Hartford Shares Fall 25 Percent On New Capital Woes
By Lilla Zuill
February 6, 2009
(Adds Moody's downgrade, negative outlook, CEO and CFO comments from investor call)
NEW YORK, Feb 6 (Reuters) - Shares of Hartford Financial Services Group Inc (HIG.N) fell 25 percent on Friday, a day after the U.S. property and life insurer reported a quarterly loss and lowered a key measure of its financial health.
Moody's Investors Service cut Hartford's credit ratings on Friday. It placed the ratings on "negative outlook" and warned that the company's life insurance unit could see its financial strength rating cut again if it fails to keep a regulatory capital ratio above 325 percent.
The ratio helps regulators measure an insurer's ability risk profile and ability to pay claims.
Hartford has asked its main insurance regulator, Connecticut Insurance Commissioner Thomas Sullivan, to consider easing its capital requirements, which could have the effect of raising its regulatory capital ratio to 460 percent, Chief Financial Officer Lizabeth Zlatkus said on a call with investors on Friday.
Late on Thursday, Hartford said it now estimates it ended 2008 with a regulatory capital ratio of 385 percent -- 150 percentage points lower than it had projected on Dec. 5. It said the lower estimate was largely due to declines in commercial mortgage investments.
On top of the threat of rating downgrades, the lower estimate raises investor fears that Hartford will have to try to raise fresh capital. It tapped German insurer Allianz SE (ALVG.DE) for $2.5 billion in October.
Also on Thursday, Hartford reported a fourth-quarter loss of $806 million and said it would slash its dividend by 84 percent to preserve capital.
Chief Executive Ramani Ayer, in the call with investors, said Hartford's life insurance business could draw on sources of capital at its parent holding company. It has not yet done so, Ayer said, because he believes the unit's capital is sufficient and he wants to keep as much capital as possible at the parent company in order to maintain "financial flexibility."
"The Hartford has again painted a picture of its life company's capital position that is quite a bit different from the picture it drew ... on Dec. 5," Barclays Capital analysts Eric Berg and Jay Gelb wrote in a research note. "That is a problem in our view."
Ayer and Zlatkus were already unpopular with investors after Hartford posted a third-quarter loss of $2.63 billion in October. The fourth-quarter report could further undermine confidence in their leadership, said analysts.
Questions about capital adequacy, a hot-button issue for investors given companies' weaker financial health, will reduce "confidence in Hartford's management," said Barclays. Sterne Agee analyst John Nadel raised similar concerns.
Hartford shares were down $3.75 to $11.34 in late-morning trade on the New York Stock Exchange. The stock is down 80 percent in the last 12 months.
In the credit derivatives market, the cost of protecting $10 million of Hartford debt against default for five years rose to $715,000 a year from about $647,000 on Thursday, according to data from Markit Intraday.
In recent months, Hartford has been raising prices on some
retirement products, cutting jobs and reducing risk in its
investment portfolio, seeking to preserve capital after poor
investment results led to the massive third-quarter loss.
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