The Hartford Financial Services Group, Inc. (HIG Quick QuoteHIG - Free Report) is going through a rough patch. A number of factors like higher prior-year development, underperforming personal auto business, lower net investment income and higher catastrophe losses are acting against it.
   
The related woes were evident in the recently reported second-quarter earnings which missed estimates significantly by 59.74%. The company’s pain can also be ascertained from earnings miss in three out of the past four quarters, with an average negative surprise of 17.6%.

What’s Bothering The Hartford Financial?

The company is facing heightened competition within its commercial lines business. Moreover, unfavorable auto loss cost trends are draining profitability in the personal lines business. Adding to these are company-specific factors and significantly lower interest rates. In commercial lines, competition is becoming more aggressive, especially in national accounts and Middle Market.

As a property and casualty (P&C) insurer, The Hartford is substantially exposed to catastrophic (cat) events that are weighing on its underwriting results. Cat losses increased in the first quarter owing to several storms in Texas. Thus, the unpredictable nature of such weather-related events continues to raise caution for the coming quarters, thereby posing operating risks. The same continued in the second quarter resulting in catastrophe loss of $104 million, $7 million higher than second quarter 2015, which drained the company’s bottom line.

The company has also been suffering due to the prolonged low interest rate environment. Hence, net investment income declined at a four-year CAGR of 27.32% (2011–2015), mainly due to a decrease in income from fixed maturities and limited partnerships. In the first quarter, net investment income declined 16.8% year over year and the same trend was seen in the second quarter when net investment income declined 8%.

Also, the company’s Personal lines business has been incurring loss due to higher auto liability loss costs. Net income decline by $20 million in 2015 and $22 million in 2014. For the first half of 2016, the segment reported net loss of $33 million compared with core earnings of $117  million. Though the company is taking steps (investing in capabilities to better utilize data and analytics, and thereby, refine and manage underwriting and pricing) to gain back profitability since it is a core business for Hartford Financial and its long-term relationship with AARP would provide l benefits over the long term, we do not expect significant improvements in the near term on his front.

HARTFORD FIN SV Price and Consensus

HARTFORD FIN SV Price and Consensus | HARTFORD FIN SV Quote

3 Stocks Worth Considering

While The Hartford Financial with a Zacks Rank # 5 (Strong Sell) remains mired in its problems there are other stocks in the same space that are worth investing in.  Here, we have picked three stocks using our style score system. Not only do these stocks have a solid VGM score ('V' for Value, 'G' for Growth and 'M' for Momentum) of ‘ A’ or B’, they also have a favorable Zacks Rank #1 (Strong Buy) or #2 (Buy).

The VGM score rates each stock on their combined weighted styles, helping to identify those with the most attractive value, best growth, and most promising momentum, across the board.

Argo Group International Holdings, Ltd. underwrites specialty insurance and reinsurance products in the property and casualty market worldwide.
This Zacks Rank #2 (Buy) stock with a VGM score of ‘B’ has seen its current year earnings per share (EPS) estimate move 8.4% higher over the past 60 days. Its long-term EPS growth rate is 7%.

ARGO GROUP INTL Price and Consensus

ARGO GROUP INTL Price and Consensus | ARGO GROUP INTL Quote

First American Financial Corporation (FAF Quick QuoteFAF - Free Report) operates through Title Insurance and Services, and Specialty Insurance segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services. The Specialty Insurance segment provides property and casualty insurance.
This Zacks Rank #2 stock with a VGM score of ‘A’ has seen its current year earnings per share (EPS) estimate move 5.3% higher over the past 60 days. Its long-term EPS growth rate is 9.25%.

FIRST AMER FINL Price and Consensus

FIRST AMER FINL Price and Consensus | FIRST AMER FINL Quote

National Interstate Corporation (NATL Quick QuoteNATL - Free Report) operates as a specialty property and casualty insurance company primarily in the United States. It underwrites and sells traditional and alternative property and casualty insurance products primarily to the passenger transportation, trucking and moving, and storage industries; general commercial insurance to small businesses in Hawaii and Alaska; and personal insurance to owners of recreational vehicles.
This Zacks Rank #1 (Strong Buy) stock with a VGM score of ‘B’ has seen its current year earnings per share (EPS) estimate move 7.6% higher over the past 60 days. Its long-term EPS growth rate is 10%.

NATL INTERST CP Price and Consensus

NATL INTERST CP Price and Consensus | NATL INTERST CP Quote

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