Following an evaluation of the company’s strategy and business portfolio and amid intense pressure from a major investor, The Hartford announced yesterday it would place its individual annuity business into runoff. It plans to pursue sales or other strategic alternatives for individual life, Woodbury Financial Services and retirement plans.
Going forward, the company will focus on its property-casualty, group benefits and mutual funds businesses, leaving few remaining independent agency carriers with both p-c and life operations under one roof.
"The Hartford's sharper focus will lead to an organization that, over time, will be positioned for higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital and increased financial flexibility," Liam McGee, The Hartford's chairman, president and CEO, said in a press release. "With this portfolio and the actions we are taking, we are on the right path to unlock value and deliver superior, long-term returns for shareholders.”
“In the commercial markets and consumer markets segments, we will leverage our expertise in underwriting, distribution and claims management, to both improve returns and grow profitably,” he added. “Mutual Funds is a high return business, and we are enthusiastic about our strategy to accelerate sales growth with the expanded Wellington Management sub-advisory relationship.”
The company will stop new annuity sales effective April 27 and expects to take a related after-tax charge of $15 million to $20 million in the second quarter of 2012. This action is also expected to reduce annual run-rate operating expenses by approximately $100 million, pre-tax, beginning in 2013.
The company is also pursuing sales or other strategic alternatives for individual life, Woodbury Financial Services and retirement plans. During this period, the company will continue to write new business.
"The actions announced today will allow us to build on our strong financial foundation by concentrating our resources on a smaller number of businesses to position The Hartford for long-term success," said Christopher Swift, The Hartford's executive vice president and CFO.
While the announcement is a significant one, it is not surprising considering that hedge fund manager John Paulson's Paulson & Co. owns 8.4% of The Hartford’s stock and has been advocating The Hartford to spin off its property and casualty insurance business.
The Hartford was the last national insurance company to offer the full range of financial products—personal and commercial p-c, life insurance (and previously health), retirement plans and annuities—using independent insurance agents as their dominant distribution channel. Over time, insurance companies such as Travelers, Aetna and Prudential have decided to focus on either p-c lines or life insurance, employee benefits and related products.
MetLife offers life insurance, employee benefits and personal lines through independent agents, but not commercial lines insurance. Nationwide, through its acquisition of Allied and Harleysville, offers an opportunity for independent insurance agents to sell Nationwide’s suite of life, retirement/annuities and employee benefits, but independent agents do not yet represent its dominant distribution channel.
One driving consideration in offering a full range of insurance and life/employee benefits products is the increasing complexity of the products. That is, the contractual annuity guarantees are complex products requiring an acute understanding of counterparty guarantees. In addition, the compliance requirements involving insurance regulators, including the Financial Industry Regulatory Authority, Securities and Exchange Commission, Labor Department and Internal Revenue Service, present another set of challenges.
Since The Hartford is a publically-held company, the broad scope of the product offerings made it hard for investors to digest all the facets of its business—and after the issues surrounding the financial malaise of 2008, it added to investor anxiety.
In its press release, The Hartford underscored that they believe that going forward they have the right mix of products and services to survive and thrive in the coming years. Independent agents continue to appear to be an important part of the equation.
) is a certified financial planner and an IA l-h contributing editor.