Hartford Financial Services Group Inc. (HIG) started the New Year by announcing the closure of three previously announced divestitures. The company has completed the sale of its Retirement Plans business to Massachusetts Mutual Life Insurance Company, Individual Life Insurance business to Prudential Financial Inc. (PRU) and Individual Annuity new business facilities to Forethought Financial Group Inc.
The divestitures are not expected to significantly affect Hartford’s reported net income. However, the company expects to record a small amount of capital loss in the fourth quarter of 2012 and a modest amount of capital gain in the first quarter of 2013 due to the transactions.
Moreover, the three transactions are expected to result in a net statutory capital benefit of almost $2.2 billion for Hartford, driven by an increase in the U.S. life statutory surplus and a decline in the U.S. life risk-based capital requirements. However, most of the net statutory capital benefit will accrue from the divestiture of the Retirement Plans business, completed on January 1, and Individual Life business, completed on January 2. As the sale of these businesses was completed in January 2013, the benefit will be reflected in the financial results of the first quarter of 2013.
Hartford believes that these divestitures will help the company boost profitability and improve its returns to shareholders. Moreover, the capital benefits due to the transactions have enhanced the financial flexibility of the company.
Hartford had announced the plan to divest its Individual Life and Retirement Plans businesses, along with subsidiary Woodbury Financial Services Inc. in March 2012. The company also terminated its Individual Annuity business in April 2012.
In the same month, Hartford announced the agreement with Houston-based Forethought to sell its Individual Annuity new business facilities, including the product management, distribution and marketing units, and all the Individual Annuity products it used to sell. Thereafter, in July 2012, the company announced the deal to sell Woodbury toSunAmerica Financial Group, Inc., a subsidiary of American International Group Inc. (AIG). This divestiture was closed in December last year.
Further, in September 2012, Hartford announced the agreements to sell its Retirement Plans business and Individual Life Insurance business.
These efforts will increase Hartford’s focus on its Property and Casualty, Mutual Funds and Group Benefits segments, which not only generate strong revenues, but also have an admirable market standing.
Following the news of the closure of these divestitures, credit rating agency A.M. Best Co. placed the ratings of Hartford and its property and casualty insurance subsidiaries under review with developing implications. The rating agency also placed the ratings of the company's life insurance subsidiaries under review with negative implications.
Currently, Hartford, Prudential Financial and AIG carry a short-term Zacks #3 Rank (Hold). We maintain a long-term ‘Underperform’ recommendation on Hartford and ‘Neutral’ recommendation on AIG and Prudential Financial.
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