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MrB
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Time to start a separate thread?

 

Kicking off with a quote from FrankArabia

 

You must be referring to Hartford and Metlife (at least the big caps I have been looking at).

 

Two things, those businesses haven't undergone the major restructuring like AIG so future prospects may resemble the past a bit more though my assertion is speculative.

 

Metlife is not selling for as cheap on a TBV basis but Hartford is.

 

Hartford is selling for significantly cheaper but I believe Hartford was undergoing more problems on the VA side and still faces potential losses from that hence the discount.

 

More research to follow.

 

Then this today..

 

UPDATE 2-Prudential near deal to buy Hartford life unit-WSJ (RTRS)

Today at 10:23 

* Deal could come as soon as Thursday-paper

    * Hartford has been selling assets since March

    * Shares sharply underperform sector

 

(Adds details)

    Sept 27 (Reuters) - Prudential Financial Inc (PRU.N) is

close to a deal to acquire the individual life insurance

business of Hartford Financial Services Group Inc (HIG.N), and a

deal could be struck as soon as Thursday, the Wall Street

Journal reported.

    The paper, citing a source familiar with the talks, said it

would be structured as a complicated reinsurance transaction and

that bankers had valued the business at about $1 billion.

    Hartford officials declined to comment, and a Prudential

spokesman was not immediately available to comment.   

    The Hartford is nearing the end of a restructuring program

unveiled earlier this year that was designed to tighten the

company's focus on its property and casualty insurance business.

    Under pressure to improve returns from its largest

shareholder, hedge fund manager John Paulson, The Hartford said

in March it would shut down its annuity business and pursue

sales for its broker-dealer, retirement plan and individual life

operations. (nL3E8EL4N8)

    Chief Executive Liam McGee predicted a sale process of 12

months to 18 months, but if there is a deal with Prudential, all

of the transactions w i ll have been done in just six months.

    The insurer sold the broker-dealer business to American

International Group Inc (AIG.N) in July and the retirement plan

business to MassMutual earlier this month.

    Shares of The Hartford were up nearly 3 percent at $19.22 on

Thursday morning on the New York Stock Exchange. Since

announcing the break-up plan on March 21, the stock is down

about 11 percent, against gains of 2 percent for the S&P

insurance index (.GSPINSC).

    Paulson's primary complaint has been the insurer's anemic

valuation, which has not improved much this year. Whether using

price-to-book ratio (favored for property insurers) or a forward

price-to-earnings ratio (preferred for life insurers), The

Hartford trades for less than half of the sector averages.

    Prudential, on the other hand, has been struggling to meet

Wall Street expectations of late. The company has missed

consensus earnings estimates three of the last four quarters,

and its stock is down 17 percent from highs in late March.

    Earnings in the individual life segment of Prudential's

business fell sharply in the second quarter from a year earlier,

as an unexpectedly high death rate from older policies ate into

results.

    Prudential shares rose nearly 2 percent to $54.75.

 

(Reporting by Ben Berkowitz in Boston; Editing by Gerald E.

McCormick, Matthew Lewis and Jeffrey Benkoe)

((Ben.Berkowitz@thomsonreuters.com)(+1-617-856-4334)(Reuters

Messaging:

ben.berkowitz.thomsonreuters.com@reuters.net)(Twitter:

@BerkowitzRtrs))

 

Keywords: HARTFORD PRUDENTIAL/

 

 

 

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Individual Life numbers

 

                          2011     2010     2009

Net income     133       229       15

DAC Amortization        221       119       314

FCF est              354       348       329

 

 

Individual Life Insurance In-force

                   

Variable universal life insurance

  $ 69,716     $ 74,044     $ 78,671

Universal life, interest sensitive whole life, modified guaranteed life insurance

    64,006       58,789       56,030

Term life

    81,494       75,797       69,968

Total life insurance in-force

  $ 215,216     $ 208,630     $ 204,669

 

  Segment     Goodwill in      

    Goodwill     Corporate     Total

Individual Life     224       118       342

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  • 4 weeks later...

The supposed "Super Storm Sandy" could give investors an opportunity to pick up HIG (and other P&Cs) at a much lower price if the scary scenarios play out...

