On the back of lower investment losses and strong performance in the fourth quarter, the rating agency Standard & Poor’s (S&P) Ratings Services has upgraded its outlook on The Hartford Financial Services Group Inc. (HIG), as the company diverts to safer risk profiles in its investment portfolio.
S&P has raised the outlook to “stable” from “negative,” while it resumed Hartford’s counterparty credit rating stands at “BBB”.
Hartford’s performance in its underwriting business continued to be strong, and besides, the company’s move to reduce its exposure to real estate related securities and hedge funds contributed to boosting the outlook.
Fitch Ratings also raised the outlook in February to “stable” from “negative,” while it resumed Hartford’s ratings of “BBB” issuer default ratings (“IDR”).
Recently on February 3, Hartford posted a solid net income of $619 million or $1.24 per share in the fourth quarter of 2010 as opposed to a net income of $557 million or $1.19 per share. In fiscal 2010, net income was $1.68 billion or $2.49 per share as against a net loss of $887 million or $2.93 per share in fiscal 2009.
Better investment results, strong growth in assets under management, reduced levels of net realized capital losses and Hartford’s impressive book value during the quarter led to strong net income, which has in turn improved the ratings of Hartford.
However, Hartford expects earnings growth to slow in the near-to-intermediate term, due to its concentration in lower margin retirement savings businesses. Moreover, the hike in inflation might result in a decline in sales, further leading to a decline in operating margins.
Nevertheless, S&P believes that Hartford’s underwriting performance will likely offset any future impairments and realized losses in its investment portfolio. Moreover, the company has strong positions in its three main segments covering consumer markets, commercial markets and wealth management.
Besides, Hartford has an excellent liquidity position, and has thus doubled its dividend during the fourth quarter since the recession. Hartford declared a quarterly dividend of 10 cents per share, payable on April 1 to shareholders of record as of March 1.
Hartford’s board also declared a dividend of $18.125 on each share of the Series F Preferred Stock of the company (equivalent to $0.4531 per depository share) payable on April 1, to shareholders of record as of March 15, 2011.
We believe that with the repayment of the government bailout amount last year, Hartford is focused on lowering the risk exposure of its capital, a positive that could increase operational efficiencies by enabling allocation of capital for share repurchases and dividend payments.
Besides Hartford, on February 9, Fitch upgraded the IDR to ‘BB+’ from ‘BB-‘ of Health Net, Inc. (HNT) and the ratings on Health Net’s senior unsecured notes to ‘BB’ from ‘B+’. Additionally, Fitch has upgraded the Insurer Financial Strength ratings of Health Net’s subsidiaries to ‘BBB’ from ‘BBB-‘, keeping the rating outlook stable.
HARTFORD FIN SV (HIG): Free Stock Analysis Report
HEALTH NET INC (HNT): Free Stock Analysis Report
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