NEW YORK ( Trefis ) -- Hartford Financial (HIG) - Get Hartford Financial Services Group, Inc. (HIG) Report provides insurance and investment products to customers across the globe. Outside of the U.S., the company maintains operations in Japan, the United Kingdom, Canada, Brazil and Ireland. With total assets of $308 billion as of 2009, it is one of the largest insurance companies in the U.S. Its main competitors are AIG (AIG) - Get American International Group, Inc. Report, MetLife (MET) - Get MetLife, Inc. (MET) Report, State Farm Insurance and All State Insurance.
The property and casualty insurance business constitutes about 37% of our $25.93 price estimate for Hartford Financial's stock. Our price estimate currently stands about 8% below market price.
The Hartford's Property and Casualty Insurance Business
The Hartford writes several lines of property and casualty insurance.
Personal Lines - It sells automobile, homeowners and home-based business coverage directly to consumers as well as through a network of independent agents.
Small Commercial - It provides standard commercial insurance coverage to small businesses, primarily within the United States.
Middle Market - It offers workers' compensation, property, automobile, liability, marine and livestock coverage to large commercial establishments.
Specialty Commercial - It offers a variety of customized insurance products and risk management services.
The U.S. property and casualty insurance industry is a fragmented industry with five players capturing about a third of the total market. The total premiums from property and casualty insurance in the U.S. remained stable around $440 billion during 2006 to 2008 but declined sharply to $427 billion in 2009 as the sales of houses and cars fell during the economic downturn. The industry is expected to recover slowly as a large inventory of homes will maintain downward pressure on pricing. Sales of new homes in the U.S. increased by 5.5% during November 2010 but the growth outlook still appears bleak. Reported estimates suggest that a normal rate of 600,000 new homes sales per year might not be achieved until 2014.
Further, aggressive competition in the auto and home insurance industry has caused insurance writers to appeal to consumers on policy pricing, as there is little product differentiation among auto and home insurance policies. We anticipate that U.S. property and casualty premiums will maintain moderate, but steady, growth over the coming years.
What's the Outlook for Hartford Financial's Market Share?
Hartford Financial has had some success diversifying its offerings in the property and casualty insurance sector. Premiums from home insurance only constitute around 11% of its total property and casualty insurance premiums. As a result, Hartford Financial's market share remained almost stable around 2.4% during 2008-09 while competitor AIG saw it market share decline from 8.2% in 2008 to 7.6% in 2009.
We estimate that Hartford Financial will increase toward 2.6% by 2017 due to its strong brand image and distribution capabilities. However, even if this share were to increase to 3% by the end of our forecast period, it would only imply 4% upside to our price estimate, still leaving our number below market price. We remain bearish on valuation for Hartford Financial stock.
To see the impact of various scenarios for Hartford Financial's share of the U.S. Property and Casualty market on the company's stock value, drag the trend line in the modifiable chart above.
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complete $25.93 Trefis Price estimate for Hartford Financial's stock here.
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