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Hartford Financial (HIG) Q2 Earnings Beat on Higher Premiums

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The Hartford Financial Services Group, Inc. HIG reported second-quarter 2022 adjusted operating earnings of $2.15 per share, which beat the Zacks Consensus Estimate by 41.5%. The bottom line, however, decreased 8% year over year.

Hartford Financial’s operating revenues amounted to $3,765 million, which improved from $3,568 million in the second quarter of 2022. Also, the top line beat the consensus mark by 1.5%.

The better-than-expected second-quarter results were supported by higher premiums and a decline in excess mortality losses coupled with increased fully insured ongoing premiums’ effect in Group Benefits. Sound contributions by its Group Benefits segment provided a boost to the results. However, the upside was partly offset by elevated expenses and higher auto claim severity in Personal Lines.

The Hartford Financial Services Group, Inc. Price, Consensus and EPS Surprise

The Hartford Financial Services Group, Inc. Price, Consensus and EPS Surprise
The Hartford Financial Services Group, Inc. Price, Consensus and EPS Surprise

The Hartford Financial Services Group, Inc. price-consensus-eps-surprise-chart | The Hartford Financial Services Group, Inc. Quote

Q2 Operations

Total earned premium of $4,810 million beat the consensus mark of $4,776.3 million and increased from $4,460 million a year ago. Net investment income of $541 million declined from $581 million a year ago due to lower annualized return on alternative investments. The metric declined in Commercial Lines, Personal Lines, P&C Other Ops and Group Benefits. The reported figure was below the Zacks Consensus Estimate of $564.5 million.

Total benefits and expenses of HIG increased to $4,821 million in the quarter under review from $4,479 million a year ago. The figure, however, was lower than our estimate of $4,843.5 million.

Pre-tax income of $552 million plunged from $1,110 million a year ago and was below our estimate of $927 million.

Segmental Update

P&C

Commercial Lines

The segment reported total revenues of $2,783 million, which marginally declined year over year from $2,788 million and missed the Zacks Consensus Estimate of $2,945 million. Core earnings decreased to $544 million from $560 million in the prior year period, due to higher underwriting expenses and lower investment income. However, it beat our estimates of $504.7 million on a 12% increase in earned premium and favorable prior accident year development (PYD).

Underlying combined ratio of 88.1% improved 130 basis points (bps) year over year in the second quarter, driven by a lower underlying loss and loss adjustment expense ratio.

Personal Lines

Revenues of $769 million declined from $813 million in the prior-year quarter and missed the Zacks Consensus Estimate of $864 million. Core earnings tumbled to $21 million in the second quarter from $113 million a year ago and missed our estimate of $43.6 million, due to higher auto claim severity, CAY CAT losses, lower net investment income and no PYD. The underlying combined ratio deteriorated 590 bps year over year to 94.1%, primarily due to elevated auto loss costs.

P&C Other Ops

The segment’s revenues of $7 million plunged from $23 million in the prior-year quarter and missed the consensus mark of $18 million.

Group Benefits

Revenues of $1,577 million in the second quarter beat the Zacks Consensus Estimate of $1,543.4 million but declined from $1,591 million a year ago. Core earnings amounted to $161 million, up from the prior-year quarter’s figure of $149 million, courtesy of a decline in excess mortality losses coupled with increased fully insured ongoing premiums’ effect. Loss ratio improved 120 bps year over year to 70.2% on the back of a fall in excess mortality within group life.

Hartford Funds

The segment’s operating revenues amounted to $251 million, which fell from $298 million in the year-ago quarter and missed the Zacks Consensus Estimate of $313.3 million. Core earnings totaled $44 million, which fell 14% year over year and missed our estimate of $59.5 million due to reduced fee income. Daily average assets under management (AUM) were $137 billion, which decreased 9% year over year on account of lower market values and net outflows.

Corporate

Operating revenues of negative $14 million, due to a $30 million net realized loss, slipped from operating revenues of $76 million a year ago. The Zacks Consensus Estimate of the metric was $15.5 million. Core loss of $43 million was 17 % narrower than the year-ago quarter’s loss of $52 million, attributable to a decreased interest expense.

Financial Update (as of Jun 30, 2022)

Book value per diluted share came in at $42.21, down 17% year over year. Core earnings’ return on equity during the trailing 12 months improved 90 bps year over year to 14%.

At the second quarter-end, HIG had $258 million in cash, up from $205 million at 2021-end. Total investments of $52,392 million declined from $57,749 million at 2021-end. As of Jun 30, 2022, it had $4,355 million in long-term debt, down from $4,944 million at the end of last year.

In the first half of 2022, net operating cash flow of $1,403 million declined from $1,597 million a year ago.

Share Repurchase and Dividend

During the second quarter, Hartford Financial rewarded its shareholders with $577 million via share buybacks of $450 million and common dividends worth $127 million. As of the second quarter-end,HIG had $448 remaining in its buyback authorization, which is ending this year. Further, it announced a new $3 billion buyback program through 2024-end.

Outlook

HIG expects its Hartford Next initiative to bring cumulative savings of $540 million in 2022 and $625 million in 2023.

Zacks Rank & Key Picks

Hartford Financial currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader finance space are Encore Capital Group, Inc. ECPG, SmartFinancial, Inc. SMBK and Paramount Group, Inc. PGRE, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in San Diego, CA, Encore Capital is a global debt recovery solutions provider. The Zacks Consensus Estimate for ECPG’s 2022 bottom line indicates a 14.4% increase from the prior year’s reported number.

Based in Knoxville, TN, SmartFinancial is a leading financial services provider for individuals and corporate clients. The Zacks Consensus Estimate for SMBK’s 2022 earnings indicates 20.3% year-over-year growth.

New York-based Paramount Group works as a fully-integrated real estate investment trust. The Zacks Consensus Estimate for PGRE’s 2022 bottom line indicates 4.4% year-over-year growth.


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