We have retained our Neutral recommendation on Hartford Financial Services Group Inc. ( HIG ) following impressive second quarter results.
Why the Reiteration?
Hartford's operating earnings for the second quarter of 2013 came in at 66 cents per share, surpassing the year-ago quarter's earnings of 56 cents by approximately 18%. However, the results lagged the Zacks Consensus Estimate of 71 cents per share by 7%.
Improved performances in the Property & Casualty (P&C), Group Benefits, Mutual Funds and Corporate segments primarily drove Hartford Financial's earnings, partially offset by lower earnings in the Talcott Resolution segment. Top line growth was also impressive, driven by premium growth across most segments. Since 2010, Hartford Financial has stabilized significantly with improved earnings performance, positive credit trends, strengthened capital and liquidity positions.
Moreover Hartford Financial's strong financial results, satisfactory financial leverage, considerable cash balance and limited credit and investment risks have boosted the company's future outlook. The company works towards boosting financial flexibility by reducing debt and returning more value to shareholders through share repurchases. Hartford Financial also scores strongly with the credit rating agencies. Furthermore Hartford's divestiture initiatives to enhance core operations and operating leverage are noteworthy. As of recent, the Talcott team's decision to sell the U.K. variable annuity (VA) business by year end 2013 is expected to eliminate the risk and expenses associated with the VA block.
Again, the decision in Apr 2012, to cut premium rates for its accidental death and dismemberment policyholders by 45% is expected to boost membership significantly in the upcoming years. This multi-line insurer currently carries a Zacks Rank #2 (buy).
On the tepid side Hartford Financial's auto and home product lines have been a drag for the past few years. A continued decline in policies in force in auto and home in the first half of 2013 further indicates the downward trend. Moreover, being a property and casualty insurer, Hartford Financial is substantially exposed to catastrophic events. Natural disasters can substantially affect the bottom-line of the company and the unpredictable nature of such events pose significant operating risk to the company.
Also, net investment income of Hartford Financial varies significantly with changes in market conditions, thereby impacting the net income to a great extent. Significant fluctuations in the fixed income or equity markets could weaken Hartford Financial's financial condition in the future. Furthermore, the challenging regulatory environment is adversely impacting the company's financials and operations.
Other Stocks to Consider
Other insurers that are worth considering are American International Group, Inc. ( AIG ), Eastern Insurance Holdings Inc. ( EIHI ) and FBL Financial Group Inc. ( FFG ) All these stocks carry a favorable Zacks Rank #1 (Strong Buy).