“Hartford has made substantial progress in a short period of time to become a more focused property and casualty company, which we believe will have a positive impact on its valuation,”
Prudential purchases Hartford’s life insurance unit
Prudential deal raises $615 million, reshapes insurer
September 30, 2012 – 6:00 am ET
Prudential Financial Inc.’s purchase of the individual life insurance business of Hartford Financial Services Group Inc. positions Newark, N.J.-based Prudential for growth and focuses Hartford firmly on property/casualty business, experts say.Structured as a reinsurance deal, Prudential will pay Hartford $615 million for 700,000 life insurance policies with a book value in force of approximately $135 billion.For Hartford, the sale is part of a larger effort to focus on property/casualty lines and improve its balance sheet, experts said. The Hartford, Conn.-based company said it expects the transaction to benefit its net statutory capital by approximately $1.5 billion.Hartford Chairman, President and CEO Liam E. McGee noted the deal is the insurer’s third major divestiture in the past six months. Hartford sold its Woodbury Financial Services to New York-based AIG’s Advisor Group in July and its retirement plans unit to Springfield, Mass.-based Massachusetts Mutual Life Insurance Co. in September.The deal “represents a significant milestone in the execution of the Hartford’s strategy to deliver greater value to shareholders,” Mr. McGee said in a statement. “The Hartford is taking the necessary actions, as outlined in March, to position the company for higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital and increased financial flexibility.”This year, Hartford came under public pressure to divest its life insurance units from John Paulson, head of New York-based hedge fund Paulson & Co. Inc., which owns 8.5% of Hartford.“Hartford has made substantial progress in a short period of time to become a more focused property and casualty company, which we believe will have a positive impact on its valuation,” Charles Murphy, an analyst at Paulson & Co., said in a statement.%%BREAK%%In a research note, Standard & Poor’s Ratings Services praised the deal as a way for Hartford to bolster capital and reduce debt leverage, and said the deal would not affect Hartford’s credit ratings.When complete, the move will expand Prudential’s market share in universal, term and variable life insurance. According to data from industry association LIMRA International Inc., the combined business will rank among the top five largest individual U.S. life insurance companies in recurring premium volume.Edward Shields, Chicago-based associate director of the research department of Sandler O’Neill & Partners L.P., said the deal will increase Prudential’s asset base by roughly 44%.“It’s largely a bolt-on acquisition that complements the business they already have,” Mr. Shields said. “If Prudential had tried to do it organically through their own distribution system with their own products, it would have taken many years.”In a statement announcing the deal, John Strangfeld, chairman and CEO of Prudential Financial, said the combined unit will benefit from an expanded distribution network and enhanced product offerings.Hartford’s individual life insurance business “represents a unique opportunity for us to acquire a very high-quality life insurance business with talented people, complementary capabilities and financial performance consistent with our objectives,” Mr. Strangfeld said.
