Hartford Financial Down On Variable Annuity Worry

Associated Press
November 17, 2008


NEW YORK (AP) - Shares of the Hartford Financial Services Group Inc. plunged Monday, reversing gains recorded Friday after it said it would buy a thrift and seek government bailout money, as investors fretted about the insurance company's variable annuity business and amid fears it could face a ratings downgrade.

Hartford Financial shares fell $2.55, or 20.1 percent, to $10.10 in afternoon trading, on nearly twice normal volume.

The drop erased a 21 percent gain from Friday's session after Hartford said it would buy Sanford, Fla.-based Federal Trust Corp. for about $10 billion, and become a thrift holding company. That move would enable it to take part in the federal bailout program, and Hartford Financial said it expects to be eligible for $1.1 billion to $3.4 billion in government bailout money after the buyout.

Monday's decline reflected concerns about the insurer's variable annuity business, which offers policies that have guaranteed minimum payouts or monthly withdrawal benefits. Investors are worried the payout obligations may exceed the amount of capital the company has on hand, due to the plunge in the overall market and Hartford Financials' own shares this year.

The stock closed Friday down 85 percent for the year, and 70 percent in the quarter.

Citi Investment Research analyst Joshua Shanker said some investors may be concerned about the potential for Moody's Investor Services downgrading Hartford Financial, but he suggested that other insurers face a similar concern, which would reduce the impact of a ratings cut. "We believe that the current stock price is confusing a downgrade with the risk of insolvency," Shanker wrote.

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