(Reuters) - Shares of insurer Hartford Financial Services Group Inc (HIG.N) soared on Wednesday after the company said it had considered the possibility of a breakup and hedge fund titan John Paulson pushed it to be more aggressive on that front.
Paulson, Hartford’s largest shareholder, grew increasingly agitated and impatient on a conference call with the company and financial analysts, ultimately shouting that management had a responsibility to do more to improve shareholder value.
“I would say that Hartford needs to do something drastic because the stock is the lowest valuation relative to book value of any major insurance company,” said Paulson, whose Paulson & Co invests some $28 billion for funds and wealthy clients.
The exchange quickly drew attention in the investment world, not only because the normally cool Paulson became so obviously irritated, but because it illustrated how one of the industry’s most powerful managers was flexing his muscle to benefit shareholders’ bottom line.
“How long do we have to wait to hear if there is going to be a positive recommendation to separate these two businesses,” he asked a few seconds later, referring to the possibility that Hartford’s life and property insurance units would be split.
Shares climbed 9.3 percent to $20.89 in early afternoon trading. At that level, the stock was up nearly 29 percent for the year while the broader S&P insurance index .GSPINSC was 8.5 percent higher.
That gain is sure to help the performance of Paulson’s investments, but it does little to erase the anger felt by Paulson’s own investors last year, after poorly timed bets on Hartford and financial stocks wiped out more than 50 percent of one of his biggest portfolios.
In past years, Paulson was lionized for his call on gold and his bet against the overheated housing market, earning him a personal payout of roughly $8 billion.
Despite the stock’s recent strong run, Hartford still trades at a ratio of 0.43 times its book value, according to Thomson Reuters data, less than half of the sector median of 0.90 times book (which itself is a depressed figure by historical standards).
For Paulson, who owned an 8.7 percent stake in the company at the end of the third quarter, the interest was evident. Hartford Chief Executive Liam McGee seemed surprised to hear Paulson himself on the line, after someone else at the hedge fund firm was announced as being up to ask a question.
The call came after Hartford on Tuesday reported a profit that beat expectations, even though earnings were actually down sharply and the company had to take a series of charges to boost its reserves. Many of the company’s peers are still reducing reserves, to the benefit of their bottom line, rather than increasing them.
McGee said the company had looked at the possibility of splitting itself into life insurance and property insurance businesses but found “there are significant challenges to making a split possible.”
McGee, a former Bank of America (BAC.N) executive who became CEO during the financial crisis -- when Hartford was one of three insurers to receive a government bailout -- has said before that it was hard to make a case for a split.
But McGee was pressed on the point by Paulson.
“What I would like to see is how you will overcome those obstacles to result in a more fair valuation for Hartford,” Paulson said, his voice rising.
Paulson’s questioning sharply contrasted to his own conference calls, where he has delivered even bad news in a calm and measured way in the last months, never raising his voice to sound aggressive or defensive.
Pushing McGee further, Paulson insisted that management needed to present a “better explanation” of what it was doing. “What we need you to do is overcome the obstacles to enhance the valuation for your shareholders, not merely to point out that there (are) obstacles,” Paulson said.
Insurers have been on the receiving end of investor outrage before. In late 2010, hedge fund manager Steve Eisman threatened the management of Hartford peer Genworth Financial (GNW.N) on a conference call, saying he would launch a proxy fight unless it improved returns. Eisman never made good on the threat.
Reporting By Ben Berkowitz in Boston; Editing by Matthew Lewis and Steve Orlofsky