UPDATE: Hartford Plans Include Request For Capital Relief
February 06 2009 - 3:22PM
Dow Jones News
Hartford Financial (HIG) said Friday it will sell off some
commercial mortgage-backed securities, introduce less risky
variable annuity products and ask its regulator to relax capital
requirements in a multi-pronged approach to improve its capital
position.
But the initiatives - coming after the life and property
casualty insurer reported a fourth-quarter loss, a dividend cut and
capital levels below expectations - did little to turn around
sentiment that pulled down Hartford's share price as much as 28% in
afternoon trading. Recently, shares of Hartford were down 16.3% at
$12.65. Life insurers that already reported better results traded
higher Friday, with Prudential Financial (PRU) up 6.1% recently and
Metlife (MET) up 0.1%. Genworth Financial (GNW) and Lincoln
National Corp. (LNC) have not yet reported fourth quarter earnings.
Both traded down recently.
Hartford Financial finished the year with a risk-based capital
ratio of 385%, well below the estimate it gave in December of 535%,
raising fears the number could drop even further, which would
threaten its credit ratings. Moody's already downgraded Hartford
late Thursday and has a negative outlook for the insurer.
Hartford could boost its ratio if its main regulator, the
Connecticut insurance department, allows it relief from a required
$600 million reserve increase, which Lizabeth Zlatkus, Hartford's
chief financial officer, called too "conservative" a standard.
If that request and another the company made regarding deferred
tax assets were granted, company could potentially increase its
ratio by 75 percentage points.
In a statement Friday Connecticut Insurance Department
Commissioner Thomas R. Sullivan said he couldn't comment publicly
on such requests or the department's analysis.
"The Connecticut Insurance Department takes seriously its
obligations to monitor and review the financial positions and
solvency of insurance companies licensed to do business in this
state. We will continue to be vigilant on this front and be guided
by balancing what is in the best interest of the consumer and the
companies while also maintaining a sound and competitive
marketplace," he said in an emailed statement.
Last month, the National Association of Insurance Commissioners
turned down a request by life insurer groups to cut regulatory
capital requirements.
Hartford also will try to improve its situation by reducing its
holdings of commercial mortgage-backed securities, or CMBS. These
securities represent only about 10% of Hartford's investment
holdings but around 40% of its unrealized losses, Chief Investment
Officer Greg McGreevey said Friday.
Hartford has already faced problems in previous quarters over
its exposure to financial services companies and replaced its chief
investment officer in October, partly as a result of those
losses.
On Thursday, Hartford reported a fourth-quarter net loss of $806
million, or $2.71 a share, compared with year-earlier net income of
$595 million, or $1.88 a share. It also cut its quarterly dividend
by 84%, to 5 cents.
McGreevey said the company will try to sell some of its CMBS,
which may not be easy to sell in this market, he said.
The securities are mostly double-A or triple-A rated, and
Hartford expects the losses to "substantially" reverse themselves
over time, McGreevey said.
But a coming Moody's review of all the CMBS securities it has
rated could result in more downgrades, making the market even
tougher.
Going forward, Hartford will refashion its variable annuity
offerings to present less risk. A new product it will launch in May
will offer much-valued lifetime income, but will come with less
features and a lower price than what some competitors are
offering.
"Our camp will constrain features and benefits and keep costs
more in line," said John Walters, president of Hartford's life
insurance company. "There is a price at which these are not as
attractive to customers."
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com