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We have retained our Neutral recommendation on The Hartford Financial Services Group Inc. (HIG - Analyst Report) following mixed third-quarter results.

Why the Reiteration?

Although Hartford Financial’s third quarter operating earnings of $1.03 improved 14.4% year over year, revenues declined 10.9% from the prior-year figure. However, both surpassed the respective Zacks Consensus Estimate.

This multi-line insurer with a Zacks Rank #2 (Buy) has been selling off its non-core businesses to focus on its U.S. operations and enhance its operating leverage. So far in 2013, Hartford Financial divested three businesses, namely, the Retirement Plans business, Individual Life insurance business and its U.K. Variable Annuity Business (Hartford Life International Limited). These efforts increased Hartford Financial’s focus on its P&C, Mutual Funds and Group Benefits segments, which not only generate strong revenues, but also have impressive market standing.

Following the industry trend, Hartford Financial has stabilized significantly since mid-2010 with improved earnings performance, positive credit trends and strengthened capital and liquidity position. In the long run, a continuation of the stabilizing trends is expected if the regulatory landscape becomes more visible and credit quality continues to improve, although likely at a slower rate. Hartford Financial’s capital appreciations, repayment of government funds and measures to de-risk its balance sheet have increased its financial strength. The company is now looking forward to more transactions that can increase the release of capital, thereby executing proficient capital management plans and creating shareholder value. Hartford Financial also scores strongly with credit rating agencies.

However, weakness in auto and home product lines, exposure to catastrophic events and a decline in investment income are some headwinds for the company. Policies-in-force and policy retentions are declining and might hamper operating performance going forward. Catastrophe losses also remain a concern owing to their unpredictable nature thereby posing operating risks.

The impact of the sale of Individual Life and Retirement Plans businesses led to a decline in net investment income yield in the third quarter of 2013. Significant fluctuations in the fixed income or equity markets could weaken Hartford Financial’s  finances in the future.

Other Stocks to Consider

Other players in the multi-line insurance space, which look attractive at current levels, include Kemper Corporation (KMPR - Snapshot Report), Old Republic International Corporation (ORI - Snapshot Report) and CNO Financial Group Inc. (CNO - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).



 

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