Hartford Financial Services Group Inc.
) reported second-quarter 2014 operating earnings per share of 31
cents that missed the Zacks Consensus Estimate by 54.4%. Earnings
also declined 34% from the year-ago quarter.
An increase in prior year loss and loss adjustment expense
reserve development (PYD) for asbestos and environmental (A&E)
mainly dragged the results. However, these factors were partially
offset by an increase in core earnings from the Property &
Casualty (P&C) Commercial, Group Benefits and Mutual Funds
businesses, along with a lower share count.
The Hartford Financial Services Group Inc -
Earnings Surprise | FindTheBest
Including loss from discontinued operation, net realized capital
losses and post-tax deferred acquisition costs, restructuring and
other expenses and an unlock benefit totaling 69 cents, Hartford
Financial reported a net loss of $1.00 per share, wider than the
year-ago loss of 39 cents per share.
Total revenue of Hartford Financial came in at $4.6 billion,
down 2.5% year over year. However, the figure breezed past the
Zacks Consensus Estimate of $2.8 billion.
Property & Casualty (P&C):
This segment of Hartford Financial generated core earnings of $40
million, down 71% year over year, mainly due to an increase in
A&E PYD in the P&C Other segment and a decline in net
investment income. P&C reported net income of $25 million in
the reported quarter, declining 82% from $136 million in the
P&C written premiums increased 3% from the year-ago quarter
to $2.6 billion on the back of growth in both P&C Commercial
Market and Consumer Markets. However, combined ratio deteriorated
to 108.6 from 105.4 in the year-ago quarter. Combined ratio,
excluding catastrophes and prior-year development (PYD), improved
to 90.9 from 91.8 in the prior-year quarter, owing to better
underwriting results in P&C Commercial.
Investment income was $292 million, down 14% year over year,
while underwriting loss narrowed to $216 million from $132 million.
This segment reported catastrophe loss of $196 million in the
reported quarter, wider than $186 million in the year-ago quarter.
Catastrophe losses were also higher than the company's guided
figure of $185 million.
This segment of Hartford Financial generated core earnings of $52
million in the reported quarter, up 41% year over year owing to
improved results in the group life business. Net income came in at
$55 million, decreasing from $61 million in the prior-year quarter
due to a decline in net realized capital gains.
Group Benefits' fully insured premiums declined 7% to $761
million as per expectations, on account of lower premiums from the
planned reduction of the Financial Institutions block of business
(scheduled to culminate by 2014-end). Meanwhile, loss ratio
deteriorated 160 basis points year over year to 77.3%, mainly due
to business mix changes and a decline in long-term disability claim
Core earnings at Hartford Financial's Mutual Funds segment
increased 5% year over year to $21 million. Net income in the
quarter also increased 5% year over year to $21 million. Growth in
revenues from increased average assets under management (AUM)
mainly led to the upside in earnings. Total AUM came in at $98.9
billion as of Jun 30, 2014, up 10% from $89.5 billion as of Jun 30,
2013. Improvement in Mutual Fund assets mainly contributed to the
improvement. However, this was partly offset by a decline in
Annuity assets, reflecting the divestiture of its Variable Annuity
Core earnings at Talcott Resolution came in at $101 million, down
2% year over year. This detrioration was due to a decline in the
U.S. VA fee income, limited partnerships and reduced other
alternative investment income. The segment reported net loss of
$504 million, wider than the year-ago loss of $332 million.
Hartford Financial's Corporate segment recorded core loss of $70
million, wider than the year-ago quarter's loss of $69 million.
Higher loss in the quarter resulted from an increase in operating
expenses, partially mitigated by lower interest expenses that
stemmed from debt repayments in 2013 and 2014. The segment's net
loss was reported at $64 million, narrower than $75 million in the
Hartford Financial's total invested assets, excluding trading
securities, were $76.2 billion as on Jun 30, 2014, compared with
$78.7 billion as on Dec 31, 2013. This decline stemmed from the
sale of the Japan annuity business. Net investment income of
Hartford Financial was $768 million in the reported quarter, down
9% year over year due to a decrease in income from LPs, lower
invested assets and a decline in income from repurchase agreements.
Hartford Financial's shareholder equity came in at $19.4 billion as
of Jun 30, 2014, up 3% from $18.9 billion as of Dec 31, 2013. Book
value per share increased to $41.70 as of Jun 30, 2014, from $39.14
as of Dec 31, 2013.
Excluding accumulated other comprehensive income (AOCI),
Hartford Financial's book value decreased slightly to $39.21 as of
Jun 30, 2014 from $39.30 per share as of Dec 31, 2013.
During the quarter, Hartford Financial spent $351 million to
repurchase 10.2 million shares, bringing the total repurchase to 19
million for $651 million year-to-date.
Capital Management Plans for 2014-15
Hartford Financial raised its 2014-15 capital management plans
by $1.275 billion, bringing the total to $3.931 billion. Earlier,
the company had chalked out a $2.656 billion plan for 2014-15. This
$1.275 billion increase comprises a $775 million increase in the
previous $2 billion share repurchase authorization (announced in
Feb 2014), making it $2.775 billion. Out of this, the company has
implemented a $525 million share repurchase program, which will
close by the end of 2014. The remaining $500 million of the $1.275
billion will be utilized for debt repayment. The increase in the
capital plan was attributable to the sale of the Japan annuity
Additionally, Hartford Financial's board of directors declared a
quarterly cash dividend of 18 cents per share, reflecting a 20%
rise from the previous dividend paid on Jul 1, 2014. This increased
dividend is payable on Oct 1, 2014 to shareholders of record at the
close of business on Sep 2, 2014.
Hartford Financial failed to meet our earnings estimate and
declined year over year as well, due to higher loss and loss
adjustment expenses. The top line also decreased year over year but
managed to surpass the Zacks Consensus Estimate.
Hartford Financial is focused on capital deployment strategies.
It has been particularly enthusiastic regarding share repurchases
that led to a decline in share count and partially mitigated the
negatives in the quarter. Additionally, Hartford Financial made an
upward revision of its capital management plans for 2014-15, thanks
to closure of the sale of the Japan annuity company, Hartford Life
Insurance K.K. (HLIKK) to one of the subsidiaries of ORIX
). Moreover, the recent dividend hike represents another endeavor
of Hartford Financial to boost shareholders' returns. We expect
such capital deployment activities of the company to raise
investors' confidence in the stock.
Hartford Financial currently carries a Zacks Rank #3 (Hold).
Among stocks in the insurance space, CNO Financial Group, Inc. (
) missed the Zacks Consensus Estimate in the second quarter while
Prudential Financial, Inc. (
) is slated to report second-quarter 2014 results shortly. Both the
stocks have a Zacks Rank #2 (Buy) and are worth considering.
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
HARTFORD FIN SV (HIG): Free Stock Analysis
CNO FINL GRP (CNO): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis
ORIX CORP-ADR (IX): Get Free Report
To read this article on Zacks.com click here.