The Hartford
By Stacia Smith
Executive Summary
The Hartford has been around for over 200 years. They continue to adapt and make changes to stay a Fortune 500 company. As of current day, there are still many challenges The Hartford still has to face in order to drive their profit up. The Hartford is being affected by their current realignment. They are in the process of refocusing their priorities. They will be focusing on Property and Casualty, Group benefits and Mutual Fund Businesses, and place their Individual annuity business into run off. They are also going to be expanding their sales departments and finding other alternatives for their Life, Financial services and retirement plans. The insurance market is currently being affected by interest rates, credit spreads, equity prices, market volatility and foreign exchange rates. Insurance is also affected by natural physical events such as hail, hurricanes, and climate changes. These are a major factor for all insurance companies and will have to be taken care of individually. The Hartford has a great company culture. They reward their employees and are very much into giving back to the community. Since the company was founded in 1810, The Hartford has gone through many changes and leaders, but they manage to stay a competitor. The Hartford has managed to lock in contracts and be affiliated with AARP, AKC, Sierra Club and National Wildlife Federation. They are also known for writing Babe Ruth’s “sickness policy” in 1920 that protected him from not getting paid if he was sick. The Hartford did not become an independent entity again until 1995, when they were once again traded on the NYSE. This prompted them to change their name from ITT Hartford Group to The Hartford Financial Services Group. In 2003, The Hartford formed a founding partnership with the US Paralympics. The strongest reward The Hartford has received was being named among The World’s Most Ethical Companies for the 4th year in 2011.The Hartford currently restructuring their portfolio is what is reflecting in their current financial statements. CEO, Liam McGee, is focused on getting rid of debt and markets that aren’t benefiting the company as a whole. The current opportunities for The Hartford are hard to determine until the PPACA has been determined. The PPACA is also a threat to The Hartford and the insurance industry as they will be facing more regulations and rules on what they can and cannot do. They are also going to have to make new formulas on how to charge for risks and areas until they are told they have to charge the same across the board. I believe with the changes that are currently underway for The Hartford, they are only going to continue to get better and stronger. With the restructuring of markets that weren’t beneficial, and applying the extra funds to existing markets, they are going to start to show more improvements. With these changes underway, they may experience a drop in market share, but that should only be reflective of the change and not the outcome. I think The Hartford has a strong outreach and their support with their employees is only a small reflection of the support of the customers.

Introduction
The Hartford’s current corporate business segments are Property and Casualty, Group Benefits, Mutual Funds, Individual Annuity, Individual Life, Woodbury Financial Services and Retirement plans. March 21, 2012 The Hartford did announce they would be placing their “Individual Annuity business into runoff and pursue sales or other strategic alternatives for the Individual Life, Woodbury Financial Services and Retirement Plans.” (10-Q, 3) and focusing on only the Property and Casualty, Group Benefits and Mutual Funds. April 26, 2012, the company announced that it had entered into an agreement to sell its individual annuity new business capabilities to a third party. What that means, any new business policy is going to be re-written to the new company. The Hartford will no longer be affiliated with the Individual Annuity new business plans. The Hartford is organized into four divisions: Commercial Markets, Consumer Markets, Wealth management and Runoff Operations and they conduct business in nine reporting segments as well as the corporate category. Those segments are Property and Casualty Commercial, Group Benefits, Consumer Markets, Individual Annuity, Individual Life, Retirement Plans, Mutual Funds, Life Other Operations, Property and Casualty Other operations and Corporate. The top two segments for The Hartford are Property and Casualty Commercial and Individual Annuity. With that said, Individual Annuity is still one of their strongest markets but it is also the market that has seen the largest decrease in revenue over the past 5 years. Last year alone, there was a loss of over $80 million. The Property and Casualty Commercial segments is one that provides workers’ compensation, property, auto, marine, livestock, liability and umbrella coverage’s. This is a market that is going to be around for years to come, as this type of insurance is not in the process of being regulated by the PPACA, just yet. Group Benefits provides employers, associations, affinity groups and financial institutions with group life, accident and disability coverage, along with other products and services that include voluntary benefits and group retiree health. This segment is going to be affected by the PPACA. But it is unclear of the exact effects until the law has fully been put into effect. Consumer Markets provides standard auto, home and home-based business coverage’s to individuals. This included the specialized AARP program that also operates a member contact center for health insurance products offered through the AARP Health program. The auto, home and HBB will not be affected by the PPACA but the health program is under the threat.
Their mutual funds offer “retail mutual funds, investment-only mutual funds and college savings plans under Section 529 of the code and proprietary mutual funds supporting insurance products issued by The Hartford.” (10-Q, 15) These are the four strongest segments that aren’t being restructured as of present day. There are many challenges facing The Hartford. The biggest being the uncertainty of the strength and speed of the economic recovery. Every day the struggle continues, is another policy or segment that is being affected. With the unknown certainty of the market, The Hartford decided to look closer into their current business segments, which prompted the realignment of their annuity business. As with all insurance companies they are also affected with the changes in interest rates, credit spreads, equity prices, market volatility and foreign exchange rates. But these are all factors in the global exchange rate. The Hartford is also affected by weather and other natural physical events because they are unpredictable but they affect their payouts. Key officers and directors for The Hartford are as follows: Liam McGee, Christopher Swift, Douglas Elliot, David Levenson, Hugh Whelan and Lizabeth Zlatkus. Liam McGee has served as chairman and CEO since he started with the company in 2009. In 2011, Mr. McGee requested no bonus be paid. Even though it was determined he should receive the award, the company honored his request to not have a payout. Christopher Swift has served as CFO since 2010. Swift was able to execute the sale of several non-core businesses, including Federal Trust Bank and Specialty Risk Services. Douglas Elliot is the President of Commercial Markets. Elliot is known for how quickly he learned The Hartford’s business and how he developed credibility as the new Commercial Markets leader. David Levenson has been the President of Wealth Management since 2010. Mr. Levenson strengthened the Mutual Funds platform for growth by negotiating an agreement with Wellington to be the company’s sole sub-advisor.

