NU Online News Service, Feb. 15, 12:34 p.m.EST

Hedge fund manager John Paulson Tuesday increased the pressureon Hartford Insurance Group to break itself up into separateproperty and casualty and life businesses by taking the casedirectly to Hartford shareholders.

In his letter to CEO Liam McGee, filed with the SEC, Paulsoncontends that a spin-off would benefit both the company and itsshareholders. The SEC filing included a presentation with chartsand graphs outlining the proposed benefit of spinning off theP&C businesses.

Paulson adds, “Given the extremely poor performance ofHartford's stock and the fact thatHartfordtrades at lower valuationmultiples than any of its U.S. insurance peers, addressing theseissues should be Hartford's highest priority.”

He says, “That is why we were disappointed that management, onthe February 8 earnings call, only addressed the potential'challenges' of a separation.

“Not only do we believe that you underestimate the potentialvalue that would be created by a spin, the 'challenges' youdescribe are both overrated and readily manageable.”

Hartford, in response, says, “We recognize there are potentialbenefits to a separation of the P&C and life companies,including those outlined by Paulson & Co. Inc.”

The company adds, “While there are challenges to successfullyexecuting a separation, we welcome Paulson's views and look forwardto continued dialogue with him and other shareholders. We areevaluating the company's strategy and business portfolio with thegoal of delivering shareholder value. We remain objective andpragmatic about the best ways to achieve this goal.”

Paulson also contends that a reorganization splitting thecompany into separate parts would substantively increaseshareholder value.

Analysts, however, appear split on the long-term benefits ofsuch action.

And, in its earnings conference call with investors lastweek,Hartfordofficials said a key challenge to a spinoff would beHIG allocation of holding-company debt.

Andrew Kilgerman, a managing director at UBS, for example, says,“While it's not clear cut that benefits of monoline stock coverageand break up are as feasible and valuable as Paulson argues, aspin-off of the property and casualty operations may be anotheravenue to realize value.”

At the same time, Kligerman says, “We think there are merits tothe multiline structure and HIG has significant organic valuationupside, but management must execute to achieve it.”

And analysts at Keefe, Bruyette & Woods, say, “Like Paulsonand others, we see little synergy in the multi-line model and agreethat 2 more focused companies might result in better execution andvaluation.”

However, the KBW analysts add that “we're more cautious aboutthe near-term practicality and less optimistic about valuationupside in the near-term.”

Hartford shares jumped in after-hours trading after the Paulsonletter was released. At 10 a.m.,Hartford's price in New York StockExchange trading was $20.87, up $1.06 or 5.35 percent fromTuesday's close, which was before Paulson filed his letter with theSEC.

Paulson projects that reorganization through a spinoffofHartford's P&C operations would raise the value of thecompany toHartfordshareholders to $32.

Paulson's hedge fund, Paulson & Co. Inc., owns an 8.4percent stake in theHartford.