(RICHARD DREW)

Analysts at Sterne Agee feel the organizational changes announced today by The Hartford Financial Services Group, Inc., (HFSG) (NYSE: HIG) should lead to improved valuation and in a flash note that went out this morning, they gave it a rating of Buy.

The concentrated focus on their property and casualty, group insurance and mutual funds business while US VA, fixed and indexed annuities as well as individual life, Woodbury Financial Services and Retirement Plans businesses are shed, cuts costs and allows HFSG to focus on the more profitable sectors of the company.

See:  Hartford Exiting Life Business

Analysts feel that, on the heels of HSFG’s announcement this morning, a $100m pre-tax expense opportunity for 2013 will likely grow. As the company exits its life and related businesses, expenses will be cut in distribution, underwriting and product development.

At year end 2011, the Life Company, which included Japan, held statutory capital of $8.7 billion and although it is difficult for analysts to determine what percentage of that is supporting US annuities versus individual life and group insurance, they feel that when the ultimate exit of those lines of business is completed, including the life insurance and retirement plan business, the company will be able to operate what is left at a lower RBC levels and perhaps even lower ratings.

Analysts also contend that conditions in the first quarter of 2012 are favorable in terms of earnings and capital generation.

Sterne Agee analysts estimate after a discussion with HFSG management this morning that 50% of capital will be funneled into run-off businesses, 10% will go into businesses that will be sold (life and retirement plans) and the remaining 40% will be allocated to businesses the company is renewing its focus on (P&C, Group& Mutual Funds). HFSG management feels that ongoing businesses should generate a 12-13% ROE in 2012, consistent with their estimate for 2013.

See also: 

Moody’s Upgrades Hartford Life and Annuity from Negative to Stable

S&P Downgrades The Hartford’s Life Subsidiaries

Fitch Affirms Hartford’s Ratings Following Strategic Announcement