016