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Hartford CEO: Don't Give Paulson Credit for Annuity Exit

Source: WSJ - Erik Holm

Posted on 22 Mar 2012

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Hartford Financial Chief Executive Liam McGee wants to make something clear: this wasn’t John Paulson’s decision.

The insurer’s announcement on Wednesday that it intends to shut down its annuity business and pursue a sale of much of its life-insurance operation was the result of an evaluation that had been underway since the middle of last year, McGee said. It wasn’t fueled by Paulson’s outburst on Hartford’s fourth-quarter conference call in February, when he loudly called on management to “do something drastic” to boost shares.

“This was Hartford’s decision,” McGee said in an interview. “We appreciate the constructive suggestions of all of our shareholders, including Paulson…At the end of the day, it is management and the board’s decision to make the best decision for all shareholders.”

The company had retained bankers in mid-summer, according to a person familiar with the matter said.

Here are some other excerpts from the interview.

On the company’s evaluation of its options:

“We were not satisfied that our stock price reflected the value of the company.”

“We began a process in the middle of last year…looking at our portfolio of businesses and our business strategy. We’ve said we would be objective and pragmatic about what steps we would take to realize that goal. In the process of that evaluation, Paulson & Co. did make a suggestion of a split. We’ve been very open and transparent publicly about our open-mindedness and our objectivity and our rigorousness of looking at that. We just didn’t believe it was going to create shareholder value.”

“I think it’s important to note that when we looked at our businesses…We looked at each of those businesses and said the go-forward businesses for the Hartford really had to satisfy three criteria: they had to have a competitive market position against which we believed we can invest to create future profitable growth, the businesses had to be strong generators of capital, not consumers of capital; and finally, that the go-forward portfolio of business at the Hartford would over time create a company that had lower sensitivity to capital markets than the company does today.”

On what the company will look like once the run-off has been implemented and the sales completed:

“Out of that comes a company that, in our view, over time will create higher ROEs. The ongoing businesses for the Hartford have a target 12%-13% ROE for 2012 alone. Our goal obviously is to increase that organically. These businesses represent virtually all the existing statutory earnings of the company.”

On the choice to pursue a sale instead of the spin-off Paulson proposed:

“In our view the spin doesn’t make sense for shareholders at the current time.”

The businesses that are for sale “are businesses that, in general, are capital consumptive. In general, they do not have the target ROEs that we want, and their sale will create proceeds…that will create greater financial flexibility for the firm. We can use that flexibility in a number of ways…We can use it for capital management actions. We could use it to partially reduce some of our legacy annuity risks if it was economic at that time. We could use it to invest in our business or even reduce debt. It gives us a tremendous amount of flexibility.”

On S&P’s ratings cut this morning:

“I’d emphasize those are for life subsidiaries, not the holding company… Given the significance of today’s announcement it’s not unexpected. You’ll see a variety of views from the agencies.”

“We will maintain the capital resources and financial strength required by our business strategy and consistent with the ratings that we had yesterday.”