Hartford Sells SRS to Sedgwick CMS - Analyst Blog

As part of the ongoing restructuring process, The Hartford Financial Services Group, Inc. (HIG) has planned to dispose its wholly owned subsidiary Specialty Risk Services, LLC (SRS) to Sedgwick Claims Management Services, Inc. (Sedgwick CMS), which is the leading North American provider of innovative claims and productivity management solutions.

According to the deal, Hartford will sell its SRS to Sedgwick CMS for $278 million cash, and expects to recognize an after-tax gain of $150 million upon the completion of the deal.

Further, the deal is expected to close in the first quarter of 2011, subject to regulatory approval and other required consents, and upon closing, Sedgwick CMS plans to provide comparable employment offers to all its direct SRS employees. Credit Suisse Group AG (CS) acted as the financial adviser of Hartford.

After the sale of SRS, Hartford will be able to focus on its core protection and wealth-management business. Moreover, Hartford will be successful in creating shareholder value without affecting the earnings power of the company.

Likewise, Hartford also sold its mutual funds business Hartford Investments Canada Corp, known as Hartford Investments, to CI Financial Corp. for approximately C$1.75 billion in assets on October 22, which is expected to culminate by the end of December 2010.

While the purchase of Hartford Investment will add C$1.75 billion to CI Financial's C$91.5 billion fee-earning assets, it will also help Hartford to concentrate on its U.S.operations in order to enhance its operating leverage.

Over the past few quarters, Hartford has suffered from losses in its investment portfolio and higher costs related to the variable-annuity business. We remain concerned with Hartford's exposure to variable annuities and pressure on the Life segment as consumers seek relatively safe investment vehicles for their retirement assets.

We also suspect that the company will continue to incur heavy losses on its investment portfolio. However, its TARP repayment has somewhat cushioned its capital position. We believe earnings will gain momentum once the market rebounds to its historical highs.

 
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