Investors should buy Hartford Financial Services Group Inc. (HIG)’s debt as the insurer divests life-insurance businesses to focus on higher-returning property- casualty operations, JPMorgan Chase & Co. said.
Spreads on the insurer’s debt will probably improve as the company refocuses operations and lowers risk in the variable annuity portfolio, JPMorgan analysts led by Arun Kumar said in a note to clients today, in which they upgraded the bonds to overweight. The Hartford, Connecticut-based company may use proceeds from asset sales to retire debt, they said.
Chief Executive Officer Liam McGee reached deals this year to sell Hartford’s broker-dealer, retirement-plans business, a life operation and individual-annuities distribution unit after facing pressure from John Paulson to simplify the business. Paulson, whose hedge fund is Hartford’s largest shareholder, urged McGee in February to split property-casualty operations, such as auto and commercial coverage, from life insurance.
Hartford “has largely traded in tandem with its life insurance counterparts,” the analysts wrote. “However, as the company continues to execute on its plans, we believe it will naturally trend toward some of the other P&C companies.”
The insurer’s $425 million of 6.625 percent notes due April 2042, rated Baa3 by Moody’s Investors Service, trade at 128.9 cents on the dollar to yield 4.78 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s up from 102.6 cents on April 26, when McGee announced a deal to sell the annuities distribution business.
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