The Hartford Hit By Weak Personal Lines And High Cat Loss

On Aug 26, 2016, we issued an updated research report on The Hartford Financial (NYSE:HIG) .

The insurer has been suffering on a number of fronts including underperformance of the Personal Lines business, catastrophe losses, low interest rates and weak second-quarter 2016 earnings. The Hartford’s earnings of 31 cents per share missed the Zacks Consensus Estimate by a wide 60% and plunged 66% on a year-over-year basis. The underperformance was caused by the weakness in the Personal Lines automobile business and P&C (Property and Casualty) Other Operations. The shut down of its “Asbestos” business also significantly contributed to the downside. Notably, the company had registered on substantial growth in the prior-year period

Given that The Hartford is a multiline insurer, its P&C segment remains exposed to catastrophic events, which severely affect its underwriting income. The recent storms in Texas had a significant impact on the first half of 2016. In fact, the insurer incurred catastrophe losses of $104 million in the recently reported second quarter. This is quite higher than the catastrophe losses registered in the prior-year quarter.

In addition, another major business line of The Hartford – Personal Lines – has been underperforming over the past several quarters. Though the company is taking steps to regain profitability and its long-term relationship with AARP is expected to prove beneficial in the future, we do not expect significant improvements in the near term on his front.

Despite delivering strong margin in its commercial line business, the company foresees lesser opportunities to develop in middle and larger account markets in the coming few quarters.

Over last several quarters, the company has been struggling to combat the impairment due to the sustained low interest rate that has hurt its interest income. With the low interest likely to continue, its net investment income may remain under pressure.

Nevertheless, a number of acquisitions and divestures undertaken by the company will enable it to focus on its core operations, thereby generating higher return on equity. Also, The Hartford’s efficient capital deployment strategies remain a major positive.

The Hartford presently carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Some better-ranked stocks from the insurance industry that warrant a look include Allied World AS (NYSE:AWH) , Argo Group International Holdings, Ltd. (NASDAQ:AGII) and National Interstate Corp. (NASDAQ:NATL) . All of these stocks sport Zacks Rank #1 (Strong Buy).

HARTFORD FIN SV (HIG): Free Stock Analysis Report

ARGO GROUP INTL (AGII): Free Stock Analysis Report

NATL INTERST CP (NATL): Free Stock Analysis Report

ALLIED WORLD AS (AWH): Free Stock Analysis Report

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