A former senior insurance executive says it’s only a matter of time before The Harford Financial Services Group is acquired by Allianz SE, the German insurer that invested $2.5 billion in the company late last year.
Bob MacDonald, a former CEO of Allianz Life of North America and a self-described financial services contrarian, said he wouldn’t be surprised if the deal occurs within the year. His arguments expand on takeover speculation that’s swirled on Wall Street for months.
“It would make for a natural merger,” MacDonald said in an interview from his winter home in Key West, Fla. “It may take a further weakening of the Hartford’s capital base and performance to drive the deal, but I think it will definitely happen sooner or later.”
Sabia Schwarzer, a spokeswoman for Allianz, said the company does not comment on rumors and speculation and said that “Allianz’s investment in The Hartford was a financial one.”
Debora Raymond, a spokeswoman for The Hartford, said, “We do not comment on speculation.”
Regardless, analysts with Citi Investment Research and Credit Suisse agree with MacDonald’s perspective.
“Given the size of Hartford’s in-force book combined with the slowdown in its recent business production, we have viewed it as ripe for acquisition, and this transaction increases the likelihood that Allianz may ultimately buy,” Citi Investment Research analyst Joshua Shanker wrote in a research note in October.
Credit Suisse analyst Thomas Gallagher echoed that opinion, writing: “This essentially makes the [Hartford’s] stock very dependent on the performance of the equity markets and suggests to us that the company is better off partnering with a larger, more diverse company that can withstand potential capital charges levied by its large variable annuity business.”
Speculation about The Hartford’s future has been running rampant in recent months as the company struggles to deal with losses related to its investments and variable annuity products. When the company revealed a $2.6 billion third quarter net loss in September, shareholders began to flee their stock, and several analysts questioned whether the company would be able to maintain its independence.
Recently, shares of The Hartford have traded in the low to mid teens, down nearly 80 percent from its 52-week high of $82.24.
To bolster its capital, The Hartford agreed in October to a $2.5 billion investment from Allianz.
At the time, some analysts believed the move was a precursor to a possible merger, but management from both companies denied that was the case.
Telltale Signs
MacDonald, a 41-year veteran of the insurance industry, is considered by many in the field to be a visionary maverick. He said he has seen telltale signs recently that suggest that a merger will in fact take place.
He recently wrote about the potential merger on his popular Web site, www.bobmaconbusiness.com.
While he acknowledges that he has no current involvement with either company, he does have a long history with them. From 1980 to 1987, he was president and CEO of ITT Life, a Minnesota-based insurance company that was owned by The Hartford.
Later, he founded LifeUSA, another Minnesota-based insurer, which he sold to Allianz SE in 1999 for $540 million dollars. Allianz merged that business with its Allianz Life of North America Co., which MacDonald headed as CEO until 2002, when he retired.
Weeks ago, on Jan. 20, Allianz board member Clement Booth publicly denied that the company had any interest in acquiring or injecting further capital into The Hartford.
MacDonald said that denial is consistent with the company’s history of seeking to complete acquisitions “in the shadows of silence.”
“Allianz has a stated policy of only participating in friendly acquisitions and not to conduct those acquisitions in public,” MacDonald said.
For example, deals Allianz negotiated to purchase other U.S. companies, including Fireman’s Fund, LifeUSA, and PIMCO, were “all signed, sealed and delivered before publicly announced,” MacDonald said.
Acquiring 23 percent of The Hartford is also consistent with Allianz’s strategy of “putting a toe in the water” before jumping in.
“Does Booth really expect us to believe that if Hartford found itself in deeper trouble that Allianz would not seek to protect its already hefty investment of $2.5 billion?” MacDonald wrote in his blog.
Allianz’s Goal
The acquisition would also achieve Allianz’s long-term goal of becoming a major player in North America.
MacDonald said Allianz is well-known world-wide with more than 80 million customers in 70 countries, but it’s virtually invisible in the U.S. market.
“They have tried for years to expand their presence here with smaller acquisitions, but they haven’t been able to stand out,” MacDonald said.
“The acquisition of a company with the size, stature and brand of The Hartford would enable Allianz — in one fell swoop — to achieve its long held dream of having a major stake in the U.S. market.”
Allianz is also one of the few remaining insurers with the financial wherewithal to make such a deal, MacDonald said, adding, “Companies that might have been interested in Hartford before the crisis have their own problems now and are certainly in no position to consider such a transaction.”
MacDonald said if the acquisition does eventually happen, Allianz’s two other U.S. -based companies, Fireman’s Fund and Allianz Life of North America, would likely be merged into The Hartford.
He said the deal would be a good thing for The Hartford because Allianz could provide it with a deep source of capital to rebuild its balance sheet and finance its growth.
He thinks the city would benefit as well. “I think Hartford would become the focus of Allianz’s efforts in North America,” MacDonald said. “There is a good chance they would expand their presence there.”