 

http://www.npr.org/blogs/thetwo-way/2012/10/25/163607781/halloween-horror-hurricane-sandy-could-be-billion-dollar-storm

 

This isn't a Halloween prank:

 

With Hurricane Sandy coming from the South, an early winter storm bearing down from the West and arctic air sweeping in from the North, the mid-Atlantic, New England and eastern Canada should be prepared for a "perfect storm" early next week that could produce $1 billion or more in damage, warns Weather Underground meteorologist Jeff Masters.

 

According to The Associated Press:

 

    "The worst of it should peak early Tuesday, but it will stretch into midweek, forecasters say.

 

    " 'It'll be a rough couple days from Hatteras up to Cape Cod,' said forecaster Jim Cisco of the National Oceanic and Atmospheric Administration prediction center in College Park, Md. 'We don't have many modern precedents for what the models are suggesting.'

 

    "It is likely to hit during a full moon when tides are near their highest, increasing coastal flooding potential, NOAA forecasts warn. And with some trees still leafy and the potential for snow, power outages could last to Election Day, some meteorologists fear."

 

Comparisons are already being made to the "perfect storm" of 1991.

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  • 2 months later...

4:07PM Hartford Financial completes execution milestone; closes on planned business sales; transactions to provide net statutory capital benefit of $2.2 bln (HIG)

 

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. 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 requirements. 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.

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  • 2 weeks later...

Any options or pair trade experts trying to take advantage of the almost no time value for the warrants willing to give some advice? The warrants have been on a tear but willing to explore alternatives instead of just selling.

 

Hi Plan

 

Well, you could try a trusty old diagonal - the warrants are almost at a delta of one since they are so deep in the money. So buy 100 warrants and sell one call option against it. Today's trading at above 24 - perhaps Mar 13, 26 Calls @ 0.4$. In an ideal case (never is) you would be able to rinse repeat about four times a year for another 6.5 years or so. If you can capture .4 in value every time you'd end up recovering about a two thirds of the cost of the warrant by expiration, before fees. Of course, it all depends on how fast you think HIG is going to move and thus where you are able to set the strikes for the sold calls.

 

On the plus side, if the stock runs away you'd still make money on the differential as the warrant would likely increase more than the written call. On the down side ... well, how comfortable are you with HIG at these prices and do you believe they'll get back to TBV?

 

Thanks - C.

 

 

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Well, you could try a trusty old diagonal - the warrants are almost at a delta of one since they are so deep in the money. So buy 100 warrants and sell one call option against it. Today's trading at above 24 - perhaps Mar 13, 26 Calls @ 0.4$. In an ideal case (never is) you would be able to rinse repeat about four times a year for another 6.5 years or so. If you can capture .4 in value every time you'd end up recovering about a two thirds of the cost of the warrant by expiration, before fees. Of course, it all depends on how fast you think HIG is going to move and thus where you are able to set the strikes for the sold calls.

 

Interesting, so it works live a covered call (and that is precisely what I need).

 

On the negative side it would use margin account. Would that work w/ Interactive Brokers? Maybe it's time that I move there and leave the old school way of doing things.

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Well, you could try a trusty old diagonal - the warrants are almost at a delta of one since they are so deep in the money. So buy 100 warrants and sell one call option against it. Today's trading at above 24 - perhaps Mar 13, 26 Calls @ 0.4$. In an ideal case (never is) you would be able to rinse repeat about four times a year for another 6.5 years or so. If you can capture .4 in value every time you'd end up recovering about a two thirds of the cost of the warrant by expiration, before fees. Of course, it all depends on how fast you think HIG is going to move and thus where you are able to set the strikes for the sold calls.

 

Interesting, so it works live a covered call (and that is precisely what I need).

 

On the negative side it would use margin account. Would that work w/ Interactive Brokers? Maybe it's time that I move there and leave the old school way of doing things.

 

Yes in many ways it behaves like a covered call - but the payoff function before expiration and as you approach the strike price of the long warrant will not be linear - i.e. not quite the same as doing a synthetic covered call (long call at 9.59, short put at 9.59 ... the fact aside that such a long maturity and the exact strike does not exist for leaps).

 

In other words - as long as the warrant is deep in the money the delta will stay close to one and the warrant alone behaves almost like the stock (hey, and we sort of even get dividends!). The call you sell against it completes the "quasi covered call". However, if HIG were to fall precipitously you have two advantages compared to a traditional covered call:

(1) your loses are "capped" at the warrant strike point (as opposed to zero); and

(2) due to the long maturity the warrant will retain significant time value for a few years.

