Almost six months after Hartford Financial Services Group Inc. (HIG - Analyst Report) started looking for suitable divestiture opportunities for its Individual Life and Retirement Plans segments as well as the Woodbury Financial Services unit, the company announced an agreement to sell the Retirement Plans business to Massachusetts Mutual Life Insurance Company (MassMutual). The divestiture is expected to close by the end of the year, 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.
Although the transaction is unlikely to have a material impact on the company’s results on a reported basis, it is expected to boost the net statutory capital, including ceding commission and lower risk-based capital requirement, by about $600 million. The impact on the financials can be revised at the time of closure of the transaction to include the impact of market conditions, Hartford’s results as well as other adjustments.
Following the closure of the deal, Hartford’s Retirement Plans business will be taken over by the Retirement Services Division of MassMutual. However, the agreement allows Harford to sell new retirement plans during the transition period. MassMutual will cover the risks and expenses related to the new plans under a reinsurance agreement. The Goldman Sachs Group Inc. (GS - Analyst Report) and Greenhill & Co. Inc. (GHL - Snapshot Report) are acting as Hartford’s financial advisors for the deal.
The deal is an outcome of Hartford’s plan, announced in March this year, to divest its Individual Life and Retirement Plans segments along with Woodbury Financial Services under intense pressure from its largest shareholder, John Paulson. Woodbury is an indirectly-held, wholly-owned retail broker-dealer subsidiary, included in the Individual Life segment’s distribution network.
Subsequently, in August, Hartford entered into a strategic alliance with American International Group Inc. (AIG - Analyst Report) to sell Woodbury. The deal is expected to consummate by the end of this year, subject to approval by regulatory bodies. According to Reuters, Hartford will receive $90 million pursuant to this acquisition. It will also receive an additional $25 million as dividend from Woodbury.
Currently, Hartford’s shares carry a short-term Zacks #3 Rank (Hold). Also, we maintain our long-term ‘Neutral’ recommendation on the stock.