Hedge fund manager John Paulson's push to get Hartford Financial Services Group (HIG) to spinoff its property and casualty (P&C) insurance business may be an effort that is over before it really began. According to the Wall Street Journal, some insurance regulators are saying, "Hold your horses."
Spinning off its P&C business would leave a “less vibrant part behind would be closely scrutinized,” said New Jersey insurance regulator Tom Considine. “Approval would be unlikely in this environment.” Paulson & Co., which owns a roughly 8.5% stake in the Hartford and is the company's largest shareholder, believes the assumption that regulators would stand in the way of such a spinoff is premature. In a regulatory filing related to the matter, Paulson explained, “Hartford has access to numerous sources of cash over the next 18 months to ensure that both P&C and Life policyholders will be protected and all regulatory conditions will be met."
However, the naysayers are not questioning the Hartford's ability to meet regulatory requirements over the short term – it's the long term that is raising eyebrows. After all, just because the company announced that it would start halting sales of annuities next month, it will still have to meet the obligations presented by its existing annuities – including those with lifetime-payment guarantees. In the case of these guarantees particularly, they have not been fully tested at Hartford, nor have they at any other insurance agency. Many of the people who bought those guarantees did so in the mid-2000s. These people are, for most part, just now retiring and expecting withdrawals over the rest of their lives.
The Hartford will have to meet those obligations – and a lot can go wrong between now and then. "As Hartford is currently structured, any funding shortfall in the annuity book could be addressed through cash infusions originating from its other insurance units, such as its property-casualty business," reports the Wall Street Journal. "That’s why regulators could be reluctant to let a sister insurance business legally separate itself from the parent and the runoff annuity unit."