The Hartford (HIG)

Total return at 5 years: 18.1%/year = 16.4% appreciation + 1.7% dividend. The target price ($278) is ex-dividend; the $15 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $399 · Multiples $236) exceeds the market price ($130).

Today — with margin of safety: at $130 trades ~44.9% below its value discounted to today (~$236) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($278) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($130) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-17.7%/year) than we project (5.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.5 bn of owner earnings in year 5 (vs ~$5.1 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 is the TTM ended 30-Jun-2026, with Hartford Funds already reclassified to discontinued operations in all periods (sale agreement of 3-Jun-2026): TTM core net income (US$3.87bn) comes from adding the four quarters of already-restated core earnings from the financial supplement to the 8-K (Q2'26+Q1'26+Q4'25+Q3'25 = 945+812+1,087+1,022), and excludes both the gain on discontinued operations (US$370M in the half, with a one-off tax benefit of US$251M on the sale) and realized gains/losses and Navigators integration costs. The 8-K release (investor supplement) carries no explicit numerical revenue or earnings per share guidance for fiscal 2026 — only qualitative commentary by segment (price moderation in Personal Insurance, written premium growth in Business Insurance); the path starts from the trajectory of normalized core earnings, not from formal guidance. Base growth decelerates from ~7% to ~4.5% a year, reflecting the observed moderation in renewal price increases (Small Business: 6.5% in FY24 to 4.1% in the second quarter of 2026; Home: 12.6% to 10.4%) offset by a stable combined ratio around 89-90% and the tailwind from reinvesting the portfolio at higher yields. Book value per share excludes the impact of accumulated other comprehensive income (AOCI), consistent with the company's own non-GAAP presentation. Share repurchases (~US$1.6-1.7bn/year, ~3% a year of the count) are modeled via the declining share series.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $278 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $130, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $278 in 5 years plus $15 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $236. Against the current market price ($130), the margin of safety is 44.9% (trades below the maximum → there is margin) and the total return at that price would be 18.1% annually.

• Entry multiple. TTM P/E of 9× on core earnings, against an 11-15× band for the insurance archetype.
• Book value. Price to book value per share (excluding AOCI) is reasonable for the level of return on capital it sustains.
• Terminal-multiple sensitivity. The verdict depends on the market converging to the band midpoint (13.0×) rather than the floor (11.0×); if the pricing cycle deteriorates, the fair multiple could also compress.
• Dividend yield. Current dividend yield is modest (~1.7%) given low payout, with most capital return channeled via buyback rather than dividend.

• Return on capital. Core ROE of ~18.4% and GAAP ROE of ~22.3%, within excellent band (15-20%) and well above the 10% bar.
• Predictable cash generation. Technical-reserve float (US$64.0 billion invested assets) generates stable and rising investment income with reinvestment at higher yields.
• Combined ratio. TTM combined ratio of ~89.9% (underlying ~88.5% ex-catastrophes and reserve development), with healthy margin below 100.
• Reinvestment runway. Organic reinvestment runway is modest: underwriting-capacity growth does not absorb all generated capital, explaining heavy emphasis on buyback over retained capital.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The drivers of a property-and-casualty insurer are the combined ratio (how much each dollar of premium costs in claims and expenses) and renewal price (how much the premium can rise without losing policies); unlike a marketplace (GMV × take rate) or fintech (portfolio × spread), revenue growth here is earned premium × policy retention, and profitability depends on keeping the combined ratio below 100 even as renewal pricing moderates.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Written-premium growth. Business Insurance written premium growing ~8% year-over-year, the main engine of consolidated growth.
• Renewal-price moderation. Renewal price increases are falling across nearly all lines, the clearest sign that the favorable underwriting cycle is normalizing.
• Employee Benefits growth. Total revenue growing steadily (~5% annually), in line with insured employment and independent of the catastrophe cycle.
• Penetration ceiling. In mature lines such as Personal Insurance—Home, future growth depends more on retaining existing policies than on winning new market share.

