The Hartford Financial Services Group will probably use proceeds from the sale of several business units to pay off debt and buy back shares of company stock, analysts say.
The last of several large divestitures was announced last week with the planned sale of The Hartford's Individual Life business to Prudential Financial of Newark, N.J., capping off several large divestitures that were part of a major restructuring plan that the company explained publicly in March. The sale is expected to be complete early next year.
It's unclear how many employees will remain and where they will work after the departure of 2,600 workers, including more than 900 in Connecticut, but by selling various under-performing businesses, The Hartford expects to free up $2.2 billion in capital.
"The focus will now shift to capital deployment and timeframes for getting the full $2.2 billion to the holding company, but we expect the majority of capital to be deployed roughly equally on buybacks and deleveraging," Mark Finkelstein and Paul Surran, analysts for Evercore Partners, wrote in a research note.
Bank of America Merrill Lynch analysts Jay A. Cohen and Edward A. Spehar wrote Friday, "We expect the stock to react favorably to the announced sale. … Given the amount of capital the company should have available, we believe the capital plan could be a further catalyst for the shares."
The insurer's CEO, Liam E. McGee, has said that The Hartford will explain early next year how it plans to spend capital unleashed by selling off the company's Retirement Plans, Individual Life and Woodbury Financial Services brokerage, which is based in Oakdale, Minn.
The Hartford is on the right strategic path, though the company's earnings-per-share and return-on-earnings "will remain compressed for several years and the legacy of the variable annuity business remains a drag," Barclays analysts Jay Gelb and Sarah DeWitt wrote in a research note to investors.
McGee said in an interview with The Courant's reporters in September that The Hartford will remain the largest insurance employer in the region after its divestitures. To do that, it would have to stay ahead of the next largest: The Travelers Cos., which employs about 7,000 locally, and Aetna, which has about 6,700 employees in the region.
The most recent employment figures The Hartford has offered were as of Dec. 31, 2011, when it had 24,400 workers companywide and 10,300 in Connecticut. That total number has changed throughout the year because of retirements, people hired and other changes, said company spokesman Thomas Hambrick.
In total, the company is reducing its workforce by 2,600 — including more than 900 in Connecticut. The Hartford will not say how many employees it will have after the divestitures, other than to note the number of workers in each unit it is selling: 1,300 in Retirement Plans; 1,000 in Individual Life; 200 for Woodbury and 100 in Individual Annuity.
The biggest uncertainty for The Hartford's employees is what will happen to more than 900 Connecticut workers employed by the business units that are being sold. The Individual Life workers will transfer to Prudential at the time of the sale early next year, and Retirement Plans workers are being offered jobs at MassMutual, which bought the unit. How many of those employees will remain employed in the long term, however, remains unclear.
The sale of Woodbury Financial, based in Oakdale, Minn., doesn't significantly affect Connecticut employment. Woodbury employs about 200 in home offices in Minnesota. About 40 Connecticut workers in The Hartford's annuity business were offered jobs at Forethought, which bought the company's annuity products and related services.
Analysts expect Prudential will see an opportunity to cut back its workforce. About 1,000 people work at The Hartford's Individual Life unit, including 200 in Connecticut. Most of the other employees work in Woodbury, Minn.
"Prudential has operated a significant life insurance back office in Minneapolis for years. As a result, there will likely be some expense synergies associated with the transaction to be recognized over time," analysts John Hall, Elyse Greenspan and Kenneth Hung of Wells Fargo Securities wrote in a research note Friday.