Insurance company stocks got hit hard during the financial crisis, and Hartford Financial Services Group (NYSE:HIG) found itself on the brink in late 2008, as its shares lost 95% of their value in just over a year. Since then, though, Hartford Financial has worked hard to find ways to recover, and despite going through some tough periods in the insurance industry, the insurer has found dramatic success in reshaping its business strategy and tackling its highest-potential opportunities first. Hartford gave investors a glimpse of those efforts in its second-quarter financial report late last month, and investors continued to like what they saw, sending the stock to a seven-year high. Let's take a closer look at how Hartford Financial has done so well in recent years and how it can keep moving forward.
Hartford keeps cashing in on good times
Hartford Financial's second-quarter results showed how well it has done at taking advantage of favorable pockets in the insurance industry. Core earnings nearly tripled to $389 million during the quarter, and net income weighed in at $413 million, reversing a loss in the year-ago period and climbing substantially even after adjusting for a one-time charge in 2014's second quarter. Adjusted earnings of $0.91 per share were more than a dime higher than investors had expected, once again outpacing the consensus forecast in what has become a tradition at Hartford.
Hartford cited two primary influences in explaining its results. First, it said that it has found ways to improve its underwriting results in its key property and casualty segment, which has become one of Hartford's focus areas for future growth. Commercial P&C lines saw their core earnings rise by nearly a quarter from a year ago, and personal lines reversed a year-ago loss with $42 million in core earnings.
The other big growth area has been Hartford Financial's Talcott Resolution division, which holds and manages the insurer's risk from annuity, private-placement life insurance, and institutional hedging transactions. Variable annuities in particular make up more than half of Talcott, with roughly two-thirds from the U.S. and a third from Japan. Although a one-time tax benefit was responsible for much of the gain in the quarter, Hartford also said that strong investment income helped boost its results.
For its part, Hartford thinks that it has largely accomplished its objectives in recasting the insurer's overall business structure to maximize profit potential. As CEO Christopher Swift noted, "Our strategic and financial transformation [is] essentially complete, [and] we are focused on profitably expanding our businesses. As we consider management of excess capital in the future, we will prioritize opportunities that accelerate our premium growth and operating capabilities."
How Hartford Financial expects to invest its capital
In addition to releasing generally favorable results, Hartford Financial also announced a capital management plan that is even more extensive than its previous plan. In particular, Hartford took three actions toward using available capital effectively.
First, Hartford boosted its stock repurchase plan by another $1.6 billion, extending the period during which the insurer can buy back shares through the end of 2016. With the company having spent $2.4 billion on buybacks since the beginning of 2014, the increase gives Hartford the ability to spend a total of about $2 billion more over the next year and a half.
Second, Hartford said it would repay $275 million in debt maturing this year. That continues a trend that included repayments of $489 million in maturing debt and the use of $317 million more in its debt-management authorization. By the end of 2016, Hartford expects it will have spent more than $1.4 billion retiring debt, getting its balance sheet in even better shape.
Finally, Hartford rewarded shareholders with a dividend increase. The board authorized Hartford to pay $0.21 per share for the quarter, up from $0.18 per share in the previous quarter.
Overall, Hartford Financial's combined efforts show a commitment to shareholders at the same time as the company has managed to execute well on its transformative strategy. By proactively adapting to the big changes in the insurance industry following the financial crisis, Hartford Financial's stock has benefited greatly. Although it still has a long way to go before it challenges all-time highs, Hartford Financial appears to be on the right path to take advantage of a favorable insurance climate as long as it lasts.