The U.S. insurer could repurchase $1.05 billion of stock, while paying down $350 million of debt, John Nadel, an analyst at Sterne Agee & Leach Inc. said today in a research note. Hartford will receive sales proceeds of $860 million and free up an additional $540 million tied to the termination of reinsurance agreements, according to a statement today.
Related story: Hartford Financial said near sale of Japan operation to Orix
Hartford Chief Executive Officer Liam McGee is focusing on coverage for homes, cars and businesses, after divesting a life insurer and a retirement-plans unit. Hartford, based in the Connecticut city of the same name, has retreated from variable annuities in the U.S. and abroad. Warren Buffett’s Berkshire Hathaway Inc. last year bought a Hartford unit that offered the retirement products in the U.K.
“The sale should clearly result in reduced volatility of results,” Nadel wrote. “We expect capital management to ramp higher, post-closing.”
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Hartford Chief Financial Officer Christopher Swift said the company will provide an update on “incremental capital management actions” after the deal closes. The transaction is expected to be completed in July, and the final purchase price is subject to adjustment for market fluctuations, Hartford said.
“This transaction materially reduces The Hartford’s risk profile by permanently eliminating the company’s Japan variable annuity risk,” McGee said in the statement.
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Hartford was among insurers burned in the financial crisis by promises made in prior year to savers. Declining markets and currency fluctuations contributed to expanding liabilities that required a bailout. McGee repaid the U.S. after becoming CEO.
In February, the insurer said it had $2 billion of repurchases authorized for this year and next. The company bought back $633 million of stock and warrants in 2013.
Hartford slipped 0.6 percent to $34.77 at 10:09 a.m. in New York. The insurer dropped 3.5 percent from Dec. 31 to $34.98 at the end of last week. Orix has declined 20 percent this year to 1,478 yen in Tokyo.