October 7, 2008
Turns out they needed $2.5 billion to tide them over until next payday. The WSJ has the story and I’ll follow with coverage from the National Underwriter:
Hartford Financial Services Group said it will receive a $2.5 billion capital investment from German insurer Allianz SE while also warning of a big third-quarter loss and announcing a 40% cut to its quarterly dividend.
The investment from Allianz “strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses,” Hartford Chief Executive Ramani Ayer said in a statement. With the investment, Hartford will finish the year with a capital margin about $3.5 billion in excess of its requirements to maintain AA-level credit ratings.
The move comes as Hartford’s stock has tumbled in recent weeks amid industry-investor worries concerning problems in the stock and credit markets. Shares traded at $30.90 in 4 p.m. New York Stock Exchange composite trading Monday, up 13% for the day but down 65% on the year.
Monday, Hartford said it expects a third-quarter net loss of $8.50 to $8.80 a share, hurt by $7.05 to $7.25 a share in net realized capital losses. The company said the “vast majority” of the losses are write-downs on its investment portfolio, with about 75% of them related to investments in the financial-services sector amid recent market turmoil. Amid those losses, Hartford announced a new investment chief.
The news positively impacted the credit rating of the Hartford per the National Underwriter:
Rating agencies A.M. Best Co. and Standard & Poor’s have revised their outlook on The Hartford Financial Services Group after the company received a $2.5 billion cash infusion from competitor Allianz AG in exchange for a stake in the firm.
A.M. Best Co. placed The Hartford’s “A-plus” financial strength (FSR) ratings under review with negative implications. Best also placed under review with negative implications the “a” issuer credit ratings (ICR) and all debt ratings of The Hartford, and the “aa-minus” ICR of the company’s key life and health and property-casualty subsidiaries.
Standard & Poor’s Ratings Services said it has revised its outlook on The Hartford to negative from stable but has affirmed the company’s “A” counterparty credit rating and the “AA-minus” counterparty credit and financial strength ratings on all of The Hartford’s core insurance operating subsidiaries.
Both rating agencies cited circumstances surrounding The Hartford’s deal with Allianz in which Allianz will receive a stake in The Hartford in exchange for a $2.5 billion cash infusion.
As reported yesterday by NU Online News Service, The Hartford sought a cash infusion in advance of announcing projected losses due to the market turmoil.
Additionally, before the cash infusion announcement, Fitch ratings had revised The Hartford’s rating outlook from stable to negative, citing potential troubled assets in its portfolios.