Hartford Financial Stock: Re-Rating Potential (NYSE:HIG)

Hartford Financial Services (NYSE:HIG), a diversified financial company offering commercial insurance, personal insurance, group benefits, and mutual funds across the US, recently held its virtual investor day featuring optimistic commentary on the health and prospects of the business over the medium to longer-term. In particular, the P&C (“property & casualty”) insurance underlying combined ratio and ROE guidance were bright spots, reflecting expectations for recent favorable trends to continue into the upcoming years. Yet, HIG trades below P&C peers as investors continue to view it as a ‘show me’ story, likely only providing credit for results when delivered. But over time, I think the relatively low P/B value compared to its strong ROE and book value growth should result in a re-rating.

Compelling Setup for Commercial Heading into 2022

HIG reaffirmed the near-term guidance laid out with its prior earnings report, with commercial lines NWP (“net written premiums”) growth guided at 4% to 5% in fiscal 2022 with an underlying combined ratio of 86.5% to 88.5% (vs. 88.8% YTD). While the flat guidance might disappoint some investors, management did indicate it is running ahead of plan with commercial lines growth coming in at 11% this year and expected to hit 4.5% in fiscal 2022, implying a solid 7-7.5% CAGR. And while HIG refrained from updating its margin guidance (beyond the 2%pts of underlying improvement expected in 2022),…