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Paulson Sends Hartford a Valentine's Breakup

The spin would split Hartford's property and casualty business from its life insurance unit.

"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 on a Feb. 8 earnings call. On that call, Hartford CEO McGee said the company had looked at a split, but cautioned that "there are significant challenges to making a split possible."

Hartford Financial Services shares rose over 6% in after-hours trading. The company's shares have risen over 20% in 2012 with a financial services rally and on increasing pressure by Paulson for the company to consider strategic alternatives like a split.

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The hedge fund giant immortalized in The Big Short for his subprime bet and who profited from a timely 2009 investment in banking stocks, noted that Hartford's current share price multiple of just 0.4 times the company's book value is less than half of a 1.1 times book value P&C industry average.

"Prior to the discussion of strategic alternatives on the February 8th earnings call, Hartford's shares stood at 44% of book value -- a huge discount to its closest P&C peers (1.1x on average) and closest Life peers (0.8x on average) and the lowest of any major US insurance company," wrote Paulson. He estimated that a spin would give the two separate companies a $32 a share value, still below its $45 a share book value, but a significant boost from its last close at $19.81.

"We would hope that a newly incentivized Life management running a pure Life company would take steps to further improve the separately traded Life's value," added Paulson, who said that other large companies like ConocoPhillips (COP), Kraft (KFT) and McGraw Hill (MHP) have undertaken similar strategies recently.

Other large Hartford Financial Service shareholders include NWQ Investment Management, State Street and Allianz each with over 5% stakes according to SEC filings.

In 2009, Hartford Financial Services was reported by Bloomberg to be considering a sale of its property and casualty businesses for up to $8 billion, however a sale never materialized.

-- Written by Antoine Gara in New York

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