Update Hartford: Market Decline Impacts Capital Levels

By Lavonne Kuykendall and Kathy Shwiff
Dow Jones Newswire
October 30, 2008

Hartford Financial Group (HIG) is "optimistic" that the U.S. Treasury's rescue programs "will help strengthen" weakened financial markets, said Greg McGreevey, chief investment officer of the life insurer.

He did not say whether Hartford may try to get involved in the program, as other insurers have suggested. Earlier Wednesday, Lincoln National Corp.'s (LNC) chief executive said that the company might consider taking part in the TARP program, if allowed.

Hartford's earnings were hit hard by its "overweight" investments in financial services firms, said Ramani Ayer, Hartford's chairman and chief executive, speaking during the company's earnings conference call Wednesday.

During the conference call, Ayer apologized for having "missed the degree to which markets have cratered. I did not see that."

One result of the downturn is that the company will raise prices and modify some of its variable annuity products. Hartford operates life and property insurance units. Aside from heavy investment losses, catastrophes in the quarter drove losses as well.

Given the heavy losses in the third quarter, analysts on the call questioned executives repeatedly as to whether further market declines in October would reduce the company's capital level further, despite a $2.5 billion investment Hartford closed earlier this month. Questions centered on whether an additional raising of capital could become necessary.

Hartford's capital margin is consistent with a rating agency's AA- level, Ayer said, but he wouldn't make a more definitive statement.

"The agencies are in a state of flux in how they look at capital requirements and capital margins," he said. "That is why we are trying not" to speak for agencies on what capital requirements could be.

In after-market trading, shares of Hartford traded at $19.92, up six cents from its regular close of $19.86.

McGreevy, who was named to his post at Hartford two weeks ago, said that Hartford will "shrink" its securities lending program and reduce its exposure to higher risk asset classes, such as derivatives.

Investment losses and poor performance in variable-annuity businesses pulled down third quarter earnings for all the major life insurers.

MetLife Inc. (MET), Prudential Financial Inc. (PRU) and Ameriprise Financial Inc. (AMP) reported third-quarter earnings Wednesday, weeks after the companies pre-announced some of the bad news that was to come.

Hartford and MetLife each raised more than $2 billion in fresh capital earlier this month. Hartford's was a $2.5 billion investment by German insurer Allianz SE (AZ), while MetLife closed on a $2.3 billion public offering earlier this month.

MetLife reported quarterly net income of $630 million, or 83 cents a share, down 38% from the $1.02 billion, or $1.29 a share, it reported a year earlier.

The largest U.S. life insurer by assets said operating earnings, which exclude investment gains and losses and one-time items, fell to 88 cents a share from $1.46.

Revenue climbed 15% to $13.38 billion.

In its pre-announcement, MetLife had said operating earnings would be between $600 and $675 million, or 83 cents to 93 cents a share, on revenue of about $8.6 billion, up 16%.

Prudential reported a net loss of $166 million, compared with net income of $867 million a year earlier. Revenue fell 16% to $7.04 billion.

The financial-services business posted a net loss of $108 million, or 23 cents a share, compared with net income of $860 million, or $1.88 a share, a year earlier. Financial-services operating earnings fell to 74 cents a share from $2.13. Financial-services revenue fell 9.2% to $6.15 billion.

Earlier, Prudential said it expected after-tax adjusted operating income in its financial-services business to be between $275 million and $375 million, or 67 cents to 90 cents a share.

Because of current market volatility and "extraordinary events" affecting financial markets, Prudential withdrew its earnings guidance for 2008.

Hartford Financial Services Group Inc. (HIG) reported a net loss of $2.63 billion, or $8.74 a share, compared with net income of $851 million, or $2.68 a share, a year earlier.

The core loss, which excludes net realized investment gains and losses, was $1.40 a share, compared with core earnings of $3.33 a year earlier.

The company forecast 2008 core earnings between $4.30 and $4.50 a share. Wall Street expected $5.25.

For the third quarter, Hartford had said it expected a net loss of $8.50 to $8.80 a share, including net realized capital losses of $7.05 to $7.25 a share. Hartford said per-share core earnings would be $1.50 to $1.60 before the effect of a DAC unlock. DAC refers to deferred acquisition costs and relates to costs involved in acquiring new customer accounts.

Ameriprise Financial Inc. (AMP) reported a quarterly net loss of $70 million, or 32 cents a share, compared with net income of $198 million, or 83 cents a share, a year earlier.

Operating earnings rose to $1.04 a share from 99 cents. Revenue dropped 22% to $1.6 billion.

Earlier, Ameriprise said pretax unrealized losses in its $25 billion available-for-sale investment portfolio increased from $915 million to about $1.5 billion, and the company expected to announce after-tax realized investment losses of $200 million to $225 million, primarily related to previously announced investments in the bankrupt Lehman Brothers Holdings Inc. (LEHMQ) and Washington Mutual Inc. (WAMUQ), which was taken over by JPMorgan Chase & Co. (JPM) as well as nonagency residential mortgage-backed securities.

Ameriprise also said operating earnings would be cut by the company's previously disclosed decisions to support the net asset value of RiverSource money market funds and clients invested in an unaffiliated money market fund. The company expected its annual third-quarter DAC unlocking to benefit operating earnings in the quarter.

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