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Hartford Financial Services Group (HIG) |
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WIKI ANALYSIS
The Hartford Financial Services Group (NYSE: HIG) is one of the largest multi-line insurance and investment companies that operates primarily in the United States, with over $307 billion in total assets as of December 31, 2009.[1] The Hartford operates in two broad segments: Life and Property & Casualty (P&C). The Hartford has offered its services in the United States since 1810, but since has expanded its operations to Canada, Japan, Brazil, Ireland, and the United Kingdom [2].
The Hartford's relationship with the AARP helps the company to differentiate its insurance products, which approach being treated as commodities. Personal Line written premiums, directly related to the AARP deal, increased by 3%, and retirement plan deposits increased to $2.3 billion. Given that there were over 38 million people who were 65 or older in 2009, and that this statistic is projected to double by 2050, the Hartford is positioned to exploit this competitive advantage [3].
Business Overview
The Hartford is one of the seven largest multi-line insurance companies, a company that offers both life and non-life policies, in the United States. The company's two major operations, Life and Property & Casualty, are further divided into eleven reporting segments. Although the company has expanded its international operations, over 95% of revenue was earned in North America.
Business and Financial Metrics
Hartford's total revenues more than doubled between 2008 and 2009, as it increased from $9.2 billion in 2008 to $24.7 billion in 2009. This increase was largely a result of Hartford avoiding huge losses that it was forced to take in 2008 as a result of the 2008 Financial Crisis. Unsurprisingly, as a result of this huge increase in revenues, Hartford was able to improve its financial position. In 2009, Hartford posted a net loss of $887 million, a large decline from its 2008 net loss of $2.75 billion.
Business Segments
Life
The Hartford's life insurance operations is carried out by the company's indirect wholly-owned subsidiary, Hartford Life, Inc., which can further be broken down into six reporting segments: Retail Products Group (“Retail”), Retirement Plans, Institutional Solutions Group (“Institutional”), Individual Life, Group Benefits and International. The Life segment provides investment products, such as variable annuities, fixed annuities, mutual funds, and retirement plan services individual life policies group benefit products, such as group life and group disability policies and variable corporate-owned life insurance (COLI) policies.
Property & Casualty
The Property & Casualty operation is conducted through the Hartford itself, and is made up of five unique reporting segments: the underwriting segments of Personal Lines, Small Commercial, Middle Market and Specialty Commercial (collectively “Ongoing Operations”); and the Other Operations segment. The P&C segment is among of the top ten in the U.S., based on net premiums written.[4] Personal Lines writes automobile and homeowners insurance; Small Commercial and Middle Market offer insurance coverage to small and middle market businesses in the United States, respectively; Specialty Commercial offers customized insurance products and risk management services to primarily large companies; and Other Operations consists of The Hartford's discontinued businesses that still have outstanding policies.
Corporate
Though not part of the Hartford's core business segments, the Corporate segment includes operations related to capital structure financing, such as corporate debt financing and interest expenses accompanied by this.
Key Trends and Forces
Financial crisis causes The Hartford's investment portfolio to decline in value
The Hartford has a $90 billion investment portfolio, which is susceptible to market risk that can lead to significant losses for the company. Although equity and fixed income securities related to the financial services sector make up only 9% of The Hartford's investment portfolio, these investments nonetheless caused pre-tax impairments of $2.4 billion. The Hartford has since begun the process of divesting itself of financial services companies and reducing risk and leverage in its investment portfolio, the company still is significantly influenced by its investment decisions and market risk.9
The Hartford is positioned to capitalize on the coming demographic shift in the United States with the retirement of Baby Boomers
The Hartford's long-standing partnership with the AARP, which has existed since 1984 and entitles The Hartford to be the AARP's exclusive provider of Automobile and Homeowners Insurance, provides the company with a competitive advantage. The AARP is a 40 million member organization dedicated to helping people over 50 years old improve the quality of their lives.[5] In 2008, there were about 38 million people who were over 65 year old; however, by 2050, this population figure is projected to double.[6] The Hartford's strong branding with this segment of the population through the AARP will help the company to distinguish its products in an otherwise competitive industry, in which products approach being treated as commodities.[7] The partnership between The Hartford and AARP has recently been renewed for a third time, and will continue until at least January 2020.[8] Benefits gained by AARP members who also have insurance through The Hartford include personalized customer service and access to a gerontology team that works for the AARP.[8] Given that the AARP's current membership base is 38 million,[9] and that by the end of the current contract, over one-third of all Americans will be eligible for the AARP, this exclusive partnership provides The Hartford with comparative advantage and a catalyst for growth in all its business segments.[10]
Competition
As The Hartford offers both Life and P&C insurance it competes either directly or offers similar financial products to many different insurance companies. Five of The Hartford's most significant competitors are:
- American International Group (AIG): AIG offers four main operating segments, of which its General Insurance and Life Insurance & Retirement Services segments most directly compete with The Hartford. Like The Hartford, AIG also has a significant presence in Japan. In September 2008, as part of a response to over $18 billion in losses caused by the company's exposure to credit-default swaps, the Federal Reserve granted AIG an $85 billion loan, and in return, the U.S. Government was given a 79.9% equity stake in the company.[11]
- Berkshire Hathaway (BRK): Berkshire Hathaway, managed by famous value-investor Warren Buffett, directly competes with The Hartford through its Insurance group.
- MetLife (MET): MetLife competes with The Hartford in both Life and P&C insurance. Its life insurance, automobile and homeowner insurance, and annuities businesses all offer substitutes for The Hartford's products.
- Allstate (ALL): Allstate competes with both the Life and P&C divisions of The Hartford, and offers such products as automobile and homeowner's insurance and retirement products.
References
- ↑ HIG 10-K 2009 Item 1 Pg. 5
- ↑ HIG 10-K, page 3
- ↑ "An Older and More Diverse Nation by Midcentury." US Census Press Releases.
- ↑ The Hartford Investor Relations
- ↑ About AARP
- ↑ "An Older and More Diverse Nation by Midcentury." US Census Press Releases.
- ↑ Insurance Journal. "The Hartford, AARP Renew Contract." 5 December 2001.
- ↑ 8.0 8.1 The AARP. "Auto & Home Insurance Program from The Hartford." 2009.
- ↑ The AARP. "About AARP."
- ↑ All Business. "Implications of Exploding AARP Membership."
- ↑ "U.S. to Take Over AIG in $85 Billion Bailout." The Wall Street Journal.
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