Hartford Financial (NYSE: HIG), one of the leading property and casualty insurers in the U.S., operates four primary businesses – Commercial Lines, Personal Lines, Group Benefits, and Mutual Funds. The Commercial Lines business has been on a strong run for a while now, and we expect the business to continue delivering solid results. In this note, we expand more on this business and the factors that will likely contribute to its future growth.
We have created an interactive dashboard that provides A Look At Commercial Lines’ Contribution To Hartford Financial’s Valuation. It provides an overview of our forecasts for the company. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, EPS, and price estimate.
Commercial Lines Overview
Commercial Lines, the largest segment, provides property and casualty insurance products and services to various industries across the world. The solutions include automobile insurance, workers’ compensation, property insurance, and general liability insurance solutions. In the U.S., this business is especially strong in the small commercial and middle market. The Spectrum policy, which combines both property and general liability coverage, has been doing well in the small commercial market. Commercial Lines contributes about 46% of Hartford’s revenue and saw 3.2% growth in 2017, on account of higher renewal written pricing, which provided a boost to the premiums generated per policy.
What Will Drive Growth In Commercial Lines Business?
- Growth In Workers’ Compensation: Workers’ compensation, which contributes about 48% of the segment’s earned premiums, has been performing well over the past few years. With the declining unemployment rate and improving economic conditions in the U.S., we expect another strong contribution from this business in the next two years. Furthermore, the company’s strategy to add industry verticals to expand its workers’ compensation portfolio seems to be on the right track. In late 2016, Hartford entered the energy market and has realized $24 million gross written premiums in this vertical ever since. This shows the company’s strength in underwriting capabilities, and the strategy could boost its top line.
- Foremost Renewal Rights: In February 2018, Hartford acquired the Foremost-branded small commercial business sold through independent agents from Farmers Exchanges. Foremost generated approximately $200 million in premium in 2017 and has about 5,000 agents and brokers working for the business. With this deal, Hartford will further enhance its already high performing small business and distribution. Furthermore, pricing improvements and new business should continue to drive growth in the Small Commercial and Specialty Commercial business.
- Improvement In Margins: Strong pricing increases in the Commercial Auto business, along with positive movement in the middle market – property, general liability, and workers’ compensation – will likely drive improvement in margins. That said, industry rate filings based on loss cost trends could have an offsetting effect.
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