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Analyst Doubts The Hartford Will Be Able To Stay Intact

DIANE LEVICK

March 05, 2009

The Hartford Financial Services Group, grappling with financial losses and ratings downgrades that can affect sales, is reportedly negotiating a possible sale of its life insurance and annuity operations to a major Canadian company.

The Hartford is currently in talks with Toronto-based Sun Life Financial Inc. and had separate discussions with MetLife Inc. that ended last month, Bloomberg News reported Wednesday, citing three unnamed sources.

Bloomberg cautioned that the talks with Sun Life may not result in a deal. But the discussions underscore the tremendous pressure on The Hartford and a possibility that the 199-year-old company could be broken up.

"Everybody knows The Hartford is desperate," said Michael Paisan, an analyst and managing director at Stifel Nicolaus in New York, who predicted that the probability of the company's remaining intact "is very, very low."Insurers, Paisan said, like to pounce on competitors when they're down to buy their businesses at cheap prices, and "unfortunately, I think The Hartford is in such dire straits, they're going to have to entertain any offer they get" — though not necessarily accept it.

The Hartford has said it's still well-capitalized and strong, and even with multiple ratings downgrades its credit rating is still in the "adequate" range. The financial health ratings of subsidiaries — their ability to meet obligations to customers such as paying claims — are still in the "A" or "strong" range.

Standard & Poor's, though, said financial stress could erode the company's famous brand and competitive advantages.

The Hartford, weighed down by investment losses and problems in its variable annuity business, has seen its stock price plunge 92 percent in the past year from $69.64 to $5.14 a share Wednesday. The shares rose 51 cents in a rising market Wednesday, probably on the Sun Life speculation.

The potential that part of The Hartford might be sold raises the possibility of more job cuts in the Hartford region, where insurers are already laying off hundreds of employees in a faltering economy. The company has a total of about 12,500 employees in Connecticut and 31,000 companywide.

Hartford Life sells life insurance, annuities, mutual funds and retirement plans, but there has also been speculation that The Hartford might spin off its property-casualty operations. That part of the company insures homes, cars, businesses and other institutions.

Shannon Lapierre, a spokeswoman for The Hartford, declined comment on Sun Life or whether a sale to any suitor is likely.

Michel Leduc, speaking for Sun Life, said the company has received media inquiries in recent weeks about several different rumored deals but "we've been consistent; Sun Life does not comment on rumors or speculation." The company, though, has said it's interested in potential U.S. acquisitions.

Sun Life, an international financial services company, had total assets under management of $381 billion as of Dec. 31. Its products include life and disability insurance, annuities and investing and retirement products.

Sun Life has about 320 employees in Windsor, which is part of its employee benefits business — group insurance. The local presence resulted from a 2007 deal to buy Genworth Financial Inc.'s group business, which Genworth had acquired from what is now called The Phoenix Cos. in Hartford.

Analysts weren't surprised that The Hartford may be talking with Sun Life or others.

"They are grappling with serious issues in their variable annuity business and investment portfolio," said UBS analyst Andrew Kligerman. "As a result, it would strike me they have to consider a whole range of strategic initiatives. ... The ability to raise additional capital has gotten very difficult because of the valuation of their stock."

The Hartford, which has been cutting hundreds of jobs, reported a $2.7 billion net loss for 2008. The company got a $2.5 billion capital infusion in October from German insurer Allianz, in exchange for the right to acquire about 24 percent of the company. The Hartford is also seeking billions in federal bailout funds.

Paisan questioned whether Hartford Life could even fetch $1 billion in a sale because of the unknowns surrounding that unit. The life operations, he says, continue to be a drag on the company's property-casualty business.

The Hartford agreed in December 2007 to acquire Sun Life's Boston-based U.S. retirement services business.