By Andrew Frye on Bloomberg:
Hartford Financial Services Group Inc. may be forced to split off its money-losing life insurance unit from the profitable property-casualty business after losing $3.4 billion over two quarters.
A Citigroup Inc. analyst and the company’s third-biggest shareholder today questioned the strategy of keeping the two businesses united under the two-century old insurer. Hartford plunged 16 percent to $12.68 at 4:15 p.m. in New York Stock Exchange composite trading and was downgraded by Moody’s Investors Service today after posting an $806 million loss yesterday and missing its own capital targets at the life unit.
“We believe that at some point the company will have a come-to-religion moment,” Citigroup’s Joshua Shanker said in an interview. The downgrade by Moody’s “could stimulate Hartford to seek out strategic alternatives, specifically a sale of the life business,” he said in a note.
Chief Executive Officer Ramani Ayer, participating in a conference call with investors, said the disparate businesses provide stability through diversification and gave the insurer access to a greater number of customers under its brand, known for its stag logo. He was responding to Jon Bosse of NWQ Investment Management, the No. 3 investor, who asked “why, or if, these companies have to be together?”
Hartford had its financial-strength ratings cut today by Moody’s, a move the company said would hurt its ability to sell policies to institutional clients. Hartford, named for the Connecticut city where it’s based, has cut jobs and applied for government aid to replenish capital depleted by investment declines. The insurer’s stock dropped more than 80 percent in the past year.
The company, valued at about $3.8 billion on the stock exchange, could get between $4 billion and $8 billion for its property-casualty unit, which insures businesses, cars and homes, Shanker said. The life insurance unit, which could help a better capitalized competitor gain market share, may not fetch a positive price from a buyer, according to Shanker. If Hartford sold the life insurance unit for $1, the stock could double in value, he said.
Shanker said that by selling the property-casualty business Hartford would be left “with a lot more capital than it has today.” Some of largest insurers in the U.S. and Canada may consider bids for Hartford units, he said.
The insurer may be allowed by its state regulator to reduce reserves in an effort to bolster the company’s finances, according to a person familiar with the matter. Connecticut’s insurance commissioner, Thomas Sullivan, has notified regulators in other states of his intention to let Hartford change accounting so the company has more cash available, said the person. He declined to be identified because Connecticut’s decision isn’t final.
Shannon Lapierre, a Hartford spokeswoman, declined to comment on whether the company was considering a breakup or discuss the status of the insurer’s request for regulatory relief. Sullivan declined to comment.
Manulife Financial Corp., Canada’s largest insurer, had no comment on Hartford units, said spokeswoman Laurie Lupton. Toronto-based Sun Life Financial Inc. will look at “all potential opportunities in any market we’re interested in,” said Steve Kee, a spokesman for the company, declining to comment on Hartford.
MetLife Inc., the largest U.S. life insurer, doesn’t comment on speculation about other companies, said spokesman Chris Breslin. Travelers Cos., the biggest U.S. property and casualty insurer by market value, has a similar policy, said Jennifer Wislocki, a spokeswoman.