Hartford Reports Strong 1Q Earnings

Zacks

Hartford Financial Services Group Inc. (HIG) reported first-quarter 2013 operating earnings of $456 million or 92 cents per share, surpassing the Zacks Consensus Estimate of 83 cents. Operating earnings also outperformed the year-ago earnings of $426 million or 87 cents per share.

Improvements in the Property & Casualty, Group Benefits, Mutual Funds and Corporate segments were the chief reason for the increase in Hartford Financial’s earnings, partially offset by lower earnings in the Talcott Resolution segment.

Hartford Financial’s net loss in the reported quarter was $241 million or 58 cents per share, compared with net income of $96 million or 18 cents per share in the comparable quarter last year.

Hartford Financial’s results for the reported quarter include a post-tax unlock charge of $541 million, loss on extinguishment of debt of $138 million after tax, post-tax catastrophe loss of $36 million and pre-tax unfavorable prior-year development of $14 million.

Total revenue of Hartford Financial for the reported quarter stood at $9.18 billion, increasing from $7.66 billion in the year-ago quarter.

Segment Results

Hartford Financial reorganized its reporting segments in the fourth quarter of 2012. As a result, the company now consists of Property & Casualty (P&C), Group Benefits, Mutual Funds, Talcott Resolution and Corporate segments.

Property & Casualty: This segment covers Hartford Financial’s P&C Commercial, Consumer Markets and P&C Other businesses. The segment generated core earnings of $318 million, up 12% from $284 million in the first quarter of 2012. P&C reported net income of $351 million in the reported quarter, up 8% from $324 million in the year-ago period.

P&C written premiums declined 1% over the year-ago quarter level to $2.52 billion. Meanwhile, combined ratio improved to 93.6 from 95.6 in the year-ago quarter. The combined ratio, excluding catastrophes and prior-year development, improved to 91.8 from 93.9 in the prior-year quarter.

Investment income of witnessed a 2% decline to $312 million, while underwriting gain improved to $154 million from $108 million in the year-ago quarter. This segment of Hartford Financial witnessed catastrophe loss of $32 million in the reported, compared with $71 million in the first quarter of 2012.

Group Benefits: This segment generated core earnings of $30 million in the reported quarter, increasing from $5 million in the year-ago quarter due to improved results in the group long-term disability business. Net income came in at $42 million, increasing from $18 million in the prior-year quarter, driven by higher core earnings.

Group Benefits’ fully insured premiums declined 15% to $812 million from $954 million in the comparable quarter of 2012. Meanwhile, loss ratio improved to 77.4% from 83% in the year-ago quarter.

Mutual Funds: Core earnings of Hartford Financial’s Mutual Funds segment stayed in line with $20 million earned in the prior-year quarter. Net income of this segment declined 10% to $18 million from $20 million in the prior-year. Asset under management was $92.4 billion as of Mar 31, 2013, in line with the year-ago quarter.

Talcott Resolution: Hartford Financial established this segment to cover the legacy Wealth Management runoff and sold businesses, including U.S. Annuity, International Annuity, Institutional, Private Placement Life Insurance, and the former Individual Life and Retirement Plans businesses.

Talcott Resolution’s core earnings came in at $161 million, down 26% from $219 million in the first quarter of 2012. The segment reported net loss of $294 million, wider than the net loss of $170 million in the year-ago quarter.

Corporate: This segment’s core loss amounted to $73 million, shrinking 28% from $102 million incurred in the prior-year quarter, due to improved investment income and reduced interest expenses. Corporate segment’s net loss was reported at $358 million, wider than $96 million in the year-ago quarter.

Restructuring and other costs amounted to $10 million, surging from $6 million in the first quarter of 2012. Interest expenses declined 14% to $107 million from $124 million in the year-ago quarter due to debt refinancing in the second quarter of 2012.

Financial Update

Hartford Financial's total invested assets, excluding trading securities, were $86.7 billion on Mar 31, 2013, compared with $105.3 billion on Dec 31, 2012 due to the divestiture of the Retirement Plans and Individual Life businesses. Net investment income, excluding trading securities, for the reported quarter was about $856 million, down 20% year over year.

Hartford Financial’s shareholder equity stood at $20.9 billion as of Mar 31, 2013, down 7% from $22.4 billion as of Dec 31, 2012. Book value per share declined to $42.43 as of Mar 31, 2013 from $43.25 as of Mar 31, 2012. Excluding accumulated other comprehensive income (AOCIF), Hartford Financial’s book value decreased to $39.09 per share as of Mar 31, 2013 from $40.55 per share as of Mar 31, 2012.

Zacks Rank

Hartford Financial carries a Zacks Rank #2 (Buy). Other multi-line insurers worth considering are FBL Financial Group Inc. (FFG) – Zacks Rank #1 (Strong Buy), Cigna Corp. (CI) – Zacks Rank #2 (Buy) and American International Group, Inc. (AIG) – Zacks Rank #2 (Buy).

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