The Hartford's Weak Underwriting Results Raise Concerns

On May 30, 2016, we issued an updated research report on The Hartford Financial Services Group, Inc. (NYSE:HIG) .

The multi line insurer’s first-quarter 2016 earnings missed the Zacks Consensus Estimate and also deteriorated year over year on lower investment income and weak underwriting results in Personal Lines. Moreover, each of the segments exhibited soft results.

Exposure to cat losses has been weighing on The Hartford’s underwriting results. Also, the company witnessed high level of cat losses owing to several storms in Texas in the first quarter. Thus, the unpredictable nature of such weather-related events continues to raise caution for the coming quarters. This in turn is likely to pose operating risks for the company.

Further, the company has been experiencing declining investment yield owing to a low interest rate environment, which is not likely to improve in the near term. In the first quarter too the company saw a fall in its property and casualty (P&C) net investment income. For 2016, the company expects P&C net investment income – excluding limited partnerships – of just over $1 billion, down 3% at the midpoint from 2015.

Also, the weakness at the Talcott Resolution segment raises caution.

However, the company’s focus on expanding its product portfolio and underwriting capabilities, enhancing distribution effectiveness, improving customer experience and operating efficiency, are expected to boost earnings further.

In addition, The Hartford is well poised for long-term growth supported by its strong foothold in the P&C market. Additionally, the actions taken to improve risk profile and efficient capital deployments should bode well for the insurer.

Zacks Rank and Stocks to Consider

Currently, The Hartford carries a Zacks Rank #4 (Sell). Some better-ranked stocks are FBL Financial Group Inc. (NYSE:FFG) , James River Group Holdings, Ltd. (NASDAQ:JRVR) and Loews Corporation (NYSE:L) . Each of these stocks holds a Zacks Rank #2 (Buy).

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