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) -- Struggling hedge fund magnate and gold bug

John Paulson

is putting his money and his mouth behind a split of investment and insurance giant

Hartford Financial Services

(HIG) - Get Hartford Financial Services Group, Inc. (HIG) Report


After taking the single largest stake in the insurance conglomerate with an over 8% holding, Paulson is now out with a plan to split the company's property and casual business in a tax free spinoff after agitating for change earlier in February on the company's fourth quarter earnings call. For Hartford Financial Services and Paulson, the company's largest shareholder, a spin may provide relief from a disastrous 2011.

John Paulson's flagship hedge fund was reportedly down 51% in 2011

"As the largest investor in the Company for the past year, we have done exhaustive research on the challenges and opportunities of The Hartford and believe that a spinoff would produce an increase in value for Hartford shareholders of 40 -- 60%+ above the unaffected share price," wrote Paulson in a letter to Hartford Financial Services Chief Executive Liam McGee that was released on Tuesday.

>>View John Paulson's Portfolio

Overall 2011 was a brutal year for Paulson and Hartford Financial Services. The insurance company's stock fell nearly 40% on waning profitability and a drop in revenue. The company's net income fell over 60%, while sales fell over 2%.

For Paulson,

2011 was even more missable

. His flagship Advantage fund dropped 51% in 2011, according to

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reports after a bet on financials panned. By comparison, Paulson's Advantage Plus fund jumped 164% in 2007 on a timely mortgage short.

Paulson's three largest holdings tied to Gold, however he also has $1 billion dollar stakes in

Delphi Automotive

(DLPH) - Get Delphi Technologies Plc Report


Anadarko Petroleum

(APC) - Get Anadarko Petroleum Corporation Report


Capital One

(COF) - Get Capital One Financial Corporation Report

, according to filings with the

Securities and Exchange Commission

compiled by


. Overall Hartford Financial is Paulson's ninth largest holding with


(C) - Get Citigroup Inc. Report



(RIG) - Get Transocean Ltd. Report


Wells Fargo

(WFC) - Get Wells Fargo & Company Report

also among his top 10.

The hedge fund investor with a merger arbitrage pedigree is pushing for a tax-free spinoff first floated in November 2011 because he sees that investors give Hartford a significant discount relative to its industry peers. "As part of our analysis, we considered all other strategic alternatives including share buybacks, the sales of individual businesses, the sale or IPO of minority stakes in Life and/or P&C, and others, but none of these came close to the dramatic increase in shareholder value to be created by a spinoff," wrote Paulson.

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.

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


(COP) - Get ConocoPhillips Report





McGraw Hill


have undertaken similar strategies recently.

Other large Hartford Financial Service shareholders include

NWQ Investment Management


State Street



each with over 5% stakes according to SEC filings.

In 2009, Hartford Financial Services was reported by


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