Hartford's Business Model 'Does Not Make Sense,' Bernstein Says

By Andrew Frye
Bloomberg News
December 17, 2009

Dec. 17 (Bloomberg) -- Hartford Financial Services Group Inc., the firm that took a $3.4 billion U.S. bailout, assembled a mix of property-casualty and life insurance businesses that "does not make sense," Sanford C. Bernstein & Co. said.

"We tend to think that Hartford's combination of life and P&C is something of a 'forced marriage' at this point," Suneet Kamath, an analyst for BernsteinResearch, said today in a research note. "A potential sale of the P&C business is not a viable option, as management's hands are tied by" Hartford's debt load, Kamath said.

Chief Executive Officer Liam McGee. who joined the company in October, is reviewing Hartford's businesses and plans to lay out his strategy early next year. Under former CEO Ramani Ayer, the life insurance business recorded investment losses, forcing the company into the U.S. rescue. Hartford, based in the Connecticut city of the same name, has reported five straight quarterly losses totaling $4.88 billion.

"Management made too many bets that proved unsuccessful during the downturn," said Kamath, who initiated coverage on Hartford with a "market perform" rating.

Shannon Lapierre, a spokeswoman for Hartford, didn't immediately return a call seeking comment.

Hartford's property-casualty and life businesses each contributed about half of the firm's earnings from 2005 to 2007, according to Bloomberg data. In 2008, the life insurance business lost money, while the property casualty unit had a profit.

Prudential Financial Inc. has exited auto insurance to focus on life and retirement sales. MetLife Inc., the biggest U.S. life insurer, gets less than 10 percent of its earnings from home and auto policies, according to Bloomberg data.

American International Group Inc., which took a U.S. bailout valued at $182.3 billion, had a balance more similar to Hartford's, with life and property-casualty sales each contributing more than 40 percent of revenue from 2005 to 2007, according to Bloomberg data.

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