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Hartford Financial's (HIG) Q4 Earnings Beat, Improve Y/Y

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Zacks Equity Research
·5 min read
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The Hartford Financial Services Group, Inc. HIG reported fourth-quarter 2020 adjusted operating earnings of $1.76 per share, which beat the Zacks Consensus Estimate by 34.4% on the back of higher net investment income.

Moreover, the bottom line improved 23.1% year over year.

Total revenues of $5.3 billion dipped 0.6% year over year due to lower contribution from its Personal Lines, Group Benefits and Corporate segments.

However, the decline in revenues was been partially offset by an uptick in the Commercial Lines and Hartford Fund segments.

Net investment income increased 10.5% year over year to $556 million in the fourth quarter. The upside was owing to better LP income.

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

Segmental Results

Property & Casualty (P&C)

Commercial Line

During the quarter under review, the segment’s total revenues of $2.6 billion were up 1.1% year over year.

Net income of $478 million rose 58% year over year on improved underwriting gain and better net investment income. The segment also reported core earnings of $444 million, up 52% year over year.

Its underlying combined ratio was 90.7%, contracting 520 basis points (bps) in the quarter under review.

Personal Lines

Total revenues were $841 million, down 3.8% year over year.

Net income of $170 million soared 158% year over year, aided by lower auto frequency claim and a favorable PYD, lower CAY CAT losses and reduced non-CAT property losses in homeowners along with decreased underwriting expenses.

Core earnings of $164 million skyrocketed 169% from the year-ago quarter. Underlying combined ratio of the segment contracted 1170 bps to 83.6% in the quarter under review, banking on lower auto claim frequency, lower non-CAT property losses and lower underwriting expenses.

P&C Other Ops

Revenues grossed $17 million, down 32% year over year.

Group Benefits

Group Benefits’ total revenues of $1.5 billion decreased 1.2% year over year.

Net income of $59 million declined 63% year over year. Core earnings of $49 million in the fourth quarter also fell 70% year over year. This downside was due to direct and indirect impacts of COVID-19.

Total loss ratio of 80.2% expanded 1140 bps from the year-earlier quarter due to increases in group life and group disability.

Hartford Funds

Hartford Funds’ operating revenues of $272 million increased 4.6% year over year.

The company reported net income of $51 million, which improved 24% year over year, driven by higher net realized capital gains, increase in fee income as well as lower administrative expenses. Core earnings of $46 million increased 15% year over year.

Average daily AUM of $130 billion was up 7% from the year-ago figure.

Corporate

Operating revenues were $40 million, which decreased 28.6% year over year.
The segment’s core loss of $51 million was wider than the loss of $39 million incurred in the prior-year quarter, mainly due to weak income from its retained equity interest in Talcott Resolution and lower net investment income.

The segment reported net loss of $41 million, wider than the year-ago quarter’s net loss of $29 million. This downside was mainly due to softness in income from retained equity interest in Talcott Resolution, planned restructuring costs and lower net investment income.

Dividend Update

Management announced a quarterly dividend hike of 8% to 35 cents per share in a bid to enhance shareholder value. This meatier dividend is payable Apr 2, 2021 to the shareholders of record on Mar 1, 2021.

Management also announced a share buyback authorization of $1.5 billion, effective Jan 1, 2021 through Dec 31, 2022.

Financial Update

Book value per share as of Dec 31, 2020 was up 15% to $50.39 from the level as of Dec 31, 2019.

Core earnings’ return on equity contracted 90 bps year over year to 12.7%.

Full-Year Update

Core ROE for 2020 was 12.7%.

Full-year net income was $4.76 per share, down 16% year over year due to a change in net realized capital losses from capital gains in 2019, deferred gains on retroactive reinsurance in 2020, lower net investment income, high mortality rate on group life claims due to COVID-19 and high restructuring costs.

Revenues for the full year dipped 1% year over year.

Core earnings of $5.78 per share inched up 2% year over year on the back of a better net favorable P&C PYD in core earnings, better favorable prior incurral development in Group Benefits and better underlying P&C underwriting results.

2021 Outlook

Following fourth-quarter results, the company issued its current-year guidance. The company expects its underlying combined ratio for Commercial Lines in the range of 90-92%. Underlying combined ratio for Personal Lines is expected in the band of 87-89%.

Group Benefits core earnings margin is estimated in the range of 3.7-4.7%.

Zacks Rank & Performance of Other Players

Hartford Financial carries a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Of the insurance industry players that have reported fourth-quarter results so far, The Travelers Companies, Inc. TRV, W.R. Berkley Corporation WRB and Brown & Brown, Inc. BRO beat on earnings.

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