Following heavy lobbying by hedge fund manager and major shareholder John Paulson of Paulson & Co., the Hartford Insurance Group said Wednesday that it was exiting its life insurance and individual annuity businesses and exploring the sale of its independent broker-dealer, Woodbury Financial Services, in order to concentrate on its mutual fund and property and casualty operations.
The Hartford said in a statement that it would stop new sales of its individual annuity products on April 27 and would also "pursue sales or other strategic alternatives for our Individual Life and Retirement Plans businesses," in a process that the company said would take 12 to 18 months. The company also said all existing policies would remain in force and "be fully supported according to the contract terms."
Hartford chairman, president and CEO Liam McGee (left) says in the statement that the company's "sharper focus will lead to an organization that, over time, will be positioned for higher returns on equity, reduced sensitivity to capital markets, a lower cost of capital and increased financial flexibility."
Woodbury, whose representatives voted it a Broker-Dealer of the Year for 2011 in Investment Advisor's annual reader survey, reported it had 1,550 producing reps as of April 1, 2011. Led by president and CEO Patrick McEvoy, Woodbury had average annual GDC per rep of $147,000 in 2010, and gross revenue that year of $238.7 million.
Those numbers for 2010 placed Woodbury in 16th place among independent broker-dealers as measured by both number of reps and annual revenue in Investment Advisor's annual Broker-Dealer Survey published in June 2011.
According to the company's presentation to analysts and media Wednesday, the number of Woodbury reps as of year-end 2011 was 1,400, while revenue for the year from the BD was $250 million.
In response to a question by an analyst during the presentation, Christopher Swift, executive VP and CFO of The Hartford, characterized Woodbury's earnings as "modest," noting that Woodbury's $250 million in revenues "are essentially offset by commissions and operating expenses."
"It will take a number of months for a definitive agreement" to be reached on selling the businesses, Swift said. A timeline presented in the analysts presentation shows that the "sales process" for the individual life, retirement plans and Woodbury businesses would take up to six months, and closing any transactions would take about 12 months
The Hartford's retirement plan business had $52.3 billion in AUM and revenue of $766 million in 2011. It has been a major player in the 401(k), 403(b) and 457 retirement plan markets.
In an article Tuesday for AdvisorOne's sister publication PropertyCasualty360, Arthur D. Postal writes:
"The decision is a capitulation to Paulson, and that its decision was likely linked to the economic downturn, when it was caught with variable annuities that offered guarantees to investors.
Hartford's innovations, including guarantees, in the VA market forced other market players to follow, resulting in an increase in a VA market that had been in the doldrums since the Bush tax cuts that helped lift total VA sales to $180 billion in 2007.
