Hartford’s Profit Beats Estimates, Share Buyback Grows

July 27, 2015 by Katherine Chiglinsky

Hartford Financial Services Group Inc., the insurer that sold life units to focus on property/casualty coverage, increased its share buyback by $1.6 billion and raised the dividend 17 percent as second-quarter profit beat analysts’ estimates.

The insurer posted net income of $413 million, or 96 cents a share, compared with a loss of $467 million, or $1, a year earlier that was driven by costs tied to the sale of a Japan annuity business, according to a statement Monday from Hartford. Operating profit, which excludes some investment results, was 91 cents a share, while analysts had predicted 77 cents according to the average estimate in a Bloomberg survey.

The insurer’s shares gained 9.8 percent this month in New York trading through Monday’s close amid speculation that it could become a takeover target after Ace Ltd. agreed to buy Chubb Corp. for more than $28 billion, accelerating the push for mergers and acquisitions in the industry. Chief Executive Officer Chris Swift and his top deputies are scheduled to discuss results on a conference call Tuesday and will probably face questions about possible deals.

“This is going to be a quarter where nuances in operating earnings take a back seat to commentary on M&A,” Robert Glasspiegel, an analyst with Janney Montgomery Scott, said in a phone interview before results were announced. “I think there will be lots of questions on M&A, and certainly Hartford is a company where that will be front and center.”

Debt Repayment

The insurer extended its 2014-2015 stock buyback program through the end of 2016 and added $1.6 billion, while raising its quarterly dividend to 21 cents per share from 18 cents. The insurer also expanded its debt-repayment program to include $275 million of securities maturing in 2016.

Book value, a measure of assets minus liabilities, decreased 2.9 percent to $42.86 a share, from $44.13 as of March 31. Insurers’ bond portfolios lost value in the period as interest rates climbed.

Hartford fell four cents to $45.62 in extended trading at 4:37 p.m. in New York.

Core earnings in the commercial P&C operations improved 24 percent to $264 million. Consumer markets posted a profit of $42 million, compared with a loss of $27 million a year earlier. The contribution from group benefits rose 7.7 percent to $56 million.

Mutual funds’ earnings advanced 4.8 percent to $22 million. The Talcott Resolution unit, which includes annuity contracts being wound down by the insurer, generated $171 million, up from $101 million, as a $48 million tax benefit and investment income from limited partnerships boosted earnings.

Combined Ratio

Hartford spent 102.8 cents on claims and expenses for every dollar it took in during the second quarter at its property/casualty business. That compares with costs of 110.4 cents a year earlier, when the company incurred $164 million in expenses tied to a review of asbestos-related and environmental liabilities from incidents in prior years.

Investment income rose 3.6 percent to $796 million from $768 million. Annualized investment yield on limited-partnership investments jumped to 12.9 percent from 7.4 percent.

Travelers Cos., the lone property insurer in the Dow Jones Industrial Average, would probably see value in Hartford’s operation selling insurance to small commercial businesses, Credit Suisse Group AG analysts led by Ryan Tunis said in a note on July 13. Travelers, led by CEO Jay Fishman, is less likely to be interested in a U.S. annuity business that Hartford is winding down after getting rid of similar operations in the U.K. and Japan, Tunis wrote.

Fishman’s View

Fishman, who built Travelers through mergers and acquisitions, said July 21 that he’s still interested in takeovers.

“We do keep looking at M&A opportunities, and when we believe there is a transaction that contributes to creating shareholder value, we’ll make every effort to complete it,” Fishman said in a conference call. Earlier that day, the company said that second-quarter profit increased 19 percent.

Ace net income for the period advanced 21 percent, while Chubb posted a 1 percent decline.

Hartford has bolstered its staff after Swift took over as CEO in July 2014. The company announced July 20 that it hired former General Re President Morris Tooker as chief underwriting officer for P&C operations, a week after appointing Mary Boyd and Casey Campbell to help oversee its personal lines division.