Thursday, November 10, 2011

Hartford (HIG) Q3 Earnings

Hartford’s earnings continue to be a tale of two companies. Their wealth management and P&C divisions continued to deliver solid results, while their family of life insurance businesses struggled to generate positive results. For the quarter, GAAP net income was $0M or $(.02) EPS, which included a $516M after tax charge from a negative DAC unlock, $134M in after tax catastrophe losses, and the low yield environment. Management asserted that in a normalized environment the company would have earned $0.73 per share. Third quarter 2010, which was boosted by low catastrophe losses and solid yields, resulted in net income of $666 million, or $1.34 per diluted share.

In the conference call, management projected the life insurance segment to be self-sufficient but unable to contribute to the holding company’s statutory surplus in 2012. They think that by 2013 yields will surpass the assumptions embedded in old business, and the sale of newly introduced products will ramp up towards pre-2008 levels. Lastly, Hartford wants to wait until there is more clarity in Europe before deploying the $500M is has earmarked for buybacks, but has promised to be done by Q2 2012.

While it will still be a number of quarters before the Hartford can prove that they are moving in the right direction, a number of analysts have found the valuation compelling. Morgan Stanley recently joined JP Morgan, Credit Suisse, Sterne Agee and others by upgrading HIG to a buy with a target price in the mid 20s.


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