HIG Dispositions Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
 
January 1, 2013

The Hartford Financial Services Group, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
001-13958
 
13-3317783
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
One Hartford Plaza, Hartford, Connecticut
 
06155
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (860) 547-5000

Not Applicable
_____________________________________________
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


1


Item 2.01 Completion of Acquisition or Disposition of Assets
On January 1, 2013, Hartford Life, Inc., a Delaware corporation ("Seller") and an indirect wholly-owned subsidiary of The Hartford Financial Services Group, Inc. (the "Company"), completed its previously announced sale of (i) the Company's assets relating to its retirement plans business ("Retirement Plans") to Massachusetts Mutual Life Insurance Company and (ii) all of the issued and outstanding equity of Hartford Retirement Services, LLC, Retirement Plans's recordkeeper, for a cash ceding commission of $355 million, net of an adjustment at closing of $45 million as a result of net flows adjusted for discontinuances and lapses in the retirement plans business from and including January 1, 2012 through the closing of the transaction as set forth in the Purchase and Sale Agreement.
On January 2, 2013, Hartford Life, Inc. completed its previously announced sale of the Company's assets relating to its individual life insurance business ("Individual Life") to The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc., for cash consideration of $615 million consisting primarily of a ceding commission.
Pro forma financial information with respect to these transactions is provided in Item 9.01 of this Current Report on Form 8-K.

Item 7.01 Regulation FD Disclosure.
On January 2, 2013, the Company issued a press release announcing completion of the sale of its Retirement Plans and Individual Life businesses. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.
(b)     Pro Forma Financial Information

The attached unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2011 and the nine-months ended September 30, 2012 and the unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012 (collectively, the “Unaudited Pro Forma Condensed Consolidated Financial Statements”) are based on the Company's historical consolidated results of operations and financial position, adjusted to give effect to the sale of the Company's Retirement Plans and Individual Life businesses.
The unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended December 31, 2011 and the nine-months ended September 30, 2012 have been prepared to present the Company's results of operations as if the sale of each of the Retirement Plans and Individual Life businesses had occurred on January 1, 2011. The unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012 has been prepared to present the Company's financial condition as if the sale of the Retirement Plans and Individual Life Insurance businesses had occurred on September 30, 2012.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not purport to be indicative of the financial position or results of operations of the Company as of the dates or for such periods, nor are they necessarily indicative of future results. The Unaudited Pro Forma Condensed Consolidated Financial Statements and the accompanying notes should be read together with the Company's audited Consolidated Financial Statements and accompanying notes as of and for the year ended December 31, 2011, and Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as well as the Company's unaudited Condensed Consolidated Financial Statements filed with the Securities & Exchange Commission on Form 10-Q as of and for the nine-months ended September 30, 2012.
(d)     Exhibits
Exhibit No.
  
Description
 
 
99.1
 
Press release issued on January 2, 2013 by The Hartford Financial Services Group, Inc.
99.2
  
Unaudited Pro Forma Condensed Consolidated Statements of Operations of The Hartford Financial Services Group, Inc. for the year ended December 31, 2011 and the nine-months ended September 30, 2012 and the Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2012


2


Exhibit 99.1

NEWS RELEASE

The Hartford Completes Execution Milestone; Closes on Planned Business Sales

Transactions provide The Hartford an estimated net statutory capital benefit of $2.2 billion

Hartford, Conn., January 2, 2013 – The Hartford has completed the sales of three businesses, closing on agreements for the sale of Retirement Plans to Massachusetts Mutual Life Insurance Company and Individual Life to The Prudential Insurance Company of America, as well as its Individual Annuity new business capabilities to Forethought Financial Group, Inc. The company previously announced the completion of the sale of Woodbury Financial to AIG on Dec. 3, 2012.

“Completing these transactions on favorable financial terms with a significant capital benefit represents an important milestone in the execution of The Hartford’s transformation,” said The Hartford’s Chairman, President and CEO Liam E. McGee. “We will be a more focused, disciplined and efficient company with greater financial flexibility while generating profitable growth and superior financial returns for shareholders.”

In aggregate, The Hartford does not expect these transactions to have a material impact on GAAP net income. However, due to the timing of the transaction closings, the company expects a modest realized capital loss in fourth quarter 2012 and a modest gain in first quarter 2013. The company will realize an estimated net statutory capital benefit from these transactions of approximately $2.2 billion, which is comprised of an increase in U.S. life statutory surplus and a reduction in the U.S. life risk-based capital requirements1. This net statutory capital benefit is almost entirely associated with the sales of Retirement Plans and Individual Life, which closed on Jan. 1 and 2, 2013 respectively, and, as a result, will be realized in first quarter 2013 statutory financial results.

