Hartford Said to Discuss Sale of Life Unit to Canadaâs Sun Life
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March 4 (Bloomberg) -- Hartford Financial Services Group Inc., hammered by three credit-rating downgrades and a 72 percent stock drop this year, is in talks to sell most of its unprofitable life insurance unit to Canadaâs Sun Life Financial Inc., said three people with knowledge of the matter.
Breaking Hartford in two and selling most of the life division, which has $247.9 billion of assets, is among the options being discussed and an agreement may not be reached, said the people, speaking on condition of anonymity. Hartford held separate talks with MetLife Inc. that ended last month, two of the people said.
Hartford Chief Executive Officer Ramani Ayer is being forced to consider a breakup of the 199-year-old insurer after slumping financial markets led to a $2.7 billion loss in 2008. Standard & Poorâs cut the rating to BBB yesterday and said losses at the life unit threaten the other half of the company, which sells property and liability policies.
âThe uncertainty of this financial stress could erode Hartfordâs brand,â Standard & Poorâs analysts led by Shellie Stoddard said in a statement yesterday. Hartfordâs corporate icon, a stag, has been in use since at least 1861.
Hartford, which as recently as 2007 was relying on the life business for most of its revenue and profit, is getting stung by costs to cover minimum-return guarantees on variable annuities linked to the performance of stock markets. The Standard & Poorâs 500 Index closed yesterday below 700 for the first time since October 1996.
Negative Value
âWithout commenting on any particular situation, Sun Lifeâs commitment to business growth includes actively looking at all potential opportunities,â Michel Leduc, a spokesman for Toronto- based Sun Life, said in an e-mail yesterday. Shannon Lapierre of Hartford, Connecticut-based Hartford declined to comment, as did New York-based MetLifeâs John Calagna.
Sun Life CEO Donald Stewart said in November that Canadaâs third-biggest insurer was weighing potential acquisitions in the U.S. The company freed up funds for acquisitions in December, when it sold 37 percent of fund manager CI Financial Corp. to Bank of Nova Scotia for about C$2.3 billion ($1.8 billion).
Sun Life, which trails Manulife Financial Corp. and Great- West Lifeco Inc. by assets, has a U.S. unit that sells annuities, group and individual insurance products and accounted for 25 percent of the companyâs C$15.6 billion in 2008 revenue.
Hartfordâs property and liability business is worth $4 billion to $8 billion, implying that the life business has a negative value, Joshua Shanker, an analyst at Citigroup Inc., estimated last month. The whole companyâs market value was about $1.5 billion yesterday.
Variable Annuities
In considering a breakup, Ayer is heeding analysts and investors including Jon Bosse, a portfolio manager at Los Angeles-based NWQ Investment Management who urged a review of the option on a Feb. 6 conference call. NWQ is Hartfordâs fourth- biggest shareholder, according to Bloomberg data.
Founded in 1810 as a fire insurance company, Hartford entered the life insurance market with an acquisition in 1959.
In addition to offering traditional life policies, Hartford was the fourth-biggest U.S. seller of variable annuities as of 2007, according to a Fitch Ratings report citing Morningstar Inc. data. Variable annuities typically allow a customer to invest in the market, with the insurer charging a fee in exchange for promising a minimum rate of return.
As the S&P 500 lost about half its value in the last 12 months, sellers of variable annuities saw their potential obligations to customers mushroom. With the S&P at its current level, those guarantees absorb almost all Hartfordâs excess capital, said Randy Binner, an analyst at Friedman Billings Ramsey Group Inc., in an interview yesterday.
Government Aid
Hartford is also seeking government aid under the Troubled Asset Relief Program. Ayer, 61, has said it may qualify for as much as $3.4 billion from the U.S. Treasury and agreed to buy a Sanford, Florida-based savings and loan to qualify. The U.S. hasnât said whether it will include insurers in the program, which has ladled out hundreds of billions of dollars to banks.
Ayer raised $2.5 billion for Hartford in October by selling preferred shares and debentures to Allianz SE that gave the Munich-based insurer rights to buy more than 20 percent of Hartford. At the time, Michael Diekmann, Allianzâs chief executive officer, described the stake as a âpure financial investmentâ and said he didnât plan to increase it.
