Even though prolonged high inflation would materially increase the risks of significant pricing errors and reserve deficiencies, the ongoing positive pricing environment and potential for further redundancies from declining claims frequency positions the property and casualty insurance industry for fruitful gains. Moreover, the workers’ compensation line remains the largest source of favorable development for the industry. According to a Mordor Intelligence report, the U.S. property and casualty insurance market is expected to grow at a CAGR of 6% by 2025. Therefore, both Hartford Financial Services Group (HIG) and American International Group (AIG) should benefit.
HIG provides insurance and financial services to individual and business customers. The company operates through five segments: Commercial Lines; Personal Lines; Property & Casualty Other Operations; Group Benefits; and Hartford Funds. AIG offers commercial, institutional, and individual insurance products. The company operates through two segments: General Insurance and Life and Retirement.
AIG has gained 1.4% year-to-date, while HIG has returned 1.3%. Also, AIG’s 20.9% gains over the past nine months are significantly higher than HIG’s 12.9% returns. Moreover, AIG is the clear winner with 21.3% gains versus HIG’s 1.8% returns in terms of the past year’s performance.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On February 16, 2022, HIG’s Board of Directors declared a dividend of $0.385 per share of common stock, payable April 4 to common stock shareholders of record at the close of business on March 1.
On April 08, 2022, AIG announced that it would redeem all of its outstanding 1.5% Notes Due 2023 on May 10, 2022.
Recent Financial Results
HIG’s total revenue increased 9.2% year-over-year to $5.82 billion for the fiscal fourth quarter ended December 31, 2021. The company’s net income came in at $724 million, representing a 36% year-over-year increase. Also, its EPS came in at $2.10, up 43% year-over-year.
AIG’s net investment income declined 9.9% year-over-year to $3.57 billion for the fiscal fourth quarter ended December 31, 2021. However, its net income came in at $3.74 billion, compared to a loss of $60 million in the prior-year quarter. Also, its EPS came in at $4.38 compared to a loss of $0.07 in the year-ago period.
Past and Expected Financial Performance
HIG’s revenue and total assets grew at CAGRs of 5.7% and 7.1%, respectively, over the past three years. Analysts expect HIG’s revenue to decrease 0.1% in fiscal 2022 but increase 3.6% in fiscal 2023. The company’s EPS is expected to grow 11.5% in fiscal 2022 and 16.8% in fiscal 2023. Moreover, its EPS is expected to grow at a rate of 13% per annum over the next five years.
On the other hand, AIG’s revenue and total assets grew at CAGRs of 3% and 6.6%, respectively, over the past three years. The company’s revenue is expected to decrease 8% in fiscal 2022 but increase 3.9% in fiscal 2023. Its EPS is expected to grow 1.1% in fiscal 2022 and 20.2% in fiscal 2023. AIG’s EPS is expected to grow at a rate of 30.7% per annum over the next five years.
Profitability
AIG’s trailing-12-month revenue is 2.33 times what HIG generates. AIG is also more profitable, with a gross profit margin and net income margin of 37.52% and 18.04%, compared to HIG’s 35.53% and 10.58%, respectively.
However, HIG’s ROA and ROTC of 2.59% and 8.44% are higher than AIG’s 1.18% and 6.78%, respectively.
Valuation
In terms of trailing-12-month non-GAAP P/E, AIG is currently trading at 11.13x, 9.1% higher than HIG’s 10.20x. Moreover, AIG’s trailing-12-month EV/S ratio of 1.68x is 30.2% higher than HIG’s 1.29x.
So, HIG is relatively affordable here.
POWR Ratings
HIG has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. On the other hand, AIG has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
HIG has a B grade for Growth and Sentiment, consistent with analysts’ expectations that its revenue will increase in the upcoming months. On the other hand, AIG has a C grade for Growth and Sentiment, in sync with analysts’ expectations that its revenue will decline in the near term.
Moreover, HIG has a B grade for Stability, in sync with its beta of 0.99. In comparison, AIG has a C grade for Stability, in sync with its beta of 1.27.
Of the 56 stocks in the B-rated Insurance - Property & Casualty industry, HIG is ranked #1. In comparison, AIG is ranked #29.
Beyond what I’ve stated above, we have also rated the stocks for Quality, Momentum, and Value. Click here to view all the HIG ratings. Also, get all the AIG ratings here.
The Winner
The property and casualty insurance industry is well-positioned to grow with the continued economic recovery. While both HIG and AIG should benefit, HIG is a better buy because of its lower valuation, higher profitability, and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Insurance - Property & Casualty industry here.
HIG shares were trading at $70.73 per share on Wednesday afternoon, up $0.79 (+1.13%). Year-to-date, HIG has gained 3.01%, versus a -11.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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