Hedge Fund Manager David Tepper’s Bet on Hartford Financial
It doesn’t seem likely that Superstorm Sandy, which wreaked havoc across the Northeastern U.S. coastal regions little over a month ago, will claim Hartford Financial Services Group (HIG) as one of its casualties. True, the insurance giant has exposure to the massive losses incurred across the region – but a relatively small amount of the possibly $20 billion of insured losses, cushioned by the fact that the Hartford is a diversified insurer, whose business lines include life insurance as well as property and casualty, which does business not only in the United States but also Japan, and which also offers mutual funds.
Since Sandy, however, the Hartford is lagging a broad index of its giant peers, as seen in a stock chart, in spite of a big vote of confidence by hedge fund manager David Tepper. Tepper, founder of Appaloosa Management, tripled his stake in the Hartford during the third quarter according to SEC filings, and now owns more than 3.6 million shares. But the Hartford is in the midst of a strategic overhaul. It has sold its individual life insurance business to Prudential (PRU) and its retirement business to MassMutual. Another hedge fund manager, John Paulson, recently cut his holdings of Hartford, arguing that the measures it has taken aren’t adequate to boost the company’s price-to-book value ratio and close the gap between it and other property and casualty insurers, including Chubb (CB) and Travelers (TRV).
The company’s earnings are on an upswing, as a lack of natural disasters in the third quarter (pre-Sandy) and stronger pricing power in the property and casualty business helped boost both revenues and profits. But the company still must demonstrate its ability to deliver earnings gains on a consistent basis. Until then – and until the company has firm evidence that its restructuring strategy was the right approach to take and that the legacy issues surrounding variable annuities aren’t too big to be managed – Hartford Group may well remain a value stock with a question mark hanging over its head.
Suzanne McGee, a contributing editor at YCharts, spent nearly 14 years as a reporter at the Wall Street Journal, in Toronto, New York and London. She is also a columnist for The Fiscal Times, and author of "Chasing Goldman Sachs", named one of the best non-fiction books of 2010 by the Washington Post.
Filed under: Company Analysis