 

The potential advantage of doing a synthetic covered call would be that you could also harvest the premium on the written put - at the cost of further downside, of course. So it comes back to how comfortable you are wit HIG.

 

And yes, it would be a margin transaction. And yes, from where I'm sitting I can only say that I've been quite happy with Interactivebrokers (low fees, platform does everything I need and offers access to pretty much any market). Depending on whether you'd go with a Reg-T Margin account or a portfolio margin account the margin will of course turn out different. In my portfolio margin account IB charges me almost 100% of this particular warrant's price as margin - but that may have something to do with concentration (and then there's some offset again due to the short call). I believe you can easily look up the Reg-T rules on IB's website with examples.

 

If I may ask - what's your view on HIG's prospects - on a P/BV metric it seems similarly attractive to AIG, BAC, MBI, etc. Do you own common and/or warrants? Large, medium, small position?

 

Thank you - C.

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If I may ask - what's your view on HIG's prospects - on a P/BV metric it seems similarly attractive to AIG, BAC, MBI, etc. Do you own common and/or warrants? Large, medium, small position?

 

C, not much has changed from what we have discussed in the other threads:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/paulson-files-13d-on-hig/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/hig-warrants/

 

Only that the divestment plan was a success, with HIG becoming more of a P&C company, a very good P&C company. The Life parts that remain are also the most complicated, the ones they could not sell:

 

(1) Japan: on schedule w/o causing too many headaches. With interest rates almost at 0 most of the headwind has stabilized and any depreciation of the yen  (JEast?) or increase in interest rates is to their benefit.

 

(2) US variable annuities: the US has not turned Japanese and it seems that interest rates will have to rise in a reasonable horizon. Also after studying this issue in depth I was surprised by how well the hedging programs of American firms performed in 2008. After reading the statutory reports, also I think they are very well capitalized, probably the best in decades.

 

As said before, I don't like the CEO as much as I like Moynihan, Benmosche and Marchionne. He seems more of a bureaucrat and doesn't have the passion and knowledge of the business as these other guys.

 

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I discussed Hartford with an analyst friend living in Japan.  His thesis (after attending meetings on the Japanese annuities) was that Hartford was a horrible investment due to their Japanese liabilities.  I thought the exact opposite due to one lone fact.  What happens if the Yen weakens?  Well, those liabilities are reduced -- depending on how the company has hedged their Yen exposure.  In other words, I have been slightly bearish on the Yen and thought HIG had a potential catalyst, among other catalysts too.

 

I posted sometime last year, that the HIG warrants were the most undervalued thing around at the time.  Still like the warrants and purchased more in December.

 

Cheers

JEast

 

Disclosure: Long HIG+

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If I may ask - what's your view on HIG's prospects - on a P/BV metric it seems similarly attractive to AIG, BAC, MBI, etc. Do you own common and/or warrants? Large, medium, small position?

 

C, not much has changed from what we have discussed in the other threads:

 

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/paulson-files-13d-on-hig/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/hig-warrants/

 

Only that the divestment plan was a success, with HIG becoming more of a P&C company, a very good P&C company. The Life parts that remain are also the most complicated, the ones they could not sell:

 

(1) Japan: on schedule w/o causing too many headaches. With interest rates almost at 0 most of the headwind has stabilized and any depreciation of the yen  (JEast?) or increase in interest rates is to their benefit.

 

(2) US variable annuities: the US has not turned Japanese and it seems that interest rates will have to rise in a reasonable horizon. Also after studying this issue in depth I was surprised how well the hedging programs of AMerican firms performed in 2008. After reading the statutory reports, also I think they are very well capitalized, probably the best in decades.

 

As said before, I don't like the CEO as much as I like Moynihan, Benmosche and Marchionne. He seems more of a bureaucrat and doesn't have the passion and knowledge of the business as these other guys.

 

Thanks Plan. I may buy some more warrants over time. I suppose now that they have followed through with the spin-offs the question remains though when the market may accord them a higher multiple. Any quasi-catalysts you can see that aren't in the other threads? I've not had time to look at the reserving but I recall someone voicing concern about their aggressive rates/pricing a few years ago - has that folly worked its way through the system yet (presume P&C in the US short term)?

