Pru to pay $615 million for Hartford individual life unit

The company recently agreed to sell the Woodbury Financial Services Inc. broker-dealer arm to American International Group (NYSE:AIG) and the retirement plans business to Massachusetts Mutual Life Insurance Company.

The Prudential deal announcement "represents a significant milestone in the execution of The Hartford's strategy to deliver greater value to shareholders," Hartford Chairman Liam McGee said in a statement. "In about six months, we have completed three agreements, all executed at attractive valuations to strong financial institutions that have a strategic interest in the businesses."

The Prudential deal and the other deals should help Hartford increase returns on equity, reduce the company's sensitivity to capital markets, cut capital costs and increase financial flexibility, McGee said.

Fitch Ratings said the Prudential deal should not have much effect on Hartford's equity but should increase net statutory capital at Hartford Life by about $1.5 billion.

Fitch likes Hartford's ability to do the Prudential deal and the other big deals quickly and to get reasonable prices, the rating agency said in a comment.

"A lengthy time horizon for a sale could have increased uncertainty and impaired the market position of these businesses and potentially forced a distressed sale," Fitch said. "Favorably, over the long term, management's decision to exit the more volatile variable annuities (VA) and individual life businesses should help to reduce risk by making the company less vulnerable to swings in performance."

John Nadel and Alex Levine, securities analysts at Sterne Agee, are estimating that Hartford probably had about $1 billion in statutory capital supporting the business being ceded to Prudential. Prudential likely will start out using a similar amount of statutory capital to back the business, the analysts said.

Prudential probably will use reinsurance and securitization transactions to reduce reserve requirements for the block, the analysts said.

The analysts are eager to see how much cash Prudential will have available for stock buybacks. The "growing likelihood that PRU will ultimately be one of several insurance companies designated as non-bank systemically important financial institutions (SIFIs)" could influence Prudential's ability to buy back stock, the analysts said.

Hartford probably will use $320 million in deal proceeds to fund repayment of a July 2013 debt maturity, and the company might use 10 percent of the 20 percent to pay for efforts to reduce the risk associated with blocks of variable annuity business, the analysts said.