The Hartford Insurance Group is exiting its life business in order to concentrate on its stronger property and casualty and casualty operations. The company also said it is seeking to find a buyer for the remainder of its life operations but until then, it will continue to sell life products.
Hartford’s decision was likely linked to the economic downturn, when it was caught with innovative variable annuities that offered additional riders and living benefits to investors. Hartford’s innovations in the VA market, including guarantees, forced other market players to follow, resulting in an increase in a VA market that had been in the doldrums since the Bush tax cuts that helped lift total VA sales to $180 billion in 2007.
However, as the stock market plunged and the economy sunk, the product began to take a heavy toll on Hartford. By late 2008, it was seeking outside investors and funds from the Troubled Asset Relief Program initiated by the Bush administration in the fall of 2008.
The Hartford’s net income for 2011 fell 61 percent to $662 million. Individual annuity earnings for 4Q 2011 were also down by 10% from a year ago (from $96 million to $86 million), due to what the Hartford described as increased annuity outflow. The runoff of the annuity operation also affects its fixed and fixed-indexed annuities, a much smaller proportion of its book of business. The the company will stop new annuity sales effective April 27 and expects to take a related after-tax charge of $15 million to $20 million in the second quarter of 2012.
Moody’s, Fitch, and the S&P all reacted to the announcement: Moody’s upgraded Hartford Life & Annuity from “negative” to “stable, Fitch “reaffirmed” it’s current rating of Hartford, and S&P downgraded Hartford’s life subsidiaries. AM Best has not made a statement yet.
Hedge fund manager, John Paulson, predicted that a spinoff of Hartford’s property and casualty operations would raise the value of the company to Hartford shareholders to $32. Market analysts, however, appeared split on the long-term benefits of such action.