About The Hartford

With more than 200 years of expertise, The Hartford is a leader in property and casualty insurance, group benefits and mutual funds. The company is widely recognized for its service excellence, sustainability practices, trust and integrity. More information on the company and its financial performance is available at www.thehartford.com.

HIG-C


3


1 Required risk-based capital is based on regulatory capital at the company action level multiplied by 3.25.


Some of the statements in this release may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We caution investors that these forward-looking statements are not guarantees of future performance, and actual results may differ materially. Investors should consider the important risks and uncertainties that may cause actual results to differ. These important risks and uncertainties include those discussed in our Quarterly Reports on Form 10-Q, our 2011 Annual Report on Form 10-K and the other filings we make with the Securities and Exchange Commission. We assume no obligation to update this release, which speaks as of the date issued.

Media Contact:                Investor Contact:
Shannon Lapierre                Sabra Purtill
860-547-5624                    860-547-8691
shannon.lapierre@thehartford.com        sabra.purtill@thehartford.com
        
Thomas Hambrick                
860-547-9746    
thomas.hambrick@thehartford.com            
        









4



Exhibit 99.2
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Pro Forma Condensed Consolidated Statement of Operations
For the year ended December 31, 2011
 
 
 
 
Pro forma adjustments
 
 
(In millions, except for per share data)
As currently
reported (1)
 
Retirement Plans (2)
 
Individual Life (2)
 
Pro forma
 
(Unaudited)
Revenues
 
 
 
 
 
 
 
Earned premiums
$
14,088

 
$
(7
)
 
$
102

 
$
14,183

Fee income
4,750

 
(373
)
 
(1,001
)
 
3,376

Net investment income:
2,913

 
(396
)
 
(456
)
 
2,061

Securities available-for-sale and other
4,272

 
(456
)
 
(396
)
 
3,420

Equity securities, trading (3)
(1,359
)
 
 
 
 
 
(1,359
)
Total net investment income
2,913

 
(456
)
 
(396
)
 
2,061

Net realized capital gains/losses
(145
)
 
10

 
(30
)
 
(165
)
Other revenues
253

 

 

 
253

Total revenues
21,859

 
(766
)
 
(1,385
)
 
19,708

Benefits, losses and expenses
 
 
 
 
 
 
 
Benefits, losses and loss adjustment expenses
14,625

 
(308
)
 
(816
)
 
13,501

Benefits, losses and loss adjustment expenses – returns credited on international variable annuities (3)
(1,359
)
 

 

 
(1,359
)
Amortization of deferred policy acquisition costs and present value of future profits
2,444

 
(84
)
 
(171
)
 
2,189

Insurance operating costs and other expenses
5,310

 
(423
)
 
(261
)
 
4,626

Goodwill impairment
30

 

 

 
30

Interest expense
508

 

 

 
508

Total benefits, losses and expenses
21,558

 
(815
)
 
(1,248
)
 
19,495

Income from continuing operations before income taxes
301

 
49

 
(137
)
 
213

Income tax expense/benefit
(325
)
 
52

 
(23
)
 
(296
)
Income from continuing operations, net of tax
$
626

 
$
(3
)
 
$
(114
)
 
$
509

 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
626

 
 
 
 
 
$
509

Less: Preferred stock dividends and accretion of discount
42

 
 
 
 
 
42

Income from continuing operations, net of tax, available to common shareholders
$
584

 
 
 
 
 
$
467

 
 
 
 
 
 
 
 
Income from continuing operations, net of tax, available to common shareholders per common share
 
 
 
 
 
 
 
Basic
$
1.31

 
 
 
 
 
$
1.05

Diluted
$
1.22

 
 
 
 
 
$
0.98

Weighted average number of common shares outstanding
 
 
 
 
 
 
 
Basic
445.0

 
 
 
 
 
445.0

Diluted
478.0

 
 
 
 
 
478.0





See Explanatory Notes to Pro Forma Condensed Consolidated Statements of Operations.


