Paulson & Co. Inc., an investment management firm run by hedge fund manager John Paulson—who publicly demanded in February that the Hartford Financial Services Group Inc. (HFSG) break itself into two companies—released a statement that made it clear that the company's immediate actions do not address what Paulson called the carrier’s "undervaluation" issues:
"We support today's actions, not as a conclusion of the strategic review, but as a first step in creating a clear delineation between The Hartford's P&C and non-P&C businesses.
We are pleased that The Hartford is taking steps to focus on core operations and to divest or discontinue non-core and capital-intensive businesses. We believe that putting the variable annuity business in runoff and selling the non-core individual life, retirement plans and broker dealer businesses will raise cash, free up capital, permit de-leveraging and increase its financial flexibility. Successful execution of these plans will strengthen the Company's ability to separate the P&C and non-P&C businesses in the future, which we continue to believe would create the greatest short-term and long-term shareholder value and strengthen the company.
While we appreciate the extensive work of The Hartford's board and management, we do not believe the positive actions announced today address the main problem with The Hartford's undervaluation: the lack of interest from P&C analysts and P&C investors in The Hartford's best-in-class P&C business due to its affiliation with unrelated, low-return and complex businesses. We do not believe today's actions will materially increase P&C investor interest in The Hartford."
Statements from all four rating agencies set a slightly more positive tone for the insurer. Fitch Ratings affirmed all ratings for HFSG and its primary life and P&C subsidiaries. Their rating outlook is stable. Moody’s affirmed the company’s P&C subsidiaries’ and majority of life insurance subsidiaries’ stable ratings. Standard & Poor’s affirmed ratings on HFSG itself and those on its holding company debt, and its P&C subsidiaries.
However, HFSG’s life operation received different responses from the agencies. A.M. Best placed under review with negative implications the financial strength rating of A (Excellent) and issuer credit ratings of “a+” of the Hartford’s key life/health subsidiaries. Moody's changed the outlook on Hartford Life & Annuity Insurance Company’s insurance financial strength rating at A3 to negative from stable.
It’s evident that all four rating agencies are keeping their eyes closely affixed to The Hartford’s P&C and non-P&C operations:
A.M. Best placed under review with developing implications the issuer credit rating of “bbb+” and the debt ratings of HFSG as well as the ICRs of “a+” and the financial strength rating of A (excellent) of the Hartford Insurance Pool (the Pool).
At the same time, A.M. Best placed under review with negative implications the financial strength rating of A and issuer credit ratings of “a+” of the Hartford’s key life/health insurance subsidiaries (collectively known as Hartford Life).
Additionally, notes A.M. Best, the Hartford’s revised strategy will cause Hartford Life’s business profile to contract over time and be limited to the ongoing Group Benefits and Mutual Funds businesses, as well as declining in-force blocks of fixed and variable annuities. This will result in reduced life/health revenues and earnings available to the enterprise.
The “under review with negative implications” status recognizes the potential for changes in Hartford Life’s ratings and outlook based on the final outcome of management’s intended restructuring.
A.M. Best noted that the rating actions for the Hartford and the Pool acknowledge the potential for successful implementation of the restructuring plan in line with management’s expectations to result in favorable movement on the ratings. The increase in financial flexibility at the holding company, the expected reductions in financial leverage and the benefits of a more focused management strategy centered around the company’s property/casualty business are viewed positively by A.M. Best, and—if the plan is achieved as expected—would likely result in favorable rating action on these entities.