Strong Business Growth Drives Earnings Beat For Hartford Financial

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Hartford Financial ( HIG ) reported strong second-quarter results, as both its earnings per share and revenue beat market expectations. The company's revenues grew by 13.6% year-over-year to $4.79 billion, largely driven by growth in Commercial Lines, Group Benefits, and Mutual Funds businesses. Higher renewal pricing and solid new business led to a good growth in net written premiums (NWP) in Small Commercial and Middle Markets. However, most of the company's revenue growth came from the Group Benefits business, which saw an impressive 64% year-over-year growth in revenues. This was primarily due to the acquisition of Aetna's group life and disability business and strong persistency. That said, Personal Lines had a soft quarter as new business and policy count retention declined. Meanwhile, higher than expected catastrophe losses hurt this line of business, as the combined ratio deteriorated by 350 basis points.

We are positive about the company's future outlook and maintain a $61 price estimate for Hartford , which is ahead of the current market price. Our interactive dashboard for Hartford's earnings  details our forecasts and estimates for the company. Below we discuss our expectations for the upcoming quarter.

Group Benefits Business To Continue On Its Upward Trend

Now that the company is eight months into the integration of Aetna's group life and disability business, we have a wider range of data to analyze the impact of the acquisition. A quick look at the trends suggests that it is already having a positive impact, as the acquisition has made Hartford one of the biggest players in the Life and Disability business, and has deepened the company's penetration in mid-size and large companies. The last two quarters saw high double-digit growth in the business, and the recent quarter was no different, as revenue from this business grew by 64% year-over-year. Moreover, the deal includes a multi-year collaboration to sell Hartford's life and disability products via Aetna's medical sales team. In Q2, revenue from this channel was $7 million, and we expect the upcoming quarter to build on that number. Furthermore, Aetna's expertise in the business should help the renewal retention rate.

Commercial Line To Deliver Another Stable Performance

Commercial Lines has been a stable contributor to the company's top line in the past few quarters, and we expect this trend to continue in the upcoming quarter. Workers' compensation contributes about 48% to the segment's earned premiums and has been performing well in the middle markets. Furthermore, pricing improvements and new business should drive growth in the Small Commercial and Specialty Commercial business. New business from the foremost renewal rights will start this quarter, which bodes well for the company. Furthermore, the company's strategy to add industry verticals to expand its workers' compensation portfolio seems to be on the right track. Late 2016, Hartford entered the energy market and has realized $24 million gross written premiums in this vertical ever since. This shows the company's strength in underwriting capabilities and that the strategy could boost the top line. Meanwhile, Hartford continues to gain traction among its customers through the evolution of the ICON quoting platform.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Stocks , US Markets , Investing Ideas
Referenced Symbols: HIG

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