5


THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Pro Forma Condensed Consolidated Statement of Operations
For the nine months ended September 30, 2012


 
 
 
Pro forma adjustments
 
 
(In millions, except for per share data)
As reported
 
Retirement Plans (2)
 
Individual Life (2)
 
Pro forma
 
(Unaudited)
Revenues
 
 
 
 
 
 
 
Earned premiums
$
10,243

 
$
(5
)
 
$
84

 
$
10,322

Fee income
3,366

 
(276
)
 
(738
)
 
2,352

Net investment income:
 
 
 
 
 
 
 
Securities available-for-sale and other
3,197

 
(372
)
 
(312
)
 
2,513

Equity securities, trading (3)
1,889

 
 
 
 
 
1,889

Total net investment income
5,086

 
(312
)
 
(372
)
 
4,402

Net realized capital gains/losses
(202
)
 
1

 
(13
)
 
(214
)
Other revenues
184

 

 

 
184

Total revenues
18,677

 
(592
)
 
(1,039
)
 
17,046

Benefits, losses and expenses
 
 
 
 
 
 
 
Benefits, losses and loss adjustment expenses
9,930

 
(251
)
 
(657
)
 
9,022

Benefits, losses and loss adjustment expenses – returns credited on international variable annuities (3)
1,888

 

 

 
1,888

Amortization of deferred policy acquisition costs and present value of future profits
1,441

 
(31
)
 
(77
)
 
1,333

Insurance operating costs and other expenses
3,896

 
(323
)
 
(222
)
 
3,351

Loss on extinguishment of debt
910

 

 

 
910

Interest expense
348

 

 

 
348

Total benefits, losses and expenses
18,413

 
(605
)
 
(956
)
 
16,852

Income from continuing operations before income taxes
264

 
13

 
(83
)
 
194

Income tax expense/benefit
(136
)
 
22

 
(17
)
 
(131
)
Income from continuing operations, net of tax
$
400

 
$
(9
)
 
$
(66
)
 
$
325

 
 
 
 
 
 
 
 
Income from continuing operations, net of tax
$
400

 
 
 
 
 
$
325

Less: Preferred stock dividends
31

 
 
 
 
 
31

Income from continuing operations, net of tax, available to common shareholders
$
369

 
 
 
 
 
$
294

 
 
 
 
 
 
 
 
Income from continuing operations, net of tax, available to common shareholders per common share
 
 
 
 
 
 
 
Basic
$
0.84

 
 
 
 
 
$
0.67

Diluted
$
0.79

 
 
 
 
 
$
0.63

Weighted average number of common shares outstanding
 
 
 
 
 
 
 
Basic
438.2

 
 
 
 
 
438.2

Diluted
465.2

 
 
 
 
 
465.2












See Explanatory Notes to Pro Forma Condensed Consolidated Statements of Operations.

6




The Hartford Financial Services Group, Inc.
Explanatory Notes to Pro Forma Condensed Consolidated Statements of Operations
(Dollar amounts in millions, unless otherwise stated)
(Unaudited)


(1) On January 1, 2012, the Company retrospectively adopted Accounting Standards Update (“ASU”) No. 2010-26, Financial Services – Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts which clarifies the definition of policy acquisition costs that are eligible for deferral. Previously reported financial information has been revised to reflect the effect of the Company’s adoption of this accounting standard.

(2) These pro forma adjustments reflect the elimination of revenues and benefits, losses and expenses of the business sold assuming the transaction occurred on January 1, 2011. See Explanatory Notes to Condensed Consolidated Pro Forma Balance Sheet for information related to the form of the sale transaction and the estimated gain on the sale transaction.

(3)
Includes investment income and mark-to-market effects of equity securities, trading, supporting the international variable annuity business, which are classified in net investment income with corresponding amounts credited to policyholders within benefits, losses and loss adjustment expenses.




7



THE HARTFORD FINANCIAL SERVICES GROUP, INC.
Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 2012
 
 
 
Pro forma adjustments
 
(In millions, except for share and per share data)
As reported
 
Retirement Plans
 
Individual Life
 
Total Impact
Note
Pro forma
 
(Unaudited)
Assets
 
Total investments
$
137,168

 
$(9,431)
 
$(7,798)
 
$(17,229)
(1)
$
119,939

Cash
2,705

 
355
 
615
 
970
(7)
3,675

Premiums receivable and agents’ balances, net
3,646

 
 
 
 
 

 
3,646

Reinsurance recoverables, net
4,726

 
9,055
 
7,518
 
16,573
(2)
21,299

Deferred policy acquisition costs and present value of future profits
5,947

 
(218)
 
(1,976)
 
(2,194)
(3)
3,753

Deferred income taxes, net
1,248

 
226
 
340
 
566
(4)
1,814

Goodwill
1,006

 
(156)
 
(342)
 
(498)
(3)
508

Property and equipment, net
979

 
(38)
 
(14)
 
(52)
(3)
927

Other assets
3,124

 
(240)
 
(360)
 
