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The Hartford - Neutered Stag? |
nodoodahs
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 Posted: Thu Oct 02, 2008 7:37 pm Post subject: The Hartford - Neutered Stag? |
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The Hartford Financial Group (HIG), a.k.a. "The Neutered Stag," took one on the ... chin today, hitting a 10-year low.
Chart
Why "The Neutered Stag?" In a fit of political correctness over a decade ago, they trimmed their logo's ... equipment. Apparently someone found it offensive. Oh, bother.
The news flow suggests speculation caused by off-the-cuff comments from Harry Reid. Maybe.
I do know that, of the top 16 U.S. life insurers, The Hartford Financial Group (HIG) had the largest total reported realized losses ($1,220,000,000) as of March 31, 2008. Second on that list was Prudential, followed by Metlife Inc, then Allstate. That was March; this is now. That $1.2 billion included life operations only and also included $650,000,000 in impacts of adopting SFAS 157 plus $208,000,000 losses from asset sales/maturities and "other." Bet you there's a ton of action in the CDS market for HIG tomorrow. Not to mention the other three on the list.
Metlife Inc. and Prudential "lead the league" in derivative losses, according to that 03/31/08 list.
Interestingly, American Financial Group didn't look too bad on that list of U.S. life insurance operations, probably because their problems were elsewhere.
No positions, as I'm trading mechanically and on EOD data, but these guys might present opportunities for the nimble - although I don't know their status re: the "no short" list.
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The Hartford - Neutered Stag? Replies |
HenryTo
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| Posted: Wed Feb 08, 2012 4:25 pm Post subject: |
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Morningstar on HIG's 4Q results.
| Quote: | | Hartford Financial Services Group HIG released fourth-quarter results that were generally mixed, containing both positive and negative items. Core earnings--which exclude realized investment gains and losses as well as income from discontinued operations--totaled $339 million, or $0.69 per share, a 36% decline year over year. The shortfall was largely due to the company's struggling workers' compensation business, which booked poor profits that included some unfavorable reserve developments (re-estimations of prior periods' loss estimates). In aggregate, Hartford booked $64 million of net prior-year reserve strengthening as well as a $57 million boost to current accident-year reserves. P&C commercial reported a combined ratio of 108.1% as it was hit by higher workers' compensation loss costs. This segment housed most of the unfavorable reserve developments, which contributed 6.6 points to the combined ratio, most of which was related to workers' comp. As a consequence, core earnings in the segment fell 88% to $25 million. On the other hand, there was positive news in the consumer segment, where new business written grew 21%, which the company attributes to AARP Direct and AARP Agency (Hartford has an affinity relationship with the organization that represents senior citizens). In addition to the strong growth, the firm posted a good combined ratio in that segment, which totaled 91% (93% before catastrophes and prior-year developments), an improvement of 9.4 points from the fourth quarter of 2010. Due to both the strong profitability and growth, core earnings nearly doubled to $83 million. The company is now more explicitly segregating its runoff operations into a new segment that was established during the quarter. This new reporting group will include P&C other operations, international annuity, institutional annuity, and the private-placement life insurance business. Core earnings here declined slightly, but appeared to be relatively stable. We would not necessarily expect this to be the case every quarter, however, as results will probably fluctuate if markets become volatile. We support the company's decision to remove the discontinued business from the business it is currently writing, as it gives investors a clearer picture of what the company will look like in the future. Hartford repurchased $51.4 million worth of stock in the quarter and an additional $42.3 million through Feb. 7. While we appreciate that the company may want to buy its stock back while prices are cheap, we would prefer it to focus on continuing to shore up its capital base rather than repurchasing shares. |
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nodoodahs
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| Posted: Wed Nov 03, 2010 1:41 pm Post subject: |
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| nodoodahs wrote: | ... The underlying P&C business at HIG is OK. They are very good at some of the commercial stuff they do, they are mediocre at personal lines but have a nice distribution method with AARP (although they're trying to f*&k that up).
It is the other part of the company that is giving them problems. And the fact that the other part exists is, itself, a strategic problem. ... |
Has it really been a year since that post? Almost (one day short).
From their conf call t-script, a multi-year period of very low interest rates could be a big deal where their annuity guarantees are concerned, but they haven't done a lot of modeling on that (yet). Something to watch for all the life insurance players in the U.S. I suppose.
Also the HIG's "Personal Retirement Manager" product is not taking off so they are trying to figure out what they can offer on the annuity side to make up for the loss of sales from their closeted mutual fund annuities (which are all gone the way of the Dodo bird). So "strategic problems" remain here.
Most of their time was spent on the investment side of things, followed by discussions of the DAC unlock, with "protection" issues following those two things.
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nodoodahs
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| Posted: Thu Mar 18, 2010 11:38 am Post subject: |
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Spec is that the repayment may be followed by an acquisition, or more specifically, that being acquired is in the works, and repayment is a precondition of that deal.
Of course, that's all idle speculation, worthless rumor, and balderdash. Or is it?
