Hartford Financial Services Group Inc. (HIG:US), the insurer that divested life units, said the company will buy back shares and reduce debt after posting a fourth- quarter loss on claims from superstorm Sandy.
The insurer will buy back as much as $500 million in stock and cut debt by $1 billion, according to a statement today from Hartford, which is based in the Connecticut city of the same name. The net loss (HIG:US) of $46 million, or 13 cents a share, compares with profit of $118 million, or 23 cents, a year earlier, Hartford said in a statement.
Chief Executive Officer Liam McGee, 58, is counting on home, auto and commercial coverage as he narrows the focus of the firm. He has divested assets including Hartford’s life insurance, retirement-plans, broker-dealer and individual- annuities origination units in deals that freed up more than $2 billion in capital.
The sales help with “critical goals for the Hartford, including paying down debt, returning capital to shareholders and further strengthening our financial flexibility to take actions to reduce risk in the legacy annuity liabilities,” McGee said in the statement.
Hartford said it won approval from state regulators to pay a $1.2 billion dividend from Connecticut life insurance units to the parent company. The insurer fell 17 cents to $24.53 at 5:20 p.m. in New York. The firm gained about 28 percent in the past year.
Hartford’s capital plans will “improve its financial flexibility modestly in the next couple of years via reduced debt leverage and improved fixed-charge coverage,” analysts at Standard & Poor’s said in a statement.
A year ago, billionaire hedge fund manager John Paulson told McGee on Hartford’s earnings call to “do something drastic” to improve the company’s share price. Paulson, Hartford’s largest shareholder (HIG:US) at the time, urged the CEO to split the firm into property-casualty and life insurance.
Core earnings, a measure of profit excluding some investing results and discontinued operations, may be $1.38 billion to $1.48 billion this year, Hartford said in the statement. That compares with the average estimate of $1.42 billion in a Bloomberg survey of 11 analysts.
Full-year profit slumped to $350 million from $712 million in 2011 as the insurer recorded losses tied to hedges and the cost of retiring investments made by Allianz SE during the financial crisis.
Sandy cost Hartford $350 million net of reinsurance in the fourth quarter, reducing profit at the property-casualty business to $80 million from $137 million.
Hartford paid out 109 cents for claims and expenses for every premium dollar it took in during the period. Book value, a measure of assets minus liabilities, fell to $46.59 per share on Dec. 31 from $48.13 three months earlier
Sales of commercial policies declined as Hartford increased prices for standard commercial renewal coverage by 9 percent in the fourth quarter, the insurer said. Sales of auto and homeowners policies were little changed in the period.
Core earnings in the fourth quarter were 54 cents a share. Analysts estimated adjusted earnings of 28 cents, the average of 19 estimates compiled by Bloomberg.
McGee is working to reduce risks tied to variable annuities as low interest rates and stock-market volatility have pressured results from the retirement products. Hartford said in November it would offer to pay some clients to give up the contracts.
“The major management actions taken to simplify the business model around a market-leading P&C franchise and away from capital-market sensitive businesses should result in consistent operating results,” Goldman Sachs Group Inc. analysts led by Christopher Giovanni said in a Jan. 15 research note, referring to property-and-casualty coverage. They recommended (HIG:US) investors buy the shares.
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