Hartford Financial Services Group Inc (NYSE:HIG) is a leading insurance and financial services company. It operates in four major segments – consumer markets, commercial markets, wealth management, and runoff operations. Hartford Financial Services Group Inc (NYSE:HIG) is a provider of investment products and life, property, and casualty (P&C) business to both individuals and businesses in the U.S.
It is the eleventh largest P&C insurer in the U.S. with a market share of 2%. Recently, it concluded the divestiture of its life insurance and retirement solutions business, so that it can focus more on the P&C business. Hartford Financial Services Group Inc (NYSE:HIG) has some key strengths, but is this a good time to buy the stock? Let’s discuss.
Hartford has performed exceptionally well over the past one year. The shares are up more than 33%, in spite of the company incurring significant losses due to Hurricane Sandy. Last week itself, the shares hit a new high of $26.72. Currently, it is trading at around $27.
The price to equity (P/E) ratio of Hartford is 39, above the S&P 500 P/E of 18. The stock is trading at half of its book value, which is in stark contrast to the insurance companies before the financial crisis, when they were trading at 4 to 5 times their book value. 2012 earnings of the company stood at $1.4 billion.
Some concerns for Hartford
One major worry for Hartford Financial Services Group Inc (NYSE:HIG) is that it has been losing market share in its automobile and homeowners’ line of insurance, which declined from 1.57% in 2011 to 1.40% in 2012. Total policies have also fallen from 2.23 million in 2010 to 2.01 million in 2012. However, the company has devised a solution to fight this problem by expanding its portfolio.
This has been achieved through an affinity agreement with the American Association of Retired Persons (AARP), whose aim is to market homeowners and automobile insurance directly to 37 million members enrolled in AARP through January 1, 2020. Another concern is that Hartford has a high beta of 2.08, which means that it is quite sensitive to the market index.
Competitors
American International Group Inc (NYSE:AIG) has a market cap of $58 billion compared to Hartford’s $12 billion. It has a ROE of 6% and a 10-year growth rate of 10%, which is comparable to Hartford. If we recall the financial crisis of 2008, AIG took a staggering $182 billion from the Fed as a bailout package while Hartford took just $3 billion. Hartford Financial Services Group Inc (NYSE:HIG) also was able to repay the bailout faster than AIG, which shows that it has been always in good shape than other insurance and financial services companies.
Berkshire Hathaway Inc. (NYSE:BRK.A) is an American multinational conglomerate holding company owned and operated by Warren Buffett. The stock has been steadily climbing since last year. The insurance premiums earned during 2012 had increased 9% from 2011. Unlike AIG, it has a diverse portfolio consisting of life insurance, P&C, and mutual funds. The company enjoys high growth in all its business and its P/E ratio of 17 validates the same.
Recent updates
Hartford Financial Services Group Inc (NYSE:HIG) is targeting a ROE of 7%-8% in 2013 and through its greater risk management capabilities, the company has a much improved risk portfolio. The debt to total capitalization, which measures the amount of leverage in the balance sheet, has reduced to a considerable extent for Hartford.
The company has been strategizing on being an organization that has reduced sensitivity to capital markets and increased financial flexibility. The mutual funds business is being built more strongly in alignment with this strategy due to its competitive market position. Along with the mutual funds, the P&C business has a huge potential in generating future growth.
The takeaway
The financial sector has gained a bit of momentum of late. Some of the reasons behind it are the improvement in the housing market and the prospect of dividend increases and buybacks in 2013. Altogether, the trends in the financial sector are about to change after the 2008 crisis.
As a wealth management and insurance company, Hartford Financial Services Group Inc (NYSE:HIG) will surely benefit from this reversal trend. Its strengths are visible in multiple areas like solid stock performance, robust revenue growth, and a healthy financial position with reasonable debt levels.
Capitalizing on the agreement with AARP is the best way forward in my opinion, since the company has to focus primarily on its P&C business from now on for a significant portion of its income. To conclude, Hartford looks like a stock worth buying.
The article Is This a Good Time to Buy This Financial Stock? originally appeared on Fool.com and is written by Sujata Dutta.
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