Hartford Financial Services Group Inc. (HIG), the insurer being pressed by hedge-fund manager John Paulson to break up, will stop selling individual annuities and seek buyers for parts of the life-insurance unit.
Hartford will focus on property and casualty insurance, group benefits and mutual funds, the company, based in the Connecticut city of the same name, said in a statement today. The insurer, which rose in New York trading after the announcement, also said it may sell the individual life, Woodbury Financial Services and retirement-plans operations.
Paulson, Hartford's biggest shareholder, told company executives on a Feb. 8 conference call to “do something drastic” to increase the stock price, which dropped 39 percent last year. He urged Chief Executive Officer Liam McGee to split the 201-year-old insurer into separate property-casualty and life-insurance companies and suggested winding down the U.S. variable annuities business.
“It is a big strategic step, although it falls short of the complete spinoff” that Paulson urged, Dan Theriault, an analyst at Portales Partners LLC who has an “outperform” rating on Hartford shares, said in an e-mail. The “stock should move up substantially today.”
Hartford advanced 6.2 percent to $23.05 at 7:19 a.m. in New York. Last year's decline was the third-largest on the 24- company KBW Insurance Index, which slipped 14 percent.
Hartford will stop taking new annuity sales on April 27 and expects to report an after-tax charge of as much as $20 million in the second quarter. Proceeds from any transactions may be used to decrease debt, reduce risk tied to annuities previously sold, invest in the business and “potentially take other capital management actions,” the insurer said.
The changes position the company “for higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital and increased financial flexibility,” McGee said in the statement.
Armel Leslie, a spokesman for Paulson, didn't immediately return an e-mail seeking comment.
The announcement concludes a strategic evaluation over the past several quarters by Hartford's management and board, the company said.
McGee and Paulson clashed on the conference call, which was hosted by the insurer to discuss fourth-quarter earnings with analysts and investors. McGee told Paulson that while he had “an incredible sense of urgency” to make changes that would boost the stock price, a split probably wouldn't create value for shareholders. Hartford cited its credit ratings and regulatory approvals as obstacles to breaking up the company.
Paulson, whose Paulson & Co. owns about 8.5 percent of Hartford, urged equity analysts to back his plan in a call on March 9, saying McGee had “no excuse” for waiting.