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NEW YORK—The Hartford Financial Services Group Inc. said it intends to divest itself of individual life insurance, retirement services and other operations to focus on property/casualty, group benefits and mutual funds business.
Major ratings agencies affirmed Hartford's ratings after the Wednesday announcement, which came amid pressure to break up the insurer from hedge fund manager John Paulson, who is Hartford's largest shareholder. Mr. Paulson has argued that such a move would boost shareholder value.
One rating agency, however, downgraded ratings for most of Hartford's life insurance operations after the insurer announced the proposed changes Wednesday.
In a statement, Hartford said its property/casualty, group benefits and mutual fund businesses each have “a competitive market position, strong capital-generating ability and lower sensitivity to capital markets.” Hartford said the sharper focus on these businesses will allow it to “deliver superior performance and greater shareholder value.”
Hartford said it was putting its annuity business into runoff and is “pursuing sales or other strategic alternatives for individual life, Woodbury Financial Services and retirement plans. Today's announcement is the result of management and board of directors' rigorous evaluation of the company's strategy and business portfolio conducted over the past several quarters and concluded this week.”
In a conference call Wednesday afternoon, Hartford Chairman, President and CEO Liam McGee said that the company had begun looking at the issue in the middle of last year.
“There is a great deal of work to do over the next 12 to 18 months” in carrying out the plan, he said.
In an analysis released Wednesday, Barclay's Capital Inc. noted that the Hartford plan does not go as far as splitting the life and property/casualty units as recommended by Mr. Paulson. Barclay's said that its sense is that a full breakup of Hartford was unlikely.
A.M. Best Co. Inc. placed under review with developing implications the issuer credit rating and the debt ratings of the Hartford Financial Services Group, as well as the issuer credit ratings and financial rating strength of the Hartford Insurance Pool. At the same time, Best placed under review with negative implications the financial strength rating of Hartford's key life/health insurance subsidiaries.
“The rating actions for the Hartford and the pool acknowledge the potential for successful implementation of the restructuring plan in line with management's expectations to result in favorable movement on the ratings,” Best said in its analysis. “The increase in financial flexibility at the holding company, the expected reductions in financial leverage and the benefits of a more focused management strategy centered around the company's property/casualty business are viewed positively by A.M. Best, and—if the plan is achieved as expected—would likely result in favorable rating action on these entities.”
Best added, though, that there is “execution risk” associated with the proposal and possible “continued volatility related to the individual annuity business that will be retained.”
Standard & Poor's Corp. affirmed Hartford's ratings and ratings on its company debt and property/casualty issuance operating subsidiaries, but it lowered the ratings of most of Hartford's life operations on an individual basis. S&P said the “revised ratings are based on each subsidiary's stand-alone credit characteristics and the reduced implied support from the parent.”
Moody's Investors Service Inc. also affirmed its credit ratings of Hartford and its key operating subsidiaries. Moody's, however, lowered its financial strength outlook for Hartford Life & Annuity Insurance Co. to negative from stable.
Fitch Ratings Inc. affirmed all issuer default ratings, debt and insurer financial strength ratings for Hartford Financial Services Group and its primary subsidiaries. Fitch said Hartford's announcement “does not significantly change Fitch's assessment of the life and property/casualty operating companies' financial strength.”