Mr. Hugh Whelan assumed interim responsibility as the CIO and acting President of HIMCO. Mr. Whelan made the transition to HIMCO after the former leader departed. He also significantly outperformed the benchmark on general account investment returns. Lizabeth Zlatkus served as Chief Risk Officer until her retirement in Oct. 2011. With the type of industry The Hartford is in, they are not allowed to make substantial dividend declarations. In 2010, they had $0.05 declared for each quarter and for 2011 they increased this to $0.10. Because of the current state of the economy, The Hartford is feeling the effects. But they are still strong and stable. After the restructuring and realignment has finished, their stock price should go up. The projected EPS is expected to double by end of 2013.

52 Week | High | Low | 23.96 | 14.56 | 26 Jul 2011 | 04 Oct 2011 | |

P/E Ratio | 31.16 | Indicated Annual Dividend | 0.40 | Beta Coefficient | 2.98 | Earnings per Share | 0.54 | Yield (%) | 2.46 | Market Cap (billion) | 7.17 B | Shares Outstanding | 440,865,000 |

| | | For years ending December 31, | | | | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | (in millions) | | | | | | | | | | | | | | | | Revenue from Premiums | | 21,859 | 22,049 | 24,433 | 9,219 | 25,916 | 26,500 | Total operating Expenses | | 21,629 | 19,693 | 26,154 | 13,810 | 21,911 | 22,898 | Operating income before income taxes | | 230 | 2,356 | -1,721 | -4,591 | 4,005 | 3,602 | Taxes related to operations | | 576 | 1,744 | -883 | -1,842 | 1,056 | 857 | Net Income | | 662 | 1,680 | -887 | -2,749 | 2,949 | 2,745 | | | | | | | | | Vertical | | | | | | | | Revenue from sales | | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | | Total operating expenses | | 98.0% | 89.3% | 107.0% | 149.8% | 84.5% | | Operating income before income taxes | | 1.1% | 10.7% | -7.0% | -49.8% | 15.5% | | Taxes related to operations | | 2.6% | 7.9% | -3.6% | -20.0% | 4.1% | | Net income | | 3.0% | 7.6% | -3.6% | -29.8% | 11.4% | | | | | | | | | | Horizontal | | | | | | | | Revenue from sales | | 99.1% | 90.2% | 265.0% | 35.6% | 97.8% | | Total operating expenses | | 109.8% | 75.3% | 189.4% | 63.0% | 95.7% | | Operating income before income taxes | | 9.8% | NA | NA | -114.6% | 111.2% | | Taxes related to operations | | 33.0% | NA | NA | -174.4% | 123.2% | | Net income | | 39.4% | NA | NA | -93.2% | 107.4% | | | | | | | | | | | | | | | | | | Current Ratio | 5.3x | 1.081 | 1.068 | 1.062 | 1.033 | 1.056 | | Debt ratio | | 0.925 | 0.936 | 0.942 | 0.968 | 0.947 | | ROA | 0.08% | | | | | | | ROE | 1.58% | | | | | | | Gross Margin | 20.39% | | | | | | | Quick Ratio | 4.7x | | | | | | |

The vertical analysis shows The Hartford struggled in 2008. They had more expenses then what they had for income. This is when they appointed a new CEO, Liam McGee. In 2009, there was a drastic difference in expenses from the previous year. Also in 2008, The Hartford received a tax break and did not have to pay as many taxes on income related to operations. The Hartford saw their turnaround in 2009. But the full turnaround is still being felt as of current day and this is because there are still changes taking place with The Hartford business segments.
The horizontal analysis shows the changes Liam McGee made in 2009. It is apparent with the 265% increase in revenue. But the slow decline in income is what prompted the CEO to place the annuity business into runoff. The segment was the only one that continued to show a decline over 5 years. The analysis also confirms the vertical analysis when it comes to The Hartford’s year of struggle, which was 2008.
The analyses’ show the effect of the economy and that the interest rates area also effecting the industry as a whole. With the industry The Hartford is in, they are also greatly affected by the natural disasters that occur. Many occurrences are out of their control, but they are making other adjustments to account for that.
The current ratio is showing The Hartford is not in great financial health. But their current ratio is getting stronger which means they are more capable of paying back their short-term liabilities with their short-term assets. This ratio does not mean they are going to go bankrupt but it does show they are struggling; which is apparent in the vertical and horizontal analysis.
Their debt ratio is also getting stronger. In 2008, their ratio was 96% and in 2011 their ratio is 92%. This does not seem like a major drop, but we are talking millions of dollars in difference. The new CEO is definitely starting to make the changes show. All the changes he has made have only strengthened the company. There are a lot of good things happening for The Hartford. It is only a matter of time before those changes really start to show on their financial statements. Their stock price is slowly starting to go back up and their debt is starting to go down. Thing’s do look bright for The Hartford’s future.

Profitability ratios: | | | | | | | 2011 | | 2010 | | 2009 | Total Net Income | $662,000,000 | | $1,680,000,000 | | -$887,000,000 | | | | | | | Total assets | $304,064,000,000 | | $318,346,000,000 | | $307,717,000,000 | Total Liabilities | $281,154,000,000 | | $298,035,000,000 | | | Total stockholders equity | $22,910,000,000 | | $20,311,000,000 | | | | | | | | | Total revenue | $21,859,000,000 | | $22,049,000,000 | | $24,433,000,000 | Interest expense | $508,000,000 | | $508,000,000 | | $476,000,000 | | | | | | | Total debt | $6,216,000,000 | | $6,607,000,000 | | $5,839,000,000 | Average total assets | $311,205,000,000 | | $313,031,500,000 | | | | | | | | | Current Ratio | 1.081485592 | | 1.068149714 | | | Debt ratio | 0.92465402 | | 0.93619835 | | | Net Profit Margin | 0.0303 | | 0.0762 | | | Total asset turnover | 0.0021 | | 0.0054 | | | ROA | 0.0702 | | 0.0704 | | | DuPont Analysis | 7% = 3% x 0.2% | | | | |

