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The Hartford Hits 52-Week High Following Reinsurance Deal
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Shares of The Hartford Financial Services Group, Inc. (HIG - Free Report) scaled a 52-week high of $49.68 after the company cut a reinsurance deal with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. (Berkshire) (BRK.B - Free Report) . Also, the company also received a favorable rating action by A.M.Best in relation to the deal.
Last year, The Hartford was fraught with challenges like an underperforming personal auto business, lower net investment income and higher catastrophe losses. These and higher prior-year development were responsible for the company’s underperformance in terms of share price. While the company returned 9.64% in 2016, the Zacks categorized Insurance - MultiLine industry gained 11.2%.
Year to date, the company has, however, given a superb performance, returning 3.7% compared with a mere gain of 0.05% for the broader sector. We expect an improvement in the operating environment for the company given increasing rates which might ease pressure on its investment income and the recent reinsurance agreement which might shield it from earnings volatility. This might drive up the stock price in 2017.
The company’s shares reacted favorably to The Hartford’ recently procured reinsurance cover from NICO by paying it a reinsurance premium of $650 million. In exchange, the company will get coverage for asbestos and environmental liabilities (A&E) losses beyond Dec 31, 2016, aggregate net carried reserves, up to a limit of $1.5 billion.
The transaction will lead to an expected after-tax GAAP loss of $423 million in the fourth quarter of 2016 and will dent the company’s 2017 investment income.
Despite this costly solution, investors seem to be okay with this move by the company. They viewed this deal as the best way to manage complex claims arising out of the A&E liabilities that have been an eye sore for the company for the past many years. The deal will significantly reduce earnings volatility and provide clarity to the company’s earnings.
Along with minimizing the company’s legacy A&E liabilities the reinsurance deal will solidify the group’s risk-adjusted capitalization. Over the past eight years, the company’s contribution to its asbestos-related reserve additions has gone up to nearly $1.2 billion. Consistent reserve addition has taken a toll on the company’s capital and earnings. The company will now no longer have to fortify its reserves via addition of funds, to pay claims arising from it. These funds can now be used for making investments, undertaking shareholder initiatives and growing its core business operations.
The stock must also have received a boost from the A.M.Best rating action which kept the company’s ratings intact and categorized the deal as credit positive for it.
The Hartford carries a Zacks Rank #2 (Buy). Some other stocks worth considering include Radian Group Inc. (RDN - Free Report) and Chubb Corp. (CB - Free Report) . While Radian carries a Zacks Rank #1 (Strong Buy), Chubb sports the same Zacks Rank as The Hartford. You can see the complete list of today’s Zacks #1 Rank stocks here.
Radian delivered positive surprises in two of the last four quarters, with an average beat of 5.9%.
Chubb delivered positive surprises in three of the last four quarters, with an average beat of 4.1%.
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The Hartford Hits 52-Week High Following Reinsurance Deal
Shares of The Hartford Financial Services Group, Inc. (HIG - Free Report) scaled a 52-week high of $49.68 after the company cut a reinsurance deal with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. (Berkshire) (BRK.B - Free Report) . Also, the company also received a favorable rating action by A.M.Best in relation to the deal.
Last year, The Hartford was fraught with challenges like an underperforming personal auto business, lower net investment income and higher catastrophe losses. These and higher prior-year development were responsible for the company’s underperformance in terms of share price. While the company returned 9.64% in 2016, the Zacks categorized Insurance - MultiLine industry gained 11.2%.
Year to date, the company has, however, given a superb performance, returning 3.7% compared with a mere gain of 0.05% for the broader sector. We expect an improvement in the operating environment for the company given increasing rates which might ease pressure on its investment income and the recent reinsurance agreement which might shield it from earnings volatility. This might drive up the stock price in 2017.
The company’s shares reacted favorably to The Hartford’ recently procured reinsurance cover from NICO by paying it a reinsurance premium of $650 million. In exchange, the company will get coverage for asbestos and environmental liabilities (A&E) losses beyond Dec 31, 2016, aggregate net carried reserves, up to a limit of $1.5 billion.
The transaction will lead to an expected after-tax GAAP loss of $423 million in the fourth quarter of 2016 and will dent the company’s 2017 investment income.
Despite this costly solution, investors seem to be okay with this move by the company. They viewed this deal as the best way to manage complex claims arising out of the A&E liabilities that have been an eye sore for the company for the past many years. The deal will significantly reduce earnings volatility and provide clarity to the company’s earnings.
Along with minimizing the company’s legacy A&E liabilities the reinsurance deal will solidify the group’s risk-adjusted capitalization. Over the past eight years, the company’s contribution to its asbestos-related reserve additions has gone up to nearly $1.2 billion. Consistent reserve addition has taken a toll on the company’s capital and earnings. The company will now no longer have to fortify its reserves via addition of funds, to pay claims arising from it. These funds can now be used for making investments, undertaking shareholder initiatives and growing its core business operations.
The stock must also have received a boost from the A.M.Best rating action which kept the company’s ratings intact and categorized the deal as credit positive for it.
The Hartford carries a Zacks Rank #2 (Buy). Some other stocks worth considering include Radian Group Inc. (RDN - Free Report) and Chubb Corp. (CB - Free Report) . While Radian carries a Zacks Rank #1 (Strong Buy), Chubb sports the same Zacks Rank as The Hartford. You can see the complete list of today’s Zacks #1 Rank stocks here.
Radian delivered positive surprises in two of the last four quarters, with an average beat of 5.9%.
Chubb delivered positive surprises in three of the last four quarters, with an average beat of 4.1%.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>