Zacks Investment Research



| Hartford Financial Services Group Inc. |(HIG – NYSE) |$52.56 |

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 1Q18 Earnings Update

Prev. Ed.: 3Q17 Earnings Update, Mar 13, 2018

Brokers’ Recommendations: Positive: 33.3% (4 firms); Neutral: 66.7% (8); Negative: 0% (0) Prev. Ed.: 4; 8; 0

Brokers’ Target Price: $58.60 (↓$0.60 from the last edition; 10 firms) Brokers’ Avg. Expected Return: 11.5%

Executive Summary

Founded in 1810, The Hartford Financial Services Group Inc. (HIG) is a domestic insurance and investment company in the United States. It provides Property and Casualty (P&C) insurance (both commercial and personal lines) through multiple distribution channels. Additionally, it offers traditional life insurance, group benefits, and investment products.

About 33.3% of the firms in the Digest group covering Hartford Financial have a bullish outlook on the stock, while the remaining 66.7% have a cautious stance. None of the firms rated the stock negatively. Of the 12 firms covering the stock, 10 firms provided target prices ranging from a low of $52.00 (1.1% downside from the current price) to a high of $64.00 (21.8% upside from the current price).

Positive or equivalent outlook (4/12 firms or 33.3%) – The bullish firms are of the opinion that with each passing quarter, Hartford Financial has emerged as a company focused on enhancing core operations and profitability. In this respect, it has divested its the United States and Japan variable annuity (VA) business block and is striving to become a non-life insurance company.

Some of the bullish firms are of the opinion that continued restructuring should free up capital that can be utilized for growth initiatives.

Neutral or equivalent outlook (8/12 firms or 66.7%) – These firms are of the opinion that improved capital flexibility and declining risk profile are positives that will drive results.

Firms note that the company remains focused on bolt-on acquisitions. Firms are of the opinion that dividends from the life and P&C subs will likely increase in 2019, cushioning the company to pursue acquisitions.

Nevertheless, the property and casualty business is expected to deliver solid numbers and the Group Benefits segment is likely to witness improved margins going forward based on the re-pricing of the disability book of business. Moreover, the company’s overall risk profile is likely to decline owing to decreasing risk in the U.S. variable annuity block. This should also lead to a reduction in the cost of equity and release capital that can be used for productive purposes.

Regarding the P&C business, the bullish firms believe that The Hartford is relatively better positioned than its large-cap peers because of its small or medium commercial focus and American Association of Retired Persons (AARP) affinity personal lines business. They also believe that The Hartford’s earnings are less likely to be affected than its peers due to low interest rates.

The firms remain optimistic about the substantial upside potential of Hartford owing to ongoing restructuring and developmental measures. Though firms do not anticipate Hartford to engage in any transformational acquisition, they are of the opinion that the insurer might expand presence in the Midwest and West.

According to a cautious firm, the recent price firming in property business encourages Hartford Financial.

Going forward, Hartford Financial is looking for commercial auto rates to rise in the high single-digits and property and general liability rates to go up in the mid-single digits. This is expected to help the company drive its commercial lines underlying margin target of 90-92.5%.

Mar 13, 2018

Overview

Key investment considerations as identified by the firms are as follows:

|Key Positive Arguments |Key Negative Arguments |

|Fundamentals |Fundamentals |

|Diverse earnings model. |Operating income is susceptible to catastrophes and weather-related |

|Strong underwriting results in the P&C segment that, despite settlement |losses. |

|charges, are expected to help enhance capital and book value as well as |Fixed income portfolio can fluctuate significantly with a change in |

|strengthen the balance sheet. |interest and discount rates. |

|Comparatively low interest rate risk. |A sharp downturn or increased volatility in equity markets would increase |

|Divestiture of underperforming businesses is expected to boost ROE. |capital requirement of the company’s insurance subsidiaries. |

| | |

|Growth Opportunities |Competitive Threats |

|Specific programs for middle-market customers in the business insurance |Subject to regulatory inquiries. |

|segment. |Challenging condition in middle markets and specialty commercial segments |

|Ability to capitalize on aging population demographics. |of P&C operations. |

|Increased distribution network and product enhancement opportunities. |Competition intensifying in the group disability sector. |

Hartford Financial is a diverse insurance and financial services company. Through its subsidiaries the company provides investment products such as life and P&C insurance to both individual and business customers in the United States and internationally.

The company reporting segments consists of Property & Casualty, Group Benefits, Mutual Funds, Talcott Resolution and Corporate.

The P&C segment covers the P&C Commercial, Consumer Markets and P&C Other businesses. The Hartford established the Talcott Resolution segment to cover the legacy Wealth Management runoff and sold businesses, including U.S. Annuity, International Annuity, Institutional, Private Placement Life Insurance, and the former Individual Life and Retirement Plans businesses.

The Hartford’s website is .

Note: The Hartford’s fiscal year coincides with the calendar year.t

May 11, 2018

Long-Term Growth

In the long term, the firms expect The Hartford to gain from the restructuring along with substantial cost reduction and favorable pricing changes in the P&C business. The combination of these positives along with strong sales should facilitate efficient capital deployment in the coming years.

The top-line growth is expected to remain modest during the next few years. However, firms are optimistic about the prospects of the P&C business. Additionally, they believe that the P&C commercial business is protected from price competition due to strong AARP business, expected to boost in-force policies.

For 2018, Hartford Financial expects a good portion of the tax savings to favor the bottom line as most of this year’s earned premiums were written in 2017. Further, Hartford Financial’s longer auto policies are

likely to impact positively on earned premium for longer.

The company believes acquisitions sharpen competitive edge and accelerate earnings growth and the Aetna unit acquisition bears testimony to the same.

Hartford Financial looks to pursue more growth in its Commercial Lines as well as Personal Lines as it is running at better margins.

May 11, 2018

Target Price/Valuation

| Rating Distribution |

|Positive |33.3%↑ |

|Neutral |66.7% ↓ |

|Negative |0.0% |

|Average Target Price |$58.60↓ |

|Digest High |$64.00 |

|Digest Low |$52.00 |

| No. of Firms with Target price/Total |10/12 |

Risks to the target price include high catastrophe loss, reserve creation, competition, increasing interest rates, downgrade in credit rating, decline in the equity markets, exchange rate fluctuations, statutory changes, investment risks, exposure to the realty market and risks related to hedging.

Recent Events

On Apr 26, 2018, The Hartford Financial Services Group announced its 1Q18 earnings results. Adjusted operating earnings of $1.27 per share beat the Zacks Consensus Estimate by 17.6%. The bottom line also soared 67% year over year on higher revenues.

Total operating revenues came in at $4.7 billion, up 14% year over year.

Financial Update

Book value per share as of Mar 31, 2018 dipped 3% to $36.06 from the level as of Dec 31, 2017.

Core earnings’ return on equity rose 270 bps to 7.8%.

Revenues

Total operating revenues came in at $4.7 billion in 1Q18, up 14% year over year. This upside was primarily driven by a rise in earned premiums and higher fee revenues as well as net investment income.

Provided below is a summary of revenues as compiled by the Zacks Digest:

|Total Operating Revenue | |

| | |

| |1Q17A |

|Copy Editor |Pramita Bose |

|Content Ed. |Sapna Bagaria |

|Lead Analyst |Sapna Bagaria |

|QCA |Tanuka De |

|No. of brokers reported/Total brokers |10/12 |

|Reason for Update |1Q18 Earnings Update |

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