Hartford Reports Weak 2Q

Zacks

Hartford Financial Services Group Inc. (HIG) reported second-quarter 2012 operating earnings of $119.0 million or 23 cents per share, sharply lower than the Zacks Consensus Estimate of 48 cents per share. Operating earnings, however, surpassed the year-ago earnings of $14.0 million or one cent per share.

The reported quarter had net realized capital gains of $368 million, loss on extinguishment of debt of $587 million and loss from discontinued operations of $1 million.

Including the adjustments, Hartford’s net loss in the reported quarter was $101 million or 26 cents per share, plummeting from net income of $33 million or 5 cents per share in the comparable quarter last year.

The decline in earnings was attributable to poor results across many lines of businesses.

While the net profits of the Commercial Markets and Runoff Operations segment improved on a year-over-year basis, the Consumer Markets segment reported lower losses compared to the prior-year quarter. However, the Corporate and Other segments reported a large net loss, while the Wealth Management segment witnessed a year-over-year decline in earnings.

Total revenue for the reported quarter stood at $4.57 billion, down from $5.40 billion in the year-ago quarter. Moreover, it was also significantly lower than the Zacks Consensus Estimate of $6.71 billion.

Segment Results

Commercial Markets: Commercial Markets reported net income of $184 million in the reported quarter, increasing from $159 million in the year-ago period.

P&C Commercial operating income witnessed a 67% rise to $160 million from $96 million in the prior-year quarter, mainly due to lower catastrophe losses.

However, P&C Commercial’s written premiums edged up 1% to $1.52 billion from $1.50 billion in the year-ago quarter, reflecting higher pricing, which was partly offset by lower retention and new business premiums. The combined ratio, excluding catastrophes and prior-year development, was 94.5% versus 93.1% in the prior-year quarter. The increase was primarily due to lower profits from workers’ compensation.

Group Benefits’ operating earnings in the second quarter of 2012 were $34 million, up 13% from $30 million in the second quarter of 2011.

Group Benefits’ fully insured premiums declined 6% to $950 million from $1.01 billion in the comparable quarter of 2011. Meanwhile, loss ratio increased to 78.6% from 78.0% in the year-ago quarter.

Consumer Markets: Hartford’s Consumer Markets segment generated net loss of $50 million in the reported quarter, compared with $172 million in the prior-year quarter. Operating loss narrowed to $48 million from $177 million in the prior-year quarter.

Written premiums were $950 million, down 2% from $969 million in the prior-year period, while combined ratio, excluding catastrophes and prior-year development, was 91.3% as against 91.2% in the year-ago period.

Wealth Management: Wealth Management segment’s net income declined from the prior-year level of $100 million to $52 million in the reported quarter.

Runoff Operations: Hartford established the Runoff Operations segment in the fourth quarter of 2011 to include the P&C Other Operations and Life Other Operations. The segment reported net income of $391 million in the quarter, compared with $97 million in the year-ago quarter.

Corporate and Other: This segment’s net loss was $678 million, increasing from $151 million in the year-ago quarter.

Financial Update

Hartford's total invested assets, excluding trading securities, were $105.7 billion on June 30, 2012, compared with $99.8 billion on June 30, 2011. Net investment income, excluding trading securities, was about $1.10 billion, reflecting a 1% year-over-year decrease.

Shareholders’ equity stood at $22.0 billion as of June 30, 2012, reflecting a 9% upside from $20.2 billion as of June 30, 2011. Book value per share improved to $45.59 as of June 30, 2012 from $40.09 as of June 30, 2011. Excluding accumulated other comprehensive income (AOCIF), Hartford’s book value increased to $40.91 per share as of June 30, 2012 from $40.14 per share as of June 30, 2011.

Share Repurchase Update

During the reported quarter, Hartford fully utilized its $500 million share repurchase authorization. The company repurchased 11.3 million shares at an average price of $17.75 and 69.4 million warrants for $300 million under the program.

Peer Take

Hartford’s competitor, MetLife Inc. (MET) registered second-quarter 2012 operating earnings per share of $1.33, which smoothly outpaced both the Zacks Consensus Estimate of $1.25 and year-ago quarter’s earnings of $1.13. Moreover, the company’s operating earnings escalated 18% year over year to $1.43 billion.

Another peer, American International Group Inc. (AIG), is expected to release its second quarter financial results after the market closes on August 2, 2012.

Zacks Rank

Hartford carries a Zacks #4 Rank, which translates into a short-term Sell rating.

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