Hartford May Win Reserve Relief From State Regulator (Update1)
By Erik Holm and Andrew Frye
February 6, 2009
Feb. 6 (Bloomberg) -- Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, may be allowed by its state regulator to reduce reserves in an effort to bolster the company's finances, according to a person familiar with the matter.
Connecticut's insurance commissioner, Thomas Sullivan, has notified regulators in other states of his intention to let Hartford, based in the city of the same name, change accounting so the company has more cash available, said the person. He declined to be identified because Sullivan's decision isn't final.
The insurer yesterday slashed its dividend, reported a fourth-quarter loss and missed its own target for a measure of financial strength called the risk-based capital ratio. Hartford's stock has plunged 84 percent in 12 months, and the company may have to split its money-losing life insurance unit from the property-casualty business, Citigroup Inc. analyst Joshua Shanker said today.
Hartford Chief Financial Officer Lizabeth Zlatkus said on a conference call with analysts today that the insurer requested the reserve changes because the current rules were "unduly" conservative. She didn't indicate whether the insurer had won approval from Sullivan.
The risk-based capital ratio, which measures the ability of a company to meet client obligations, stood at about 385 percent as of Dec. 31, compared with the 535 percent yearend forecast it gave investors on Dec. 5. Winning approval to adopt the looser capital requirement from Connecticut may boost the ratio by 75 percentage points, Zlatkus said today.
Sullivan declined to comment. Hartford spokeswoman Shannon Lapierre declined to comment on the status of the insurer's request or discuss whether the company was considering a breakup.
Citigroup's Shanker said in a note to investors that the downgrade of the insurer today by Moody's Investors Service "could stimulate Hartford to seek out strategic alternatives, specifically a sale of the life business."
Chief Executive Officer Ramani Ayer, participating in the conference call, said the disparate businesses provide stability through diversification and gave the insurer access to a greater number of customers under its brand, known for its stag logo. He was responding to Jon Bosse of NWQ Investment Management, the No. 3 investor in the firm, who asked "why, or if, these companies have to be together?"
The company, valued at about $3.8 billion on the New York Stock Exchange, could get between $4 billion and $8 billion for its property-casualty unit, which insures businesses, cars and homes, Shanker said. The life insurance unit, which could help a better capitalized competitor gain market share, may not fetch a positive price from a buyer, according to Shanker. If Hartford sold the life insurance unit for $1, the stock could double in value, he said.
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