Billionaire hedge fund manager John Paulson is calling for The Hartford Financial Services Group Inc. to spin off the company's property casualty insurance business.
Paulson & Co. filed a formal notification with the U.S. Securities and Exchange Commission Feb. 14 so that it could begin talking to other shareholders about the spinoff and continue its discussions with management and the board of directors. Paulson, who owns an 8.4 percent stake in The Hartford, is the company's largest shareholder.
In a letter to Liam McGee, The Hartford's chairman, president and CEO, Paulson said the spin-off would create two insurance companies -- one focused on life insurance and the other on property and casualty insurance. He said the action would reduce complexity, reverse poor stock performance and enhance each business's potential for success.
"Each of the companies will be in a stronger position to make decisions that serve its discrete objectives," Paulson stated in the letter. "An independent life company may decide to sharpen its focus and stop selling low-return, capital-intensive types of insurance and focus instead on faster-growing, less-capital-intensive businesses, such as mutual funds, retirement and group life."
Paulson, who said he shared the idea with management in November and December, chided the company's leadership for not moving more quickly on the proposal.
"Given the extremely poor performance of Hartford's stock and the fact that Hartford trades at lower valuation multiples than any of its U.S. insurance peers, addressing these issues should be Hartford's highest priority," the letter stated. "That is why we were disappointed that management, on the Feb. 8 earnings call, only addressed the potential 'challenges' of a separation. Not only do we believe that you underestimate the potential value that would be created by a spinoff, the 'challenges' you describe are both over-rated and readily manageable."
In a statement issued on its website, The Hartford said it recognized the potential benefits of a spinoff.
"While there are challenges to successfully executing a separation, we welcome Paulson's views and look forward to continued dialogue with him and other shareholders," the company said. "We are evaluating the company's strategy and business portfolio with the goal of delivering shareholder value. We remain objective and pragmatic about the best ways to achieve this goal."