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Which Insurance Giant Is Growing At A Faster Rate: AIG or HIG?

The Hartford Financial Services Group (NYSE:HIG) is an insurance and financial services company which offers Property & Casualty Insurance, Group Life Insurance and Mutual Fund services to retail customers, small to medium businesses, corporations as well as institutions. Its business model faces stiff challenges and competition from offerings by its global competitors such as: American International Group Inc. (AIG), Travelers, Prudential Financial, New York Life, Northwestern Mutual Group etc. Trefis compares changes in different revenue streams of AIG vs HIG over the last 4 years in an interactive dashboard, and finds that HIG has seen strong, steady growth in its top line over the years – in sharp contrast to the steady decline in AIG’s revenues. Notably, HIG has reported higher Life Insurance premiums and better operating margin than AIG over the last 4 years.

Trefis estimates HIG’s valuation to be $64 per share, which is 5% higher than its current market price. Our price is reinforced by HIG’s earnings release for the third quarter, with the company surpassing consensus revenue as well as earnings estimates.

Although HIG is growing at a higher rate, its total revenues are significantly lower than AIG.

  • AIG reported total revenues of $58.3 billion in 2015, which was 3.7x HIG’s figure.
  • However, this difference gradually reduced to 2.5x in 2018 due to HIG’s higher growth rate.
  • While AIG’s revenues have decreased 19% over the last 4 years, HIG’s total revenues have grown 19% from $16 billion in 2015 to $19 billion in 2018.
  • We expect AIG’s revenues to grow by 5% to $49.7 billion in 2019, whereas HIG’s revenues are likely to increase by 7% to $20.3 billion.

You can understand what is driving changes in revenues for HIG’s individual revenue streams, along with our forecast for the next three years in our interactive dashboard.

HIG has seen steady growth in Life Insurance Premiums over the last four years, whereas AIG has struggled in this segment.

  • AIG reported $2.7 billion in Life Insurance revenues in 2015, which was 13% less than HIG’s figure. However, this difference has widened considerably over the last 4 years.
  • AIG reported revenues of $2.9 billion in 2018 which was 49% less than the figure for HIG.
  • This was mainly due to a 52% y-o-y jump in HIG’s revenues from $3.7 billion in 2017 to $5.6 billion in 2018.
  • Although the segment’s revenue share has increased for both companies over 2015-18, HIG’s figure has grown from 19.6% in 2015 to 29.5% in 2018.
  • On the other hand, AIG has a much more diversified business and doesn’t drive significant revenues from life insurance premiums.

 HIG’s operations have historically been more efficient than AIG’s

  • Although operating margins for both the banks have fluctuated over the last 4 years, HIG’s figure was significantly higher than that of its peer over 2015-2018.
  • This implies that HIG’s operations have historically been more efficient than that of AIG’s.
  • However AIG is expected to report a better operating margin than HIG in 2019.

Additionally, a detailed comparison of Group Insurance Premiums / Property & Casualty Premiums and Investment Income for AIG vs HIG is available in our interactive dashboard.

Conclusion

  • Although AIG has higher revenues and a more diversified business model, HIG is growing at a much higher rate.
  • HIG has higher Life Insurance premiums and the gap is increasing each year.
  • Further, HIG has managed its operations more efficiently over the last 4 years.

Per Trefis, HIG’s Revenues (shows key revenue components) are expected to cross $12.4 billion in 2019 – leading to an EPS of $5.44 for the year. This EPS figure coupled with a P/E multiple of 11.8x, works out to a price estimate of $64 for HIG’s stock (shows cash and valuation analysis), which is 5% higher than the current market price.

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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.

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