• Line diversification. Business Insurance, Personal Insurance, and Employee Benefits reduce dependence on a single underwriting cycle, though all three share exposure to catastrophes and interest rates.
• Property-and-casualty cyclicality. The property-and-casualty business is inherently cyclical: capital enters the sector when return is high, compressing prices over time.
• Distribution-partner dependence. Personal Insurance relies heavily on the exclusive AARP license; renewal through 2032 gives visibility but concentrates distribution risk.
• Underwriting automation. ICON resolves over 75% of new small-business policies without human intervention, a measurable cost and speed advantage against manual-underwriting competitors.
• Asbestos and environmental exposure. The runoff of pre-1986 claims continues generating unpredictable reserve adjustments, a long tail that does not fully disappear.

• ✓Underwriting profitability (combined ratio)Combined ratio 89.9%
• !Reserve adequacy (development)Adverse -1.5% pts
• ✓Catastrophe exposure2.9% pts of the combined ratio
• ✓Book value compounding+16%/yr · core ROE 18%
• ✓Float return (investment income)$3.1 bn on $64 bn of float

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt to capitalization of ~16.6-18.2% (depending on AOCI inclusion), a conservative level for an insurer of this scale.
• Credit rating. Financial-strength ratings of A+ (A.M. Best), AA- (S&P), and Aa3 (Moody's) at principal subsidiaries, all with stable outlook.
• Fixed-charge coverage. Coverage of total income to fixed charges of ~19-20 times in recent quarters, ample cushion against debt service and preferred dividends.
• Asbestos and environmental reserves. The runoff of pre-1986 claims continues to require reserve adjustments (US$165 million in 2025), a source of long-tail reserve uncertainty that has not fully exhausted.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Management continuity. Christopher Swift has led the company since 2014 with stable executive team through a full underwriting cycle.
• Capital discipline. Sustained share repurchase (~US$1.5-1.7 billion/year) funded from operating cash, without leveraging the balance to return capital.
• Ownership transparency. The proxy does not disclose an aggregate management and executive ownership percentage; the figure remains declared pending rather than estimated.
• Strategic simplification. The sale of Hartford Funds concentrates the business on core insurance rather than pursuing diversification into asset management.

• Transitory accounting noise from Hartford Funds reclassification as discontinued operations: reported GAAP net income includes a one-off tax benefit of US$251 million from the sale, confusing the read of core earnings for those looking at the headline.
• Sector out of favor against technology and growth: property-and-casualty insurers rarely attract speculative flow, and the market tends to extrapolate recent pricing-cycle moderation as the beginning of structural deterioration.
• Multi-segment holding structure (Business Insurance, Personal Insurance, Employee Benefits) that makes sum-of-the-parts valuation difficult to see at a glance, favoring a consolidated multiple lower than each piece might merit separately.

No dramatic discount source like a recovery or recent spin-off: it is rather a mix of short-term accounting noise from Hartford Funds divestiture and lack of enthusiastic coverage of a mature sector. The price of $130 against a projected value of $278 suggests the market is discounting pricing-cycle moderation more than the stable combined ratio and ~18% return on capital justify.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +10%/year (+58% total): the margin of safety protects the downside. The bull (+23%/year, +187% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Climate catastrophes. Growing exposure to high-severity events (January 2025 California Wildfires cost US$305 million consolidated); climate change could be underestimated in pricing models.
• Underwriting pricing cycle. Renewal increases are falling across nearly all lines, with risk that margin compression accelerates if more capital enters the sector.
• Distribution concentration. Personal Insurance relies heavily on exclusive AARP license; eventual non-renewal in 2032 would be a structural event, though distant today.
• Hartford Funds sale execution. Deal closing and deployment of freed capital are not yet fully defined; suboptimal capital allocation would undercut part of the strategic-simplification narrative.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROE 18% above the 10% bar, with a +45% margin → a quality business at a good price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a PEG of 1.7 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -18% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +8%/yr, bull-scenario ceiling +22%/yr over 5y and a +45% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -18%, within what we project (6%) — the story squares with the numbers.