Core earnings from earned premiums and fees fell 6% year over year to $4.51 billion, an expected decline as the company continues to divest non-core businesses while focusing on property and casualty, group and mutual-funds operations. 

The insurer entered an agreement with industry peer AIG (AIG) for the sale of its broker-dealer business, Woodbury Financial Services, and also unveiled plans to divest its retirement and life insurance divisions. 

We discuss below a few metrics that influence our $18 valuation of Hartford Financial's stock.

Focus on property and casualty

The property and casualty division is the primary bread-winner for Hartford, accounting for 35% of the company's revenues. Catastrophe losses fell sharply from the last year when the insurer was hit hard by storm losses and litigation costs relating to asbestos lawsuits. Total catastrophe losses for the quarter were $189 million after-tax, a 35% drop from $290 million loss reported last year. This drop, along with improved pricing and underwriting by Hartford, helped the P&C commercial division on its way to a 26% increase in net income for the second quarter.

New auto and homeowners insurance saw a 17% rise in written premium as the company's increased focus in these areas coincided with improving trends in the industry. Leaving the worst of the recession behind, the housing market in the U.S. has shown signs of a resurrection in the past few months. A continued improvement in the industry will be beneficial for Hartford, which seeks to offset low yields from bonds and stocks through investments in higher yielding mortgage loans.

We believe that the P&C division, which accounts for 43% of Hartford's stock value, will continue to be profitable as it receives increased attention in the future.

Divestiture on track

Hartford recently sold its individual annuities new business capabilities to Forethought Financial Group, Inc., a Houston based financial services company, and has also announced plans to exit the life insurance business. In-line with the exit strategy, the company shut down the variable annuities business in the U.S. Hartford is not the only insurer to take a prudent stand on equity-linked products as MetLife (MET) has also cut back on variable annuity sales.

Although the company has revealed plans to sell its retirement division, we still project a slight growth on its performance in the first half of the year. We will keep a close eye on the progress of the divestiture and will update our model once the deal is complete and the terms are disclosed.

Our $18 price estimate of Hartford Financial's stock is about 10% above the current market price. You can gauge the effect of a change in the forecast by modifying the interactive charts above.

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