(600)
(3)
2,524

Separate account assets
148,369

 
 
 
 
 
 
 
148,369

Total assets
$
308,918

 
$(447)
 
$(2,017)
 
$(2,464)

$
306,454

Liabilities
 
 
 
 
 
 
 
 
 
Reserve for future policy benefits and unpaid losses and loss adjustment expenses
$
40,992

 
 
 
 
 

 
$
40,992

Other policyholder funds and benefits payable
43,086

 
 
 
 
 
 
 
43,086

Other policyholder funds and benefits payable – international variable annuities
29,938

 
 
 
 
 
 
 
29,938

Unearned premiums
5,370

 
 
 
 
 
 
 
5,370

Short-term debt
320

 
 
 
 
 
 
 
320

Long-term debt
6,806

 
 
 
 
 
 
 
6,806

Consumer notes
190

 
 
 
 
 
 
 
190

Other liabilities
10,477

 
(145)
 
(1,525)
 
(1,670)
(3) (5)
8,807

Separate account liabilities
148,369

 
 
 
 
 
 
 
148,369

Total liabilities
285,548

 
(145)
 
(1,525)
 
(1,670)

283,878

Commitments and Contingencies (Note 9)
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Preferred stock, $0.01 par value — 50,000,000 shares authorized, 575,000 shares issued, liquidation preference $1,000 per share
556

 
 
 
 
 
 
 
556

Common stock, $0.01 par value — 1,500,000,000 shares authorized, 469,746,638 and 469,750,171 shares issued
5

 
 
 
 
 
 
 
5

Additional paid-in capital
10,032

 
 
 
 
 
 
 
10,032

Retained earnings
11,235

 
16
 
 
16
(7)
11,251

Treasury stock, at cost — 33,680,760 and 27,211,115 shares
(1,753
)
 
 
 
 
 
 
 
(1,753
)
Accumulated other comprehensive income, net of tax
3,295

 
(318)
 
(492)
 
(810)
(6)
2,485

Total stockholders’ equity
23,370

 
(302)
 
(492)
 
(794)

22,576

Total liabilities and stockholders’ equity
$
308,918

 
$(447)
 
$(2,017)
 
$(2,464)

$
306,454


See Explanatory Notes to Pro Forma Condensed Consolidated Balance Sheet.


8


The Hartford Financial Services Group, Inc.
Explanatory Notes to Pro Forma Condensed Consolidated Balance Sheet
(Dollar amounts in millions, unless otherwise stated)
(Unaudited)

(1) These pro forma adjustments reflect the elimination of the assets of the businesses sold.

(2) Since these sale transactions are primarily in the form of reinsurance arrangements, the Company retains substantially all of the policyholder liabilities of the sold businesses but records a reinsurance recoverable from buyers at closing.

(3) These pro forma adjustments reflect write-offs of insurance contract-related assets and liabilities as part of the reinsurance transactions, segment and corporate goodwill related to the sold businesses, and other assets sold.

(4) The pro forma adjustment to the deferred tax asset primarily reflects elimination of the deferred tax liability associated with unrealized appreciation on investments.

(5) Includes accruals for estimated transaction and restructuring costs directly attributable to the sale of the businesses.

(6) Reflects the elimination of unrealized appreciation on investments directly related to the businesses.

(7) Using September 30, 2012 data, the following table reflects the estimated pre-tax and after-tax gain to be recognized at the time of closing the sale.
 
Retirement Plans
 
Individual Life
 
Total
Ceding commission
$
355

 
$
615

 
$
970

Fair value of assets in excess of reserves
(354
)
 
(531
)
 
(885
)
Intangible asset write-off
(579
)
 
(962
)
 
(1,541
)
Transaction costs
(28
)
 
(55
)
 
(83
)
Reinsurance loss
(606
)
 
(933
)
 
(1,539
)
Realized capital gains - investments
473

 
921

 
1,394

Realized capital gains - derivatives
194

 
76

 
270

Gain from disposal of business, pre-tax
$
61

 
$
64

 
$
125

Gain from disposal of business, after-tax
$
16

 
$

 
$
16


The actual gain to be reported in continuing operations for the first quarter of 2013 is subject to change pending final determination of the net assets of the businesses, transaction costs and other adjustments.

9




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
The Hartford Financial Services Group, Inc.
  
 
 
 
 
January 2, 2013
 
By:
 
/s/ Christopher J. Swift
 
 
 
 
 
 
 
 
 
Name: Christopher J. Swift
 
 
 
 
Title: Executive Vice President and Chief Financial Officer



10