Hartford Financial Services Group (NYSE:HIG) has been divesting non-core businesses in order to focus on property and casualty insurance, following the advice of major shareholder Paulson & Co. After accounting for the divestitures and other factors, we have updated our price estimate for Hartford’s stock to $21, about in line with the current market price. Discussed below are the changes we have made to our forecasts.
Sale of Retirement Business To MassMutual
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On September 4th, Hartford announced the sale of its retirement plans business to MassMutual. The company will receive $400 million from the deal, which is expected to close by the end of 2012. The retirement plans business includes $54.9 billion in assets under management with more than 33,000 plans and 1.5 million participants. The division had done well in the first half of 2012, breaking into the top 20 insurers in the U.S. in terms of variable annuity sales.  In April, Hartford announced its intention to sell its individual annuities new business capabilities to Forethought Financial Group.
Following the announcements, we have adjusted our forecast for Hartford’s share of the U.S. retirement market. For more information on the deals, see our article Hartford Trims Non-Core Businesses While Focusing On Property And Casualty.
Individual Life Business Goes To Prudential
On September 27th, Hartford announced that it will sell its individual life insurance business to Prudential Financial (NYSE:PRU). The deal is expected to close in the first quarter of 2013, with Hartford receiving $615 million in cash compensation. The business includes more than 700,000 life policies and investment assets, with a statutory book value of around $7 billion, reserved for future claims. The individual life business generated $447 million in revenues in the first half of 2012, with Universal life insurance policies accounting for $248 million and Variable life insurance accounting for $172 million.
For a more detailed analysis of the deal, see our article How Does Prudential’s Acquisition Of Hartford’s Life Insurance Business Affect Both Companies?
Increased Focus on Property and Casualty
In July, Hartford announced an agreement with AIG (NYSE:AIG) to sell its broker-dealer business, Woodbury Financial Services. The total benefit in terms of net statutory capital from all the transactions carried out so far is around $2.2 billion, including a $1.4 billion increase in freed up statutory surplus that it maintained to support the businesses and an $800 million reduction in required risk-based capital. We believe that this money will be used to drive growth in the property and casualty business. Revenues earned through premiums and policy fees by the casualty division increased 3% in the first half of 2012. We forecast a steady growth in Hartford’s share of the U.S. property and casualty market, which we expect to reach 2.3% by the end of our forecast period. You can adjust the interactive chart below to gauge the effect a change in market share will have on the company’s stock.Notes: