It has been about a month since the last earnings report for The Hartford (HIG). Shares have lost about 10.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is The Hartford due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Hartford Financial’s Q4 Earnings Beat Mark, Soar Y/Y
Hartford Financial reported fourth-quarter 2019 adjusted operating earnings of $1.43 per share, beating the Zacks Consensus Estimate by 6.7% on better underwriting results in Property & Casualty, a lower group disability loss ratio in Group Benefits and an improved net investment income. The bottom line also surged 83.3% year over year.
Total operating revenues of $5.3 billion were up 15.7% year over year on the back of solid segmental contributions with a major uptick from its Commercial Lines segments.
Segmental Results
Property & Casualty (P&C)
Commercial Line
During the quarter under review, the segment’s total revenues were $2.6 billion, up 34.2% year over year.
Net income of $302 million rose 19% year over year owing to better new investment income and change from net realized capital losses to net realized capital gains in the fourth quarter. Core earnings of $292 million declined 13% from the prior-year level on lower underwriting gain, a higher CAY loss ratio for workers' compensation, etc.
The segment’s underlying combined ratio was 95.9%, expanding 420 basis points (bps) in the quarter under review.
Current accident year catastrophe loss came in at $3.9 million, surging 95% year over year.
Personal Lines
Total revenues were $874 million, down 1.2% year over year.
Net income of $66 million came in against net loss of $178 million in the fourth quarter of 2018 on the back of change in underwriting gain, net realized capital gains and higher net investment income. Core earnings of $61 million came in against the year-ago core loss of $166 million. This was courtesy of a stronger underwriting gain and increased net investment income.
Underlying combined ratio of the segment expanded 250 bps to 95.3% in the quarter under review due to higher expense ratio and wider non-CAT property losses than the unusually low losses in the prior-year quarter.
P&C Other Ops
Revenues grossed $25 million, up 92.3% year over year.
Group Benefits
Group Benefits’ total revenues of $1.5 billion inched up 1.4% year over year.
Net income of $159 million was up 41% year over year, mainly on lower group disability loss ratio. Core earnings of $161 million in the fourth quarter were up 18% year over year. This upside is attributable to improved loss ratio.
However, the same was partly offset by higher expense ratio.
Total loss ratio of 68.8% improved 380 bps from the year-earlier quarter, riding on lower group disability loss ratio and better group life loss ratio.
Hartford Funds
Hartford Funds’ operating revenues were $260 million, up 6.1% year over year.
Hartford Funds reported net income of $41 million and core earnings of $40 million, respectively up 14% and 5% year over year, primarily on higher investment management fee revenues.
Average AUM of $122 billion was up 9% from the year-ago figure.
Corporate
Operating revenues rose 64.7% to $56 million.
The segment’s core losses of $39 million were narrower than the $46-million loss incurred in the prior-year quarter. This was mainly on the back of increased earnings from the retained equity interest.
The segment’s net loss of $29 million was wider than the year-ago quarter’s loss of $12 million. This was mainly due to an income tax benefit recognized in the fourth quarter of 2018 related to tax reform.
Share Repurchase and Dividend Update
In the quarter under review, the company bought back shares worth $110 million and paid out $106 million in common dividends.
Moreover, the company hiked its quarterly dividend by 8% to 3.25 cents per share, payable Apr 2, 2020 to its shareholders of record as of Mar 2, 2020.
Financial Update
Book value per share as of Dec 31, 2019 was up 25% to $43.85 from the level as of Dec 31, 2018.
Core earnings’ return on equity rose 200 bps to 13.6%.
Full-Year Update
For 2019, core earnings of the company grew 31% year over year to $5.65 per share.
In the entire year, the company returned $633 million to its shareholders in the form of share buybacks and dividend payments.
2020 Guidance
Following fourth-quarter results, the company released its 2020 outlook.
Combined ratio for Commercial Lines business is expected the range of 95.5-97.5% while underlying combined ratio for the same is estimated in the range of 92-94%.
Personal Lines combined ratio is anticipated in the band of 98.5-100.5% while underlying combined ratio for the same is projected to be 91.5-93.5%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
VGM Scores
Currently, The Hartford has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
The Hartford has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
The Hartford Financial Services Group, Inc. (NYSE:HIG
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