Reuters: Hot Stocks: UPDATE 4-Under pressure, Hartford to sell some units

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UPDATE 4-Under pressure, Hartford to sell some units Mar 21st 2012, 15:37 Wed Mar 21, 2012 11:37am EDT * Will shut down annuities, sell individual life * To focus on property, group benefits, mutual funds * CEO says sale process to take up to 18 months * Shares up 4.6 pct near midday By Ben Berkowitz March 21 (Reuters) - The Hartford Financial Services Group Inc, under pressure to boost its stock price from hedge fund manager John Paulson, said it would get rid of most of its life insurance-related operations and focus on being a property insurance and group benefits company. The Hartford, one of the oldest companies in the United States and one of three insurers to receive a government bailout during the financial crisis, said it would shut down its annuity business and pursue a sale or other options for its individual life insurance, retirement plan and broker-dealer businesses. The decision, announced on Wednesday well before sunrise, caps a tumultuous six weeks for the Hartford, whose shares were up 4.6 percent in late morning. Stifel Nicolaus analyst Meyer Shields estimated the company could end up with proceeds of about $1.5 billion from the asset sales, mostly from the life and broker-dealer businesses. The company's recent problems started on Feb. 8, when Paulson screamed at management on a quarterly earnings call that the Hartford had to do something "drastic" to improve its industry-low valuations. Paulson, the company's largest shareholder, subsequently pushed for a split of the life and property insurance businesses. Most analysts agreed with the idea, but said it would be difficult to implement because the life unit would have problems servicing debt and might not receive a strong enough credit rating to continue writing new policies. Standard & Poor's quickly downgraded each of Hartford's life units on Wednesday and cut the main unit's senior debt to one notch above "junk" status. On the other hand, both Moody's and Fitch maintained their ratings. 'MANY OPTIONS' Hartford Chief Executive Liam McGee said in an interview that the plan was not a direct reaction to Paulson and that management and the board had been looking at alternatives since the middle of last year. "We take suggestions from all of our shareholders, not just Paulson but all of our shareholders, quite seriously," McGee said. "Clearly, we evaluated a split but we were in the course of evaluating many options." McGee also said the course the Hartford chose was a "far superior plan" than a traditional split. Paulson & Co is "studying" the announcement, a spokeswoman said. As of March 9 the firm owned 37.5 million Hartford shares, an 8.5 percent stake. The news took analysts by surprise, both in its timing and scope. "While these actions are a bit more than I was expecting, they are less than John Paulson was proposing," said Robert Glasspiegel, an analyst at Janney Capital Markets unit Langen McAlenney, in a note to clients. SHIFTING FOCUS The Hartford said it would now focus on its property and casualty, group benefits and mutual fund businesses. It will keep writing business in the for-sale units while it pursues a deal or deals. Hartford said it would stop new annuity sales from April 27 and take a related after-tax charge of $15 million to $20 million in the second quarter. The company was once one of the largest annuity producers in the country, but it grew more conservative after the crisis and was not even in the top 20 in the most recent industry rankings. Annuities are investment contracts that turn upfront premiums into monthly income over time. The individual life business write $149 million in direct premiums last year, up 6 percent on 2010, but core earnings fell by nearly half as expenses rose sharply. Total fee income in the retirement plans business also rose 6 percent last year, but core earnings fell 73 percent as benefits and expenses rose. Assets under management were $52.3 billion at Dec. 31. McGee said the sale process should take 12 to 18 months. He also said Hartford was targeting a return on equity of 12 to 13 percent in 2012 for the remaining units, which account for virtually all of the company's earnings. Analysts have said the company's prior 2012 earnings forecast implied a return on equity of about 8 percent. Shares of the Hartford were up 4.6 percent at $22.71 in late morning on Wednesday. At Tuesday's close, the stock had risen 13.5 percent since Feb. 8, far outperforming a 2.7 percent gain for the broader industry index. Paulson had suggested his breakup plan could boost the stock by as much as 60 percent. Still, the Hartford has a sharply lower valuation than peers. It trades at just 0.43 times its book value, against a sector average of 1.07 times book for property insurers. It is also trading at 6.5 times estimated future earnings, against an average of 12 times for life insurers. S&P Capital IQ analyst Cathy Seifert raised her price target, assuming the company will trade at 7.8 times earnings. "This represents a discount to certain peers, that we view as warranted amid the execution risk we foresee," she said. Link this Share this Digg this Email Reprints

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