Recently, Hartford Financial Services Group Inc. (HIG) completed the divestiture of its subsidiary – Woodbury Financial Services Inc. – to SunAmerica Financial Group, Inc., a subsidiary of American International Group Inc. (AIG). Oakdale, Minnesota-based Woodbury was an indirectly-held, wholly-owned retail broker-dealer subsidiary in Hartford’s Individual Life segment’s distribution network. With almost 1,400 registered representatives, the subsidiary was among the 15 leading independent broker-dealers in the U.S.
The divestiture is not expected to significantly affect Hartford’s earnings. Nevertheless, it should substantially boost the company’s cash balance since Hartford will receive $90 million pursuant to this deal. The company will also receive an additional $25 million as payment for dividend toward Woodbury Financial Services, on fulfillment of certain conditions relating to the deal.
The transaction is an outcome of Hartford’s plan, announced in March this year, to divest its Individual Life and Retirement Plans segments, along with Woodbury, under intense pressure from its largest shareholder, John Paulson. Accordingly, in July 2012, the company announced the deal to sell Woodbury to AIG and thereafter in September, it announced an agreement to sell the Retirement Plans business to Massachusetts Mutual Life Insurance Company (MassMutual).
This divestiture is also expected to close by the end of 2012, subject to the attainment of regulatory approval and other customary closing conditions. Hartford will receive a cash ceding commission of $400 million for the transaction. However, the amount is open to adjustment before the completion of the sale.
Also during late September, Hartford announced a definitive agreement with Prudential Financial Inc. (PRU) to sell its Individual Life Insurance business. The company will receive $615 million for the divestiture, which will be formulated as a reinsurance transaction. This transaction is expected to culminate in the beginning of 2013, subject to regulatory approval and other customary closing conditions.
The three divestitures are expected to cumulatively enhance Hartford’s net statutory capital by $2.2 billion, driven by a $1.4 billion surge in statutory surplus and an $800 million decline in the risk-based capital requirement.
Currently, Hartford, Prudential Financial and AIG carry a short-term Zacks #3 Rank (Hold) with a long-term ‘Neutral’ recommendation.
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