In-line with its plans to divest non-core operations and focus on property and casualty, Hartford Financial Services Group (NYSE:HIG) has agreed to sell its retirement plans business to Massachusetts Mutual Life Insurance Company (MassMutual).  The deal is expected to close by the end of 2012. Hartford will receive a cash commission of $400 million from the sale. On closing, the deal will also result in a reduction in required risk-based capital and the net benefit that Hartford will receive in terms of statutory capital is approximately $600 million. Our $18 valuation of Hartford Financial’s stock is in-line with the current market price.
The retirement plans business includes $54.9 billion in assets under management with more than 33,000 plans and 1.5 million participants. Under the terms of the agreement, a transition period will ensue, during which, Hartford will be continue to sell new retirement plans. MassMutual will subsequently assume the risk and expense for all retirement plans through a reinsurance agreement. So far in 2012, Hartford has done well on the variable annuities front, breaking into the nationwide top 20 in terms of sales in the first half of the year.  Total sales amounted to $475 million.
Hartford had earlier agreed to sell its broker-dealer business, Woodbury Financial Services, to AIG (NYSE:AIG)  and its individual annuities new business capabilities to Forethought Financial Group, Inc., a Houston based financial services company.  Hedge fund manager and majority stakeholder John Paulson has advised the company to focus on its most profitable business, property and casualty insurance, and divest the rest of its operations including individual annuity, individual life, retirement plans and Woodbury financial services. We will keep a close eye on the progress of the divestiture and will update our model once the deal is closed and the terms are disclosed.
Property And Casualty A Winner
The property and casualty division, which accounts 43% of Hartford’s stock value, observed catastrophe losses of $189 million in the second quarter. This was a significant improvement over the figure of $290 million reported for the same period last year. With increased attention from the company, we expect an improvement in operating margin, going forward.
You can gauge the effect of a change in forecast by modifying the interactive charts above.Notes:
- The Hartford To Sell Retirement Plans Business To MassMutual, Press Release, 4th Sept, 2012 [↩]
- U.S. Individual Annuities Sales Survey, LIMRA [↩]
- AIG Buying Hartford Financial Brokerage Unit , Wall Street Journal, 31st July, 2012 [↩]
- The Hartford Signs Agreement To Sell Individual Annuity New Business Capabilities, Press Release, April 26th, 2012 [↩]