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HenryTo
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| Posted: Thu Mar 18, 2010 10:41 am Post subject: |
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Morningstar's latest analyst notes on HIG:
| Quote: | | Hartford Financial Services Group HIG announced that it has priced the equity offering that it will use to pay back its Troubled Asset Relief Program funds. The company priced the equity offering of 52.253 million shares at $27.25 each. Additionally, Hartford announced the 20 million depositary shares, which each represent 1/40th interest in the firm's 7.25% mandatorily convertible preferred stock, will sell for $25 each. The shares are automatically converted to common stock on April 1, 2013, but unitholders may exercise their conversion rights beforehand, subject to varying conversion rates depending upon stock price and date. Hartford has yet to price the debt portion of the offering, but filed an initial prospectus stating that the debt will be in the form of senior notes due 2015, 2020, and 2040. We are putting our fair value estimate under review while we incorporate the specifics of the offerings and TARP repayment into our forecasting model. |
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nodoodahs
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| Posted: Wed Nov 04, 2009 12:49 pm Post subject: |
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I read the T of the call, interesting question about the hedging strategies used on their GMBAs.
Previously they would buy the puts needed to hedge but also sell index calls !!!!! to help pay for the puts. Combine that with annuity payouts indexed on the stock market returns and you've got a recipe for disaster.
Classic case of a payout ratio with a low Sharpe (Sortino, etc.) ratio but a very high amount of real risk involved.
Now they are paying the puts out of cash. And they are selling a different class of annuity. It'll be a while before the institutional memory fades and the annuity business goes haywire again. Think Baldwin as a prior example (yes, the piano people).
They got the name RIGHT. The combination of TARP bailout from HIG buying that POS bank in FL and the overall market recovery saved HIG's bacon. They got the name RIGHT, not wrong. But conditions have changed ...
The underlying P&C business at HIG is OK. They are very good at some of the commercial stuff they do, they are mediocre at personal lines but have a nice distribution method with AARP (although they're trying to f*&k that up).
It is the other part of the company that is giving them problems. And the fact that the other part exists is, itself, a strategic problem.
The c-suite got the enema it needed, but unfortunately for HIG they put in more of the same sort of rascals. Oh, bother.
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rffrydr
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| Posted: Wed Nov 04, 2009 11:34 am Post subject: |
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| Quote: | Mark Haefele
Hartford
11/4/2009 9:19 AM EST
Listening to the Hartford call, I thought the analysts were still more focused on capital levels than on earnings potential. They still don't want to admit they got this name wrong. |
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nodoodahs
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| Posted: Tue Jun 16, 2009 7:34 pm Post subject: |
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I don't think Buffett would be caught dead buying the insurers that might make the best stock trades right now.
Right now, the best trades in the industry are far from the best companies - actually, they're really damaged goods - but are their current prices still more reflective of last month's status as just options on the companies' survival? Probably. I think the really well-run insurers are too expensive to make good trades, so going for the troubled ones is something I can see doing.
Insurers are great businesses to own if you can have control of their capital structure and if you have other businesses besides insurers in your control. Operational leverage is better than debt or investment leverage, and with a holding company structure you can deploy the capital where it makes sense, through dividends upstream or capitalization downstream.
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lewie2004
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| Posted: Tue Jun 16, 2009 4:26 pm Post subject: |
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Doug Kass agrees with you.
Housekeeping and Shiller Joins Roubini
6/16/2009 11:40 AM EDT
QuickTake
Bullish MET HIG
Bearish SPY BBY
Update MET HIG SPY BBY
I shorted more Best Buy (BBY) and S&P Depository Receipts (SPY) today.
I also added to my longs in Metlife (MET) and Hartford (HIG).
Finally, check out MIT's Shiller harmonizing with Dr. Doom.
Position: Long MET and HIG; short BBY and SPY. |
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rffrydr
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| Posted: Tue Jun 16, 2009 3:25 pm Post subject: |
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MET Life the fourth-most bought into stock today. I have been looking for an insurer as I have finally seen the Buffett light in regards to this industry. Their product is an equation and are one of the few industries that can rise above "The Quarterly."
The structured stuff is an added bonus from my perspective.
What do you say, Bill?
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nodoodahs
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| Posted: Fri Jun 12, 2009 9:00 am Post subject: |
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Also has announced Ayers retirement. Pretty much a complete corner-office enema in the last couple of years, which at least presents the opportunity for the firm to turn around, strategically speaking.
Changes already contemplated are de-emphasizing the VA products and moving towards a U.S.-focused P&C operation.
There are some things that HIG does extremely well (P&C midmarket and small market commercial) and some things they’re adequate at (most other P&C) and some advantages they have (PL distribution). Their problems have been strategic and not operational. Good leadership, if it can be found, could turn that thing around.
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rffrydr
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| Posted: Fri Jun 12, 2009 7:40 am Post subject: |
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As Bloomberg touts the govt's return on citi equity today just a few lines down we see the continuing pressure. Hartford takes 3.6 billion (and will also be issuing shares--banks).
