The Hartford Financial Services Group, Inc. (NYSE:HIG) reported first-quarter 2017 adjusted operating earnings of $1.00 per share, which missed the Zacks Consensus Estimate of $1.02 by roughly 2%. Earnings, however, grew 5.3% year over year.
The increase in earnings per diluted share reflects a 17% improvement in net income and a 7% reduction in weighted average diluted common shares outstanding in first quarter 2017, both on a year-over-year basis. The reduction in weighted average diluted common shares outstanding was primarily due to the company's repurchase of 29.1 million common shares for a total of $1.3 billion over the last four quarters.
Total operating revenue of The Hartford came in at $4.6 billion, up 2.4% year over year. The top-line improvement was primarily driven by a 5% increase in net investment income and a 2% rise in earned premiums, both on a year-over-year basis.
Quarterly Segment Results
Property & Casualty (P&C):
Commercial Line
During the first quarter, Commercial Lines operating revenues were $1.9 billion, up 8% year over year.
Commercial Lines net income grew 3% to $231 million over the prior-year quarter due to favorable change in net realized capital gains and higher net investment income.
Commercial Lines underlying combined ratio was 90.9%, up 130 basis points (bps) year over year primarily due to higher current accident year commercial auto and general liability loss costs.
Personal Lines
Personal Lines total revenue was $1 billion, down 2.7% year over year. This was due to lower new business and lesser policy count retention.
This segment generated net income of $33 million, up 43% year over year, primarily due to higher underwriting gain and net investment income.
The Personal Lines underlying combined ratio was 91.2, up 150 bps from first-quarter 2016. This was primarily due to higher auto liability and non-catastrophe homeowners’ losses.
Group Benefits:
Group Benefits’ total revenue grew 6% to $938 million due to strong persistency and increased pricing.
This segment generated net income of $50 million, down 10% year over year. This was primarily due to a state guaranty fund assessment of $13 million, after-tax, related to the liquidation of a Pennsylvania long-term care insurance company.
Total loss ratio of 77.7% remained flat with first-quarter 2016. This was due to a slight improvement in group life owing to lower incidence. Also, a modest deterioration in group disability due to an increase in expected long-term disability claim severity contributed to the result.
Mutual Funds:
Mutual Funds operating revenues grew 15% year over year to $192 million.
Mutual Funds net income of $23 million rose 15% over the last-year quarter. The upside was driven by higher revenues as a result of the 14% increase in assets under management (AUM) over the past year.
Average AUM increased 14% year over year to $103.2 billion, mainly due to market appreciation and the addition of Schroders (LON:SDR) Mutual Funds.
Talcott Resolution:
Talcott Resolution operating revenues grew 10.2% year over year to $531 million.
Talcott Resolution net income was $68 million compared with $17 million in first-quarter 2016. This was due to lower net realized capital losses in first quarter 2017.
Corporate:
Corporate segment declined 37.5% year over year to $5 million.
The Corporate segment recorded net loss of $46 million, wider than a net loss of $29 million in the prior-year quarter. This was due to a $25 million income tax benefit related to the reduction of the deferred tax valuation allowance on capital loss carry-forward.
Hartford Financial Services Group, Inc. (The) Price, Consensus and EPS Surprise
Financial Update
Book value per diluted share as of Mar 31, 2017 rose 2% over year-end 2016 to $45.25. The increase in book value per diluted share reflects 1% growth in stockholders' equity and 1% decrease in common shares outstanding and dilutive potential common shares.
Net income return on equity (ROE) was 5.4% in the first quarter, down 290 bps from the last-year quarter.
Core earnings ROE was 7.6% in the first quarter, down 120 bps from first-quarter 2016.
Share Repurchases
During the first quarter, The Hartford repurchased 6.7 million common shares for approximately $325 million.
As of Apr 25, 2017, it repurchased 1.9 million common shares for $92 million out of the authorization for second-quarter 2017. The company presently has $883 million available under the $1.3 billion 2017 share repurchase authorization.
During the first quarter, The Hartford paid $87 million of common dividends to shareholders for a total return of capital to shareholders of $412 million during the quarter.
Zacks Rank and Performance of Other Insurers
The Hartford presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other players from the same space that have reported their first-quarter earnings so far, the bottom line at The Progressive Corporation (NYSE:PGR) , The Travelers Companies, Inc. (NYSE:TRV) and RLI Corp. (NYSE:RLI) missed their respective Zacks Consensus Estimate.
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Hartford Financial Services Group, Inc. (The) (HIG): Free Stock Analysis Report
RLI Corp. (RLI): Free Stock Analysis Report
The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
Progressive Corporation (The) (PGR): Free Stock Analysis Report
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