Hartford Financial's (HIG) Q3 Earnings Beat, Decline Y/Y

The Hartford Financial Services Group, Inc. HIG reported third-quarter 2017 adjusted operating earnings of 60 cents per share beating the Zacks Consensus Estimate of 59 cents by 1.7%. However, earnings declined 43% year over year primarily due to higher current accident year catastrophe losses.

The company’s net income of $234 million also fell 47% year over year due to lower revenues.

Total operating revenues came in at $4.7 billion, down 0.6%. The downside was primarily caused by lower earned premiums and net investment income, both on a year-over-year basis.

Quarterly Segment Results

Property & Casualty:

Commercial Line

During the third quarter, the segment’s total revenues were $2 billion, up 1% year over year.

Net income of $90 million and core earnings of $81 million declined 66.4% and 66.7%, respectively, year over year due to higher current accident year catastrophe losses.

Current accident year catastrophe losses for Commercial Lines totaled $270 million, before tax, including $137 million from Hurricane Harvey and $119 million from Hurricane Irma. This compares unfavorably with prior-year quarter’s catastrophe losses of $43 million, before tax.

The segment’s underlying combined ratio was 93.2%, a deterioration of 320 basis points (bps) from the prior-year quarter. This was primarily due to an increase in the expense ratio caused by higher variable compensation accruals as well as higher loss ratios in workers' compensation and general liability.

Personal Lines

Personal Lines total revenues were $994 million, down 5.7% year over year.

This segment generated net income and core earnings of $8 million and $7 million, both of which declined 76% from third-quarter 2016. The downside stemmed from higher current accident year catastrophe losses.

Current accident year Personal Lines catastrophe losses totaled $82 million, before tax that includes $38 million from Hurricane Harvey and $38 million from Hurricane Irma. This compares unfavorably with $37 million, before tax in the prior-year quarter.

The Personal Lines underlying combined ratio was 94.9%, an improvement of 120 bps from third-quarter 2016, due to lower auto and homeowners’ loss ratio and a relatively stable expense ratio

Group Benefits:

Group Benefits’ total revenues remained flat at $926 million year over year.

This segment generated net income and core earnings of $71 million and $66 million, up 15% and 29%, respectively from third-quarter 2016. The upsides were driven by lower group life and group disability losses

The total loss ratio of 74.7% improved 440 bps over the last year quarter. The rise was driven by 230 bps improvement in the group life loss ratio and a 640 bps improvement in the group disability loss ratio.

Mutual Funds:

Mutual Funds operating revenues grew 14.6% year over year to $204 million.

Hartford Financial reported Mutual Funds net income and core earnings of $26 million, each rising 24% year over year, driven by an increase in assets under management (AUM) over the past-year quarter.

Average AUM increased 18% to $111.7 billion, mainly driven by positive net flows and market appreciation, partially offset by the continued runoff of Talcott Resolution AUM.

Talcott Resolution:

Talcott Resolution operating revenues declined 10.5% year over year to $539 million.

Net income was $80 million, inching up 2.5% from third-quarter 2016 due to a market-driven unlock benefit, largely offset by lower net investment income and a fall in fee income due to the runoff of the block.

Core earnings declined 20% to $83 million, principally due to lower Limited Partnerships income and a fall in fee income with the runoff of the block.

Corporate:

Corporate segment grew 33.3% year over year to $8 million.

The Corporate segment recorded net loss and core loss of $59 million each, wider 7.2% and 9.2%, respectively from the year-ago quarter.

The Hartford Financial Services Group, Inc. Price, Consensus and EPS Surprise

Hartford Financial Services Group, Inc. (The) Price, Consensus and EPS Surprise | Hartford Financial Services Group, Inc. (The) Quote

Financial Update

Book value per diluted share as of Sep 30, 2017 rose 7% from Dec 31, 2016 to $47.33.

Net income return on equity was 2.7% in the quarter, down 490 bps from the last-year quarter.

Core earnings return on equity rose to 60 bps to 8.2%.

Share Repurchases

During the third quarter, Hartford Financial repurchased 6 million common shares for approximately $325 million.

In October 2017, the company had repurchased additional 0.9 million common shares for $52 million.

During the third quarter, $85 million of common dividends were paid to shareholders for a total return of capital to shareholders of $410 million.

Business Update

On Oct 23, 2017, Hartford Financial has signed an agreement to take over Aetna’s U.S. group life and disability business for cash consideration of $1.45 billion. This buyout is likely to strengthen and enhance the company’s Group Benefits distribution capabilities and accelerate its technology strategy. The transaction is expected to close in early November 2017 and is presently subject to state regulatory approvals and other customary closing conditions.

Hartford Financial presently has Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Among other players in the Finance sector that have reported their third-quarter earnings so far, Brown & Brown, Inc. BRO, RLI Corp. RLI and The Progressive Corporation PGR beat their respective Zacks Consensus Estimate.

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