 

C.

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... And yes, from where I'm sitting I can only say that I've been quite happy with Interactivebrokers (low fees, platform does everything I need and offers access to pretty much any market). Depending on whether you'd go with a Reg-T Margin account or a portfolio margin account the margin will of course turn out different. In my portfolio margin account IB charges me almost 100% of this particular warrant's price as margin - but that may have something to do with concentration (and then there's some offset again due to the short call). I believe you can easily look up the Reg-T rules on IB's website with examples....

 

Sunrider,

 

Instead of having a real margin call, IB seems to have an automated liquidation system; they will sell your equity for pennies on the dollar. In this sense, is it really worth it to have a margin account with them?  Other brokers might have less flexibility and higher costs yet they might actually give a margin call with enough time to handle the situation. Would appreciate to hear your thoughts on this. Thanks.

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... And yes, from where I'm sitting I can only say that I've been quite happy with Interactivebrokers (low fees, platform does everything I need and offers access to pretty much any market). Depending on whether you'd go with a Reg-T Margin account or a portfolio margin account the margin will of course turn out different. In my portfolio margin account IB charges me almost 100% of this particular warrant's price as margin - but that may have something to do with concentration (and then there's some offset again due to the short call). I believe you can easily look up the Reg-T rules on IB's website with examples....

 

Sunrider,

 

Instead of having a real margin call, IB seems to have an automated liquidation system; they will sell your equity for pennies on the dollar. In this sense, is it really worth it to have a margin account with them?  Other brokers might have less flexibility and higher costs yet they might actually give a margin call with enough time to handle the situation. Would appreciate to hear your thoughts on this. Thanks.

 

... I suppose that depends on how close to the wind you expect to be sailing ... ;-)

 

(You can tell the IB system which positions it should liquidate first in such cases though - but yes, they won't give you leeway once you hit the margin call point though - there are some warnings before though. Perhaps this way of doing things is also part of the reason why they are able to keep costs low - fewer/none? credit losses.)

 

Cheers - C.

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  • 2 weeks later...

http://www.marketwatch.com/story/the-hartford-reports-fourth-quarter-2012-financial-results-announces-2013-outlook-and-capital-management-plan-2013-02-04

 

The company also announced that it has reviewed with the Connecticut Insurance Department its capital management plans and that it has received approval from the Department for a $1.2 billion extraordinary dividend from its Connecticut domiciled life insurance companies. In addition, it expects to dissolve the company's Vermont life reinsurance captive and return approximately $300 million of surplus to the holding company. These actions are expected to be completed by the end of the first quarter of 2013.

 

The company also announced that it expects to reduce debt by approximately $1 billion, including the repayment of the 2013 and 2014 debt maturities totaling $520 million. In addition, The Hartford's Board of Directors has authorized a $500 million share repurchase program, expiring at Dec. 31, 2014.

 

                                                                        2012    2011

Book value per diluted share                                $46.59    $44.31         

Book value per diluted share (ex. AOCI)                $40.79    $41.73 

 

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  • 4 weeks later...

The Hartford Amends Third Quarter 2012 Financial Results

http://finance.yahoo.com/news/hartford-amends-third-quarter-2012-210500904.html

 

The Hartford today reported that it has filed an amended Form 10-Q with the U.S. Securities and Exchange Commission (SEC) to restate its results for the third quarter ended September 30, 2012. The amended filing corrects for an error in the company’s preliminary calculation of the gain or loss relating to the Individual Life business transaction under U.S. generally accepted accounting principles (GAAP). The company is now reporting a full year 2012 net loss of $38 million and shareholders’ equity of $22.4 billion at December 31, 2012, as compared with the previously reported 2012 net income of $350 million and shareholders’ equity of $22.8 billion. The company’s 2012 core earnings of $1.4 billion are unchanged.

 

“We regret the error, but importantly the adjustments have no impact on our reported 2012 core earnings, statutory results or surplus, and announced capital management plan,” said The Hartford's Chairman, President and Chief Executive Officer Liam E. McGee. “The Individual Life, Retirement Plans and Woodbury Financial Services transactions were attractive for The Hartford and completed on favorable financial terms. They generated an aggregate statutory capital benefit of $2.2 billion and this remains unchanged.”

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