Hartford Soars as It Boosts Forecast, Affirms Capital (Update1)
By Andrew Frye
December 5, 2008
Dec. 5 (Bloomberg) -- Hartford Financial Services Group Inc. soared as much as 65 percent in New York trading after the insurer lifted its 2008 forecast for operating profit and said the capital outlook at its insurance units was "strong."
Hartford rose $4.15 to $11.36 at 11:47 a.m. in New York Stock Exchange composite trading and sold today for as much as $11.87, the biggest rise in almost 13 years. Earnings, excluding some investment results, may be $4.70 to $4.90 a share, Hartford said today during an investor conference. The insurer predicted in October that so-called core earnings would be $4.30 to $4.50.
"The Hartford's operating businesses are performing well, particularly in light of the challenging markets," Chief Executive Officer Ramani Ayer said in a statement.
Hartford's shares dropped 92 percent this year through yesterday on concern that declines in investment holdings had cast doubt on its ability to back policies. Hartford previously lowered its 2008 earnings outlook at least twice. The new profit forecast is about half of the $9.80 to $10.20 a share that Hartford predicted in December last year.
Liquidity is ample and Hartford, named for the Connecticut city where it's based, is well-capitalized, according to today's presentation. The company said it expects to cut expenses by at least 5 percent by the fourth quarter of 2009.
Ayer is seeking as much as $3.4 billion from the U.S. Treasury's $700 billion rescue fund after stock and bond market slumps pushed down the value of securities backing policies and client annuities. Hartford had a net loss of $2.6 billion in the third quarter and sold $2.5 billion in stock and debt to Allianz SE in October to bolster finances. Ayer told investors today Hartford had "no idea" when the U.S. will act on its application for aid.
Hartford has $3.5 billion of "existing additional capital resources," including a $1.9 billion revolving credit facility, Chief Financial Officer Lizabeth Zlatkus said today. "We feel very, very good about our liquidity position," Zlatkus said.
Hartford was caught off guard by the global credit freeze, accumulating $2.2 billion in investment losses in the three months to the end of September, partly due to wrong-way bets on securities issued by banks and mortgage lenders. The insurer's "overweight positions" in financial company investments hurt results, Ayer told analysts in a conference call on Oct. 29.
Some of the insurer's holdings have been "hammered way beyond what we believe is the intrinsic value," Ayer said today.
Hartford may face further losses as commercial mortgage delinquencies rise and securities backed by the loans plummet. The company is "overweight" CMBS, with a $11.2 billion portfolio, according to a slide presentation today. Hartford is seeking to reduce its investment in CMBS, Chief Investment Officer Greg McGreevey said.
Prudential Financial Inc., the second-biggest U.S. life insurer, said yesterday it had a "negative" view on the commercial mortgage market and disclosed that unrealized losses on fixed-income securities more than doubled to $13.4 billion on Nov. 21 from $5.9 billion at the end of September. No. 1 MetLife Inc. is scheduled to present its 2009 outlook on Dec. 8.
Mortgage bonds posted a record decline in November after Treasury Secretary Henry Paulson said the U.S. no longer plans to make asset purchases a focus of the rescue program. Selling in the almost $800 billion market intensified on reports that two property owners with $334 million of loans bundled into bonds earlier this year are about to default.
Top-rated commercial-mortgage bonds, the largest part of the market, tumbled about 10 percent last month, according to Merrill Lynch & Co.'s CMBS Fixed-Rate AAA-Rated index. The decline compares with an 8.5 percent drop in October, the previous worst since at least 1998.
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