(Dow Jones) The Hartford Financial Services Group said Monday it will sell an annuities operation that it has been winding down since 2012 to a group of investors, helping close the door on a painful chapter in the 207-year history of Hartford.
The Connecticut-based insurer created the business, Talcott Resolution, several years after the 2008-09 financial crisis to house a business that had made it one of the hardest-hit US life insurers during the market’s steep slide. As a “run-off” business, Talcott services existing insurance contracts but doesn’t sell new products.
Hartford said it will receive total consideration of about $2.05bn, which includes $1.4bn in cash, a 9.7% stake in the new company, transferred debt and a pre-closing dividend. Hartford expects to book around a $3.2bn after-tax net loss in the fourth quarter because of the deal’s structure.
The investors buying Talcott include Cornell Capital, Atlas Merchant Capital, TRB Advisors, Global Atlantic Financial Group, Pine Brook and J. Safra Group, Hartford said.
Variable annuities put Hartford at disadvantage
At the heart of Talcott is a retirement-savings product called a variable annuity. Hartford had helped turn the product into an industrywide hot seller in the early to mid-2000s with innovative income-stream guarantees. Variable annuities are a tax-advantaged form of investing in stock and bond funds. If the funds perform poorly, the guarantees kick in, sometimes providing lifetime income.
Hartford had so many guarantees on its books when markets slid in 2008 that it had to take $3.4bn in US government aid to help meet regulatory requirements for backing up its obligations to contract holders. It was one of just three US insurers to take the federal assistance; all have fully repaid the government.
Hartford quit selling the annuities in 2012 after retooling the product to seek to make it less risky to the insurer, while still attractive to consumers. At the time, it decided to focus more heavily on other operations, including its property-casualty, group-benefits and mutual-funds businesses.
Crisis-struck variable-annuities market
Other insurers also pulled out of the variable-annuities market after the crisis. Those seeking buyers found them scarce because of the complexities of the guarantees and the high cost of running financial-hedging programmes. In 2012, Sun Life Financial, a Canadian insurer, struck one of the industry’s first deals to offload a large volume of the contracts, in a $1.35bn pact with a company with ties to Guggenheim Partners.
As of 30 September, Talcott had more than $40bn of variable-annuity contracts on its books, and more than $7bn of other types of annuities, according to Hartford’s financial filings.
Hartford chief executive Christopher Swift has said the insurer wasn’t rushing to sell Talcott because it produces profits, but it would dispose of the unit at the right price. For the third quarter, Hartford said the unit had “core earnings” of $83m, out of the company’s total core earnings of $222m.
Since the 2008 financial crisis, Hartford has been continuing to reshape its operations. In October, it agreed to pay $1.45bn to health insurer Aetna, for a unit that provides life-, disability-income and other insurance products to employers’ benefits programmes in the US.
Hartford is also a leading seller of car and home insurance to individuals, and workers’ compensation to businesses.
About 400 Hartford employees will become employees of the new company as part of Talcott sale, Hartford said. The insurer expects the deal to close in the first half of next year, subject to regulatory approval. Hartford shares, up 21% this year, rose 4.3% premarket Monday.