The Hartford’s Current ratio is showing they have a good control over their receivables. And their debt ratio shows they are 92% financed by other creditors. This is normal for many insurance companies in the industry. Both their current ratio and debt ratio have improved over the past year. The DuPont analysis shows the decrease in ROA was due to the fact that there was a significant decrease in net profit margin. There was a significant difference between 2010's net income and 2011's, which is what prompted the placement of the annuity segment into runoff. Over the past year, things are just starting to level off from the fall of 2008. Liam McGee has done an amazing job at re-focusing the company to a more profitable portfolio. The Hartford is struggling, but there seems to be a light at the end of the tunnel now that they are restructuring the company. There were no adjustments to the financial statements for the ratio analysis.
Liquidity Ratios: | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | assets | $30,371,000 | $28,233,000 | $25,097,000 | $16,863,000 | $24,534,000 | | liabilities | $7,461,000 | $7,922,000 | $7,232,000 | $7,595,000 | $5,330,000 | | revenues | $21,859,000 | $22,049,000 | $24,433,000 | $8,937,000 | $25,623,000 | | premiums receivable and agents balences | $3,446,000 | $3,273,000 | $3,404,000 | $3,604,000 | $3,681,000 | $3,675,000 | average gross recievables | $3,359,500 | $3,338,500 | $3,504,000 | $3,642,500 | $3,678,000 | | | | | | | | | Accounts recievable turnover | 6.51 | 6.60 | 6.97 | 2.45 | 6.97 | | Accounts recievable turnover in days | 56.10 | 55.27 | 52.35 | 148.76 | 52.39 | | Days in recievables | 57.54 | 54.18 | 50.85 | 147.19 | 52.44 | | Current Ratio | 4.07 | 3.56 | 3.47 | 2.22 | 4.60 | | Working capital | $22,910,000 | $20,311,000 | $17,865,000 | $9,268,000 | $19,204,000 | |

2008 was definitely a harder year for The Hartford. But their numbers are steadily improving. Their reciveables turnover is 6.5 times a year. They also average about 57 days for each account that is in recieveables. Their current ratio is going up which shows they are in a better position of paying their short term debt. The Hartford is also showing a stronger working capital. So they do have a little bit more finances if they want to make changes; which is exactly what they are doing. For the 2012 year, they are going to be showing debt they took on in 2008. So the numbers are going to be skewed next year. But based off the financials currently, they are only strengthening their share and growth in the market.

Long-Term Debt Paying Ratios | 2011 | 2010 | 2009 | 2008 | 2007 | assets | $30,371,000 | $28,233,000 | $25,097,000 | $16,863,000 | $24,534,000 | liabilities | $7,461,000 | $7,922,000 | $7,232,000 | $7,595,000 | $5,330,000 | equity | $22,910,000 | $20,311,000 | $17,865,000 | $9,268,000 | $19,204,000 | revenues | $21,859,000 | $22,049,000 | $24,433,000 | $8,937,000 | $25,623,000 | Intangible assets | NA | NA | NA | NA | NA | Interest expense | $508,000 | $508,000 | $476,000 | | | Income tax expense or benefit | -$346,000 | $612,000 | -$838,000 | -$1,848,000 | $1,040,000 | noncontrolling interest | na | na | $29,000 | | | | | | | | | | | | | | | | | | | | | Debt Ratio | 24.57% | 28.06% | 28.82% | 45.04% | 21.72% | Debt/Equity Ratio | 32.57% | 39.00% | 40.48% | 81.95% | 27.75% |

These two ratios confirm the struggle The Hartford was experiencing in 2008. The changes Liam McGee has made has only improved their financial status. Their debt ratio is only improving along with their debt to equity ratios. Both are extremely strong ratios for their industry. The Hartford is showing they have room to take on more debt but they are also streamlining their portfolio before they take on more debt.
My recommendations for The Hartford would be to continue to streamline their portfolio and to continue to minimize their debt. They do have to claim addition debt this year from a purchase in 2008. So it would be wise of them to continue to reduce costs and debt until they show a stronger hold on their current assets.
Right now would be a good time to invest in The Hartford. They are just starting to turn around from the market crash of 2008. Their market price has increased over $2.00 in the last 8 weeks. This is also due in part to the finalization of the sale of their Annuity segment. The Hartford has done many things to turn themselves around. Their refocus of market segments has really helped them out. They continue to be one of The World’s Most Ethical companies 4+ years running and they are also big on giving back. I do not see anything in their near future that is going to derail the newfound success this company is seeing. Being around for over 200 years definitely has its advantages.

Sources:
Bloomberg businessweek. (2011, 03 14). Retrieved from http://investing.businessweek.com/research/stocks/financials/secfilings.asp?ticker=HIG
Investor relations. (n.d.). Retrieved from http://ir.thehartford.com/phoenix.zhtml?c=108754&p=irol-irhome
MSN Money. (2011). Retrieved from http://investing.money.msn.com/investments/stock-price?symbol=US:HIG&ocid=en-us_bingiaquotebtn
Reuters. (2012, August 10). Retrieved from http://www.reuters.com/finance/stocks/companyOfficers?symbol=HIG
SEC. (2012, March 09). U.s. securities and exchange commission. Retrieved from http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000874766&owner=include&count=40&hidefilings=0