The Hartford Financial Services Group Inc. executives believe the proposed sale of Talcott Resolution Inc. should help grow the insurer's return on equity to 10% in 2018, and then higher in subsequent years.
The Hartford has agreed to sell the runoff life and annuity businesses to a group of investors led by Cornell Capital LLC, Atlas Merchant Capital LLC, TRB Advisors LP, Global Atlantic Financial Group Ltd., Pine Brook and the J. Safra Group. The pending sale would complete The Hartford's exit from the life insurance business and unload a runoff insurance property that has been a drag on ROE, management said during a conference call to discuss the transaction.
The company's main priority for the proceeds from the $2.05 billion deal will be to grow its property and casualty business, before considering share buybacks or increased dividends, executives said. Either or both strategies should increase The Hartford's ROE starting in 2018, according to Chairman and CEO Christopher Swift.
"We think we could earn 10% next year and be on a path to continually expand that into [2019 and 2020] with thoughtful capital management either from an earnings side or returning excess capital to shareholders," Swift said.
The company reported consolidated ROE of 8.2% for the 12 months ending Sept. 30, according to a presentation released for the sale agreement. That number would have been 9.7% without Talcott.
The sale stands to increase The Hartford's debt leverage, but the company plans to use about $400 million of the proceeds for debt repayment. Combined with other planned debt reduction actions, management expects to bring the company closer to its long-term goal of reducing leverage to the 22% to 23% range within two years, CFO Beth Bombara said.
Asked during the call if the company considered holding off on signing the deal while Congress worked through tax reform, Bombara said the company saw nothing in reform proposals that would have made the sale more attractive. Proposals in the House and Senate would have very different impacts on The Hartford's tax rate and financial results, she said.
The House version would bring the insurer's effective tax rate down to the low-20% range from the high-20% range and allow the company to retain more of its deferred tax assets. The effect from the Senate's tax bill is more difficult to project, but would reduce The Hartford's deferred tax assets to almost nothing, she said.
The deal is expected to close in the first half of 2018. Global Atlantic Financial in a separate press release announced that it would be reinsuring, through a subsidiary, about $9 billion of Talcott's fixed annuities and other spread-based reserves. The annuities were distributed primarily through banks and broker/dealers.