Hartford could expand buybacks after $895 million deal for Japan unit

Analyst forecasts share repurchase of $1.05 billion, debt paydown of $350 million

Apr 28, 2014 @ 12:57 pm

Hartford Financial Services Group Inc. will probably expand share repurchases after agreeing to sell its Japanese operations to Orix Corp. for about $895 million.

The U.S. insurer could repurchase $1.05 billion of stock, while paying down $350 million of debt, John Nadel, an analyst at Sterne Agee & Leach Inc. said Monday in a research note. Hartford will receive sales proceeds of $860 million and free up an additional $540 million tied to the termination of reinsurance agreements, according to a statement Monday.

Hartford Chief Executive Officer Liam McGee is focusing on coverage for homes, cars and businesses, after divesting a life insurer and a retirement-plans unit. Hartford, based in the Connecticut city of the same name, has retreated from variable annuities in the U.S. and abroad. Warren Buffett's Berkshire Hathaway Inc. last year bought a Hartford unit that offered the retirement products in the U.K.

“The sale should clearly result in reduced volatility of results,” Mr. Nadel wrote. “We expect capital management to ramp higher, post-closing.”

BOOSTING CAPITAL

Hartford Chief Financial Officer Christopher Swift said the company will provide an update on “incremental capital management actions” after the deal closes. The transaction is expected to be completed in July, and the final purchase price is subject to adjustment for market fluctuations, Hartford said.

“This transaction materially reduces The Hartford's risk profile by permanently eliminating the company's Japan variable annuity risk,” Mr. McGee said in the statement.

Hartford was among insurers burned in the financial crisis by promises made in prior year to savers. Declining markets and currency fluctuations contributed to expanding liabilities that required a bailout. Mr. McGee repaid the U.S. after becoming CEO.

In February, the insurer said it had $2 billion of repurchases authorized for this year and next. The company bought back $633 million of stock and warrants in 2013.

CURRENCY FLUCTUATIONS

Orix will pay about $895 million for the business, which sold retirement products in Japan until 2009, Hartford said in the statement.

Hartford estimated that it will record a loss of $675 million on the transaction in the second quarter. The company is scheduled to report first-quarter results Monday after the close of New York trading.

Hartford had used hedges to guard against fluctuations in currencies and stocks on the Japan contracts. A decline in the yen relative to the dollar helped limit Hartford's liabilities.

Orix, run by CEO Yoshihiko Miyauchi, is a finance and leasing firm based in Tokyo. The company, started in 1964, has operations in more than 20 countries. It's expanding businesses in Japan, where deflation and population decline limit demand for its services, which range from insurance to aircraft leasing.

“If they can collect some cash flows and recover the invested amount, that would justify this as being a decent investment,” Takehito Yamanaka, an analyst at Credit Suisse Group AG in Tokyo, said before the announcement. “Expectations tend to rise that Orix would buy back its shares unless they deploy their capital otherwise, so they will likely continue with mergers and acquisitions.”

Among Orix's biggest takeovers was the purchase of the Robeco Groep NV asset-management unit from Rabobank Groep last year for about $2.6 billion.

Prudential Financial Inc. in 2012 agreed to pay $615 million for Hartford's individual life insurance business, and Massachusetts Mutual Life Insurance Co. reached a deal for Hartford's retirement-plans unit.

The transactions came after billionaire investor John Paulson pressed Mr. McGee to split up Hartford, a plan the CEO resisted. Mr. Paulson, who was once the insurer's largest holder, had a common equity stake of about 1.3% as of Dec. 31. A year ago, his Paulson & Co. praised Hartford for performing “ahead of their own plan and our expectations.”

Hartford sold annuities in Japan from 2000 until 2009. The company said today that it had 375,000 contracts with a total account value of about $23 billion as of Dec. 31.

(Bloomberg News)

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

May 30

Conference

Adviser Compensation & Staffing Workshop

The InvestmentNews Research team will present exclusive data and highlights from its bellwether benchmarking study that will identify best practices for setting and structuring compensation and benefits packages throughout your... Learn more

Latest news & opinion

Piwowar defends SEC's best-interest rule

SEC commissioner says the Department of Labor rule set up an 'unworkable, impossible set of standards for people to comply with.'

RIA in a Box acquired by private equity firm Aquiline Capital

New owners plan more growth for the software service provider.

IBDs with the most female reps

Here are the 10 independent-broker dealers that have the most female reps.

Supreme Court decision likely to prevent brokers from filing class-action lawsuits

However, it likely won't bar employees from filing 401(k) lawsuits against their employers.

5th Circuit denies states' second attempt to defend DOL fiduciary rule

The three-judge panel split again, 2-1, in deciding not to take another look at the motion to intervene by California, New York and Oregon.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print