Investment Management - Hartford - Case Study Example

MAKE THE INVESTMENT CASE: WHY SHOULD PEOPLE INVEST IN YOUR STOCK? THE HARTFORD OVERVIEW The Hartford is an investment and insurance company that is based in US, Hartford, Connecticut. It is a holding company for subsidiaries that that provide property and casualty insurance, group benefits and mutual funds to individual and business customers in the United States. At December 31, 2015 The Hartford’s total assets were $228 billion while the total stockholders’ equity was $17.6 billion. The company makes every effort to maintain and improve its position as the market leader in the financial services industry. The Hartford trades assorted and innovative products via various distribution channels to people and companies as well. The company is constantly developing and expanding its distribution channels and this allows it to attain cost efficient via economies of scale and technological investments. The Hartford also capitalizes on its brad, especially The Hartford Stag logo which is among the most renowned symbols with the financial services industry. Figure 1: The Hartford's share price over the years The above figure indicates that the value of shares in The Hartford Company was relatively high and very stable but was affected by the financial crisis in 2008 which saw its share price decline significantly. However, from 2009 the share price has been increasing progressively over the years and in 2014 the value of share was almost stabilizing. INVESTMENT CASE The Hartford is the 12th biggest property and casualty company within US. The company is widely acknowledged for its service excellence sustainability practices, trust and integrity as well. The Hartford performs business mainly in 6 reporting sectors that include Commercial Lines, Personal Lines, Property & Casualty Other Operations, Group Benefits, Mutual Funds and Talcott Resolution, and a corporate grouping. The Hartford trades its products mainly via multiple well networked agents and brokers and has been direct auto for several individuals for a long time. The Hartford is focused on maintaining the best Total Shareholder Return (TSR) in the industry. In 2016, the Hartford was named to the Bloomberg Financial Services Gender-Equality Index (BFGEI). This means that The Hartford was given special recognition for its strong commitment to gender equality as well as committed social disclosure policies and practices. In 2015 the Hartford received “People’s Choice Award” basing on the customer satisfaction metrics. The Hartford has a potential to continue growing and widening its sales and hence improving its share price. While there are noteworthy weaknesses allied to Harford, we feel that the stock has adequate positive aspects worthy investing. Whereas valuation of P/C businesses is on price-to-book ration, there are other relevant indicators of value. As indicated by strong price momentum, earnings increase, as well as improving returns The Hartford has a strong momentum and growth profile. In addition, The Hartford demonstrates strong earnings quality and therefore provides a good investment opportunity. SECTOR OUTLOOK RETURN ANALYSIS The Hartford’s return margin has significantly increased over the years. In 2014, the Hartford reported a net income of $388, 000000. This was a 32% increase from $293, 000000 in 2013. Similarly, the earnings of The Harford for the last quarter of 2013 were $477, 000000. This was a 15% increase from 416, 000000 in the last quarter of 2013. The increase in the returns and earnings was mainly because of the improved property/casualty underwriting results, along with higher income from limited partnerships and other substitute investments. From the tables and the graph below, it is evident that The Hartford annual returns have been relatively satisfactory and have significantly outperformed the market indexes. The below tables illustrates The Hartford’s annual percentage return and 5 year total return on its common stock Figure 2: Graph of The Hartford’s annual percentage return and 5 year total return on its common stock COMPARATIVE ANALYSIS Comparative analysis will involve comparing The Hartford’s share value trend with the share trend values in the industry. It is evident that the Hartford is fairing relatively well compared to the other companies in the same industry. After the big drop of share prices in 2008, The Hartford’s share price has increased significantly well as compared to companies in the same industry. FUNDAMENTAL ANALYSIS REVENUE ANALYSIS This year The Hartford has made investments in strong talent and new systems like claims system, group benefits enrollments system, as well as market underwriting desktop. This has enabled the company to expand in the new market industry verticals. The Hartford has seen increases in the net income in the last quarter of 2015 in comparison with the same period, previous year despite an increasingly competitive market. Figure 3: Revenue over the last 5 years The following table indicates an increase in the number of shares traded in 2015 as compared to 2014 The table below summarises the Company’s repurchases of its common stock for the last quarter of 2015 PROFITABILITY ANALYSIS Over the last 5 years, the profitability of The Hartford has been remarkable. For example the net income of the company increased by 10.2% from 2013 to 2015. In 2015, the net income was $1.68 billion which was a 110.8 increase from the year 2014. Generally, the profitability of the Hartford has improved greatly and this indicates the prospected high value of the company’s share value. CORPORATE GOVERNANCE The role of the board is to execute their business decisions in what they perceive as reasonable for the best interests of the company and its shareholders. Directors attend Board meetings and committees that they serve and ensure that their duties are appropriately discharged. Business at The Hartford is carried out the company’s employees and officers, under the direction and guidance from the senior management and the Board. The Board has the responsibility of setting out comprehensive corporate policies and for supervising and managing the overall performance of the company. Additionally, the Board has the responsibility of reviewing significant developments that affect the company and act on issues that require Board approval. Christopher J. Swift Chairman Robert B. Allardice III Chairman of Audit, Finance, Investment and Risk Management Committee Trevor Fetter Chairman of Compensation & Management Development, Finance, Investment and Risk Management Committee Kathryn Mikells Director of Audit Committee, Finance, Investment and Risk Management Committee Other Board members include: Michael G. Morris, Thomas A. Renyi, Julie G. Richardson, Teresa Wynn, Virginia P. Ruesterholz, Charles B. Strauss and Patrick Swygert RISK ASSESSMENT OPERATING ENVIRONMENT RISK Challenges associated with the current operation include global politics, economic and market conditions and any other possible unfavorable macroeconomic developments on the attractiveness of the company’s products, the returns in the company’s investment portfolios as well as the hedging costs. MARKET RISK Market risks associated with The Hartford Company include; changes in interest rates, credit spreads, economic slowdown, equity prices, market volatility and foreign exchange rates, commodities prices as well as implied volatility levels. FINANCIAL RISK Financial risks associated with the continuous reinvestment of the company’s investment portfolios and performance of its hedge program for the company’s runoff annuity block. SWOT ANALYSIS The Hartford is a diversified holding firm that provides insurance and financial services to people, companies, government forms as well as small businesses. The Hartford is categorized as a diversified insurance and it is in the banking and financial services sector. The company’s slogan is “Always thinking ahead”. The USP of The Hartford is “a company that assists customers in creating a securing a secure and successful future by projecting their needs and offering superior financial solutions. The segment of The Hartford company include; investment products, casualty insurance, life and property. The company’s target group include; individuals, companies, government firms and small scale businesses. In regard to the position of The Harford, the company is established a young firm but promising and grand company in addition to being a responsible, trustworthy and reliable partner. STRENGTHS Hartford is among the leading multi-line insurance providers: The company has a reputation of being a leading insurance provider. It has also been well integrated worldwide and the company is perceived as a reliable and responsible multi-line insurance provider. The Hartford is a diversified holding organization and has several distribution channels that edge various types of business risks that the organization is exposed to Due to the company’s diverse products and multiple distribution channels, the company has been able to limit the type of risks it is exposed to. The Hartford has a number of commercial lines that offer a wide range of insurance products and service via its offices and centers. Unique technologies The success of any company is highly dependable on its ability to invent new technologies. The Hartford has been able to differentiate itself through cutting-edge technology. The technology has aided the company in improving its pricing sophistication, facilitated business transactions and has also enabled the company to effectively and promptly evaluate risks, quote new business and service customers. The company has digital technological which has enabled it to be more accessible, convenient and to be more accommodative to bigger accounts and a wider risk appetite. Strong workforce The company has a strong workforce which has greatly contributed to the company’s success. In addition, the company has a high number of employees and the company’s management and staff are selected as per their experience and expertise and thus they give the company and customers the best professional services. Location The Hartford is located at Hartford, Connecticut which is a booming city and a location with high traffic input. At this location, the company can get many individual customers as well as small business clients. In addition, all the company’s branches are located in locations where they are close to the key customers. WEAKNESSES The Hartford is concentrated mainly within the United States which exposes the company to geographic concentration risk Due to the company having most of its businesses in US, this makes it very prone to geographic risks such as economic downside in the country Recently, the company has had reduced net investment income. The company has faced a number of legal proceedings which may reduce the number of customers as well as consume some of the company’s revenue OPPORTUNITIES The Hartford has a very good opportunity for having high demand for its insurance products due to the ageing US population There is growth and increase in property and casualty insurance market and this presents an opportunity for The Hartford’s to increase its revenues by increasing its sales The Hartford is making heavy and important investments in acquisitions and long-term projects. These acquisitions and projects have a high prospect of improving the business The company is in a buoyant asset management industry. This presents the company with an opportunity to provide its services in the industry THREATS Because of the 2008 economic crisis, there have been multifarious regulatory requirements which all companies in US are required to comply to. Therefore, the Hartford has to comply with many regulatory requirements and this increases costs. The company faces the threat of fraud. This is because there has been a rise in fraudulent undertakings within the insurance industry There is a likelihood of major natural catastrophes. Such natural catastrophes are likely to result to disastrous incidents which are going to greatly impact the property and casualty insurers that the Hartford is one of them. The company is exposed to subprime mortgages and mortgages backed securities and such mortgages poses a stiff competition to The Hartford CONCLUSION The Hartford has consistently shown strong momentum and earnings growth. Even though ROE and ROA are comparatively poor, both values have been improving constantly. Financial analysts are expecting the company to grow its earning just like it has been doing in the recent years. In addition, as the strong price momentum, earnings growth and improving returns on equity and assets indicate, the company’s business growth profile is tremendous. Moreover, the company has constantly beaten analyst EPS and returns prospects and indicates strong earnings quality. We believe that the Hartford offers value at its current share prices as depicted by the above analysis. Read More