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HartFord Financial (HIG) Q2 Earnings Beat Estimates, Up Y/Y

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The Hartford Financial Services Group, Inc. (HIG - Free Report) reported second-quarter 2017 adjusted operating earnings of $1.04 per share. The figure not only surpassed the Zacks Consensus Estimate of 95 cents but also grew over three times from the previous quarter’s earnings of 31 cents. The upside was mainly driven by a reduction in the weighted average diluted common shares outstanding, which was a result of the company’s share repurchase program.

However, Hartford Financial reported a net loss of $40 million in the second quarter that compares unfavorably with net income of $216 million in the last-year quarter.

Total operating revenue of Hartford Financial came in at $4.77 billion, up 1.5% year over year. The top-line improvement was primarily driven by an increase in earned premiums and fee income, both on a year-over-year basis.

Quarterly Segment Results

Property & Casualty (P&C):

Commercial Line

During the second quarter, Commercial Lines operating revenues were $2 billion, up 5.3% year over year.

Commercial Lines net income of $258 million and core earnings of $238 million rose 9% and 8%, respectively, year over year due to lower catastrophe losses and higher net investment income on LPs (Limited Partnerships), partially offset by decreased current accident year underwriting results, excluding catastrophes.

The Commercial Lines underlying combined ratio was 90.9%, a deterioration of 110 basis points (bps) from the prior-year quarter, primarily due to higher current accident year auto and property losses and higher expenses.

Personal Lines

Personal Lines total revenue was $1 billion, down 4% year over year.

Personal Lines net income of $24 million and core earnings of $20 million improved materially from a net loss of $50 million and a core loss of $52 million, respectively, year over year due to a favorable change in PYD, lower catastrophe losses and improved underlying underwriting results.

The Personal Lines underlying combined ratio was 92.6%, an improvement of 160 bps from second-quarter 2016, driven by improved auto losses and lower expenses due to reduced AARP direct marketing and agency commissions. The improvement was, however, partially offset by higher Homeowners brand losses due to elevated non-catastrophe weather losses.

Group Benefits:

Group Benefits’ total revenue grew 1.4% to $925 million year over year.

This segment generated net income of $69 million that increased 25% from second-quarter 2016 and core earnings rose 33% to $61 million year over year. The upsides were driven by better group life and group disability loss experience combined with 2% premium growth as a result of strong persistency.

The total loss ratio of 76.1% improved 240 bps year over year on the back of improvement in group life and group disability.

Mutual Funds:

Mutual Funds operating revenues grew 16.2% year over year to $201 million.

Hartford Financial reported Mutual Funds net income and core earnings of $24 million, each rising 20% year over year, driven by an increase in assets under management (AUM) over the past year.

Average AUM increased 18% to $107.7 billion, mainly driven by positive net flows and market appreciation, partially offset by the continued runoff of Talcott Resolution AUM.

Talcott Resolution:

Talcott Resolution operating revenues declined 1.3% year over year to $602 million.

Net income came at $105 million, inching up 0.1% from second-quarter 2016 due to higher net realized capital gains, offset by a decline in core earnings.

Core earnings declined 12% to $80 million, principally due to lower net investment income because of the runoff of the block, partially offset by lower insurance operating costs.

Corporate:

Corporate segment declined 33.3% year over year to $2 million.

The Corporate segment recorded a net loss of $540 million  against net income of $4 million in the prior-year quarter. Core losses of $52 million increased 4% from the year-ago quarter due to the favorable impact on second-quarter 2016 insurance operating costs and other expenses of the reversal of a legal accrual. This was partially offset by lower interest expenses in second-quarter 2017 as a result of debt repayments over the past year.

Hartford Financial Services Price, Consensus and EPS Surprise

 Financial Update

Book value per diluted share as of Jun 30, 2017 rose 6% from Dec. 31, 2016 to $46.84.

Net income return on equity was 3.9% in the quarter, down 340 bps from the last-year quarter.

Core earnings return on equity rose to 9.3% and to 11.3%.

Share Repurchases

During the second quarter, Hartford Financial repurchased 6.6 million common shares for approximately $325 million.

As of Jul 25, 2017, the company had repurchased 1.6 million common shares for $85 million, leaving $565 million available under the $1.3 billion 2017 share repurchase authorization.

During the second quarter, $86 million of common dividends were paid to shareholders for a total return of capital to shareholders of $411 million.

Zacks Rank and Stocks to Consider

Hartford Financial presently has Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Among other players in the same space that have reported their second-quarter earnings so far, the bottom lines of The Progressive Corporation (PGR - Free Report) and The Travelers Companies, Inc. (TRV - Free Report) missed their respective Zacks Consensus Estimate while RLI Corp. (RLI - Free Report) beat the same.

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