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajf6xc7Xs7Ls
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rffrydr
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| Posted: Tue Mar 10, 2009 9:41 am Post subject: |
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For those who need the current mark-to-tangible equity madness expressed in numbers, this courtesy today's alphavillle:
| Quote: | Tangible NAV (TNAV) has become a focus for investors because: (a) it is seen as the true “loss absorbing” part of the capital base so a low TNAV implies that the insurance sector is not well capitalized; and (b) it is seen as a valuation floor – or the “liquidation” value.
To be frank, intangibles are impaired. Remember that an intangible asset represents a claim on future cash flows and, given the current economic environment, those future cash flows are likely to be: (a) lower than they were; and (b) more risky than they were.
But that doesn’t mean insurers are worth tangible NAV. Stripping out all of the intangible assets, including the DAC, is like valuing a retailer with zero value for its inventory. Even if it were the best measure, then the subsequent RoNAVs (sometimes as high as 200- 400%) would surely anyhow mean a higher than 1x P/NAV multiple! In truth, we don’t see much wrong with the traditional approach of book value less goodwill and maybe some haircut on DAC – this still penalizes the companies for their unrealized losses on bonds.
PM:
And a low TNAV doesn’t necessarily mean a rights issue. In a bank, TNAV is important as it represents the capital that is loss absorbing. In an insurance company, some of the intangibles that are included in solvency, whether that be DAC, future profits, or reserve redundancy, areloss absorbing. More important for solvency is why the TNAV is low.
Limited read-across from the banking sector. First, banks NAV are not marked-to-market as the loan book, the largest asset, is carried at cost. Second, banks NAV are approximately twice as leveraged as at an insurance company, so more NAV at risk. Third, banking liabilities (i.e. deposits) can walk at any point, while an insurance company’s liability
duration is protected by surrender penalties and tax incentives. In short, in good times insurance company NAVs are more aggressive than banks, in bad times more conservative – and we are in bad times right now.
The three insurance buckets: (a) Bucket 1 – market doesn’t believe them: Swiss Re and ING, both trading at around 30% of NAV; (b) Bucket 2 – market doesn’t believe them, but hasn’t fully given up onthem: Axa, ZFS, Aegon, and Allianz trading at around 80% of NAV; and (c) Bucket 3 - market doesn’t believe them, but considered the best of a
bad bunch: Munich Re, ZFS and Generali at around 1x NAV. The investor who thinks we are at a market low should look at buckets 1 & 2, those more risk adverse should focus only on bucket 3. Given the still uncertain macro, a reasonable risk/reward can be found at ZFS on 1x NAV for a normalized RoNAV of 18%. |
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rffrydr
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| Posted: Tue Feb 17, 2009 9:29 am Post subject: |
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L&G across the pond showing the (wrong) way. The obsession with a "market price" has now put its glare onto an industry whose very definition is in "hold to maturity." Giethner's "stress-test" standard has unleashed this new wave of selling. But this is a circle that cannot be squared:
| Quote: | L&G’s vow of silence
Legal & General is an uncommunicative company at the best of times - but now would be a good moment to open up. The market is in a panic about rights issues, dividend cuts and credit losses.
As L&G’s shares plunged a further 10% yesterday, the historic yield hit 13%, which is the market saying it doesn’t believe the dividend payout will be maintained. The shares now trade below levels seen in the dark days of 2002 and 2003, when the FSA had to change the rules to pull the life insurance sector out of a spiral of decline caused by forced selling of equities.
The FSA is also at the centre of the current drama. It has asked the life companies to stress-test their businesses to see how they would cope with a further plunge by stock markets and a further deterioration in the market for corporate bonds. In fact, plunge is an understatement. The FSA’s most extreme test imagines a fall in the FTSE 100 index to a level of 2000, from 4135 today. If that happens, we really are in depression.
The FSA is playing a dangerous game here. Life insurers are not banks. They tend to hold assets such as corporate bonds to maturity. If they were ordered to organise their affairs to prepare for a 60% fall in stock markets, we’d have chaos. There would be a rush out of equities and corporate bonds into 30-year gilts, where the size of the market is not big enough to cope with a stampede.
It is unlikely (despite appearances) that the FSA will be that dumb. But something is clearly afoot and the market senses that L&G will be the big loser. The company is perceived as having under-provided for defaults in its corporate bond portfolio. If the FSA intends to harden the rules, investors worry that L&G will have to turn to shareholders.
L&G, sensing the market’s glare, yesterday said that “there are no conversations (with the FSA) beyond the usual year-end process.” That’s fine as far as it goes, but it’s not the same as a formal management statement on regulatory capital. Aviva and Prudential spoke last month but L&G chose not to. The current timetable imagines L&G staying silent until 25 March. We’ll see. If the shares don’t bounce soon, the company will have to swallow its pride and publish before then.
Mind you, the FSA could do everybody a favour by saying what the stress-testing exercise is meant to achieve. At the moment, it is succeeding only in spreading fear. |
alphaville
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rffrydr
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| Posted: Wed Jan 07, 2009 7:43 pm Post subject: |
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Noticed we made the topside of the overbought list, 46% over 50dma.
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