Moody's: Hartford Plan May Take Years to Reduce Total Risk

NU Online News Service, March 26, 1:53 p.m. EDT

While Hartford’s decision to exit its life operations to focus on its property and casualty business is credit positive, the plan may take a long time to materially reduce the company’s total risk, according to Moody’s Investors Services.

In its Weekly Credit Outlook, Moody’s contends that, given the long-term nature of variable-annuity contracts, “it will take many years for the portfolio to roll off, though the run-off status of the line may lead to elevated policy redemptions by customers and somewhat speed the process of winding down the business.

Additionally, Moody’s says the current mergers and acquisitions market may complicate Hartford’s plan to sell off its individual life, retirement plans and broker/dealer businesses. Moody’s says that “M&A activity among insurance companies has been light over the past few years as companies have sought to preserve capital and reduce risk, and because low-equity valuations have made it difficult to raise funding.”

Moody’s says in the current environment, it may be difficult to execute the sales at attractive prices within the desired 12-month timeframe.

Still, Moody’s recognizes the benefits of Hartford’s overall plan. The ratings agency says, “The businesses that Hartford plans to retain generally have strong franchises and credit characteristics.

“The include a very strong personal-automobile-affinity business targeting members of AARP, a leading position in small and middle market commercial lines P&C insurance, and a leading position in group benefits.”

Moody’s also says Hartford is shutting down certain divisions with the “specific purpose of reducing its sensitivity to capital markets, which, based on our stress testing, is one of the company’s largest risks.”

The ratings agency goes on to say that Hartford’s plan is “more balanced and creditor-friendly than the plan put forward by [hedge fund manager John] Paulson, which was aggressive in terms of the amount of debt that would have been allocated to the life company, and could have resulted in a downgrade of the remaining life organization’s senior debt to below-investment-grade.”

Paulson, who had urged the company to split its life and P&C operations, offered a lukewarm reaction to the Hartford’s plan in a recent statement, saying the company’s decision to exit its life business in favor of its property and casualty operations does not address Hartford’s undervaluation due to lack of interest from investors and analysts.

He said the moves planned by Hartford will bring in cash and free capital, but, more importantly to the investor, it will strengthen the insurer’s ability to split its P&C and non-P&C businesses, which Paulson says would “create the greatest short-term and long-term shareholder value and strengthen the company.”

Paulson described the Hartford’s plan as a mere “first step.”

About the Author
Phil Gusman, PropertyCasualty360.com

Phil Gusman, PropertyCasualty360.com

Phil Gusman is Managing Editor of PropertyCasualty360.com. Prior to joining National Underwriter in 2008, he was Editor of Insurance Advocate. Gusman has also served as Associate Editor of Crackdown!, an insurance fraud publication, and Assistant Editor of Empire State Report, which covers New York politics. He graduated in 2002 from Plattsburgh State University in New York. Gusman may be reached at pgusman@summitpronets.com. Follow him on Twitter: pgusman and PC360_Markets

Comments

Resource Center

View All »

Complimentary Case Study: Helping achieve your financial goals By:...

Find out how a Special Investigation Unit used TLOxp to save the company money and...

Do Your Clients Hold The Right CDL License?

Learn about the various classes of CDL Licenses and the industries that are impacted by...

Integrated Content & Communications: A Key Business Issue For Insurers

Insurers are renewing their focus on top line growth, and many are learning that growth...

High Risk Insurance Coverage in the E&S Market

Experts discuss market conditions, trends and projected growth in a rapidly changing niche.

Top E-Signature Security Requirements

This white paper covers the most important security features to look for when evaluating e-signatures...

EPLI Programs Crafted Just For Your Clients

Bring us your restaurant clients, associations and other groups and we’ll help you win more...

Is It Time To Step Up And Own An Agency?

Download this eBook for insight on how to determine if owning an agency is right...

Claims - The Good The Bad And The Ugly

Fraudulent claims cost the industry and the public thousands of dollars in losses. This article...

Leveraging BI for Improved Claims Performance and Results

If claims organizations do not avail themselves of the latest business intelligence (BI) tools, they...

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Tech Digest eNewsletter

Technology related insights for insurance professionals including key developments, solution providers and news briefs from the carrier front – FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.