If it is indeed looking to make a deal to raise capital, Hartford Financial Services Group could possibly sell its property-casualty insurance operations for up to $9 billion, according to a UBS analysis issued after reports that the company is shopping the property.
But Andrew Kligerman, managing director for UBS Investment Research, Life Insurance in New York, also called such a sale unlikely if the group is successful in obtaining Troubled Assets Relief Program funds from the federal government.
Reports by various news outlets that Hartford is seeking bids on its p-c operations come as the company struggles with capital and credit/insurance ratings erosion caused by its equity market sensitive life operations, Mr. Kligerman noted.
He wrote that the p-c segment of the business could fetch $6-to-$7 billion, with the final transaction price at more than $9 billion if the operations sold above book value.
UBS said it estimated the fair value of Hartford's p-c division to be around $6-to-$7 billion, in line with its stated fourth-quarter GAAP book value of $6.5 billion, "based on where P&C peers are presently trading."
"Given that potential buyers are not capital rich" and Hartford is more of a forced seller, the UBS note said, a material premium to book value seems unlikely.
"TARP capital is another wild card–good in some ways, but likely dilutive," UBS said, adding that if Hartford receives TARP funds, "then a near-term sale of the P&C division seems unlikely, as that operation is solid and sellable at a later time (should equity markets deteriorate further)."
UBS noted that Hartford's 10-K filing with the Securities and Exchange Commission estimates that it may be eligible for $1.1-to-$3.4 billion under the TARP Capital Purchase Program.
TARP-CPP funds likely would come with dilutive warrants attached, unless rules are changed for life insurers, and the price target assumes a sizable discount to first-quarter tangible book value per share of $19.69, according to UBS.
UBS said it remains neutral on Hartford, "given potential for both positive (e.g., TARP, P&C sale at good price) and negative (e.g., weaker equity markets, no TARP and dilutive TARP to a lesser degree, no P&C sale, high exposure to weaker-quality [commercial mortgage-backed securities] weaker-than-peer insurance/credit ratings) catalysts/considerations."
In response to requests for comment regarding a possible sale of the p-c division, a Hartford Financial Services Group representative, Debora Raymond, e-mailed: "We do not comment on speculation."
The Hartford began the application process for TARP money in January. In that same month, the Federal Reserve Bank approved Allianz SE, Munich's application to acquire an interest in Hartford that could reach $4.25 billion if Allianz exercises warrants it was granted in the Oct. 6 deal. That would give Allianz a 30 percent stake in the company.
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