September 5, 2012

The Hartford Sells Retirement Plans Unit to MassMutual in $400 Million Deal

Sale follows pressure from hedge fund honcho John Paulson for HIG to spin off life insurance business from property and casualty

The Hartford Financial Services Group (HIG) has agreed to sell its Retirement Plans business to Massachusetts Mutual Life Insurance Co. for $400 million, the Hartford, Conn.-based company announced Tuesday.

The $400 million cash deal is structured as a reinsurance transaction and is expected to close by the end of 2012, according to The Hartford’s 8-K filing with the Securities and Exchange Commission (SEC). The Hartford expects the transaction to have no material impact on its GAAP financial results and to benefit net statutory capital by approximately $600 million, including a ceding commission and a reduction in required risk-based capital, on closing.

Early this year, after a weak first-quarter earnings report and a 39% drop in HIG stock in 2011, the hedge fund manager John Paulson pressured The Hartford to sell off its units. Paulson & Co. retains an 8.4% stake in The Hartford, making it the largest shareholder. Paulson filed a Schedule 13D in February with the SEC in an effort to force The Hartford’s hand in taking quick action to break up its property and casualty and life insurance units. The life unit includes The Hartford’s wealth management, mutual funds and annuities operations.

The Hartford's Liam McGee“The agreement marks the second of three planned business sales as we continue to make good progress executing on our strategy,” said Liam McGee (left), chairman, president and CEO of The Hartford, in a statement released Tuesday. “With The Hartford’s sharper focus on its historical strength in insurance underwriting, along with efforts to improve expense efficiencies, increase capital generation and reduce market risks, we are on the right path to deliver greater shareholder value.”

The Hartford and American International Group announced in July that the insurance giants had signed a definitive agreement to make HIG’s independent broker-dealer, Woodbury Financial Services, part of AIG’s Advisor Group. The Hartford said on March 21 that it would exit the variable annuity and life insurance businesses to focus on its property and casualty insurance business.

The Hartford’s Retirement Plans business, which serves more than 33,000 plans and about 1.5 million participants, is primarily a defined-contribution business, with $54.9 billion in assets under management as of June 30. After the deal closes, The Hartford’s Retirement Plans employees will become part of MassMutual’s Retirement Services Division.

“Our Retirement Services Division has experienced record growth in recent years and is an important contributor to MassMutual’s overall profitability and success,” said MassMutual Chairman, President and CEO Roger Crandall in a statement. “This transaction enables us to accelerate growth into new sectors, add complementary distribution capabilities, and nearly double the number of retirement plan participants we serve.”

As part of the agreement, The Hartford will continue to sell new retirement plans during a transition period, and MassMutual will assume all expenses and risk for these sales through a reinsurance agreement. Between now and the close of the transaction, there are no planned changes with respect to the day-to-day interactions between The Hartford and its Retirement Plans’ distribution partners, plan sponsors and customers.

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Read The Hartford Exiting Life, Annuity Business, Exploring Sale of BD Woodbury at AdvisorOne.

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