Hartford Posts Loss; Results Beat Analysts' Estimates (Update2)

By Andrew Frye
Bloomberg News
July 29, 2009

July 29 (Bloomberg) -- Hartford Financial Services Group Inc., the insurer that took $3.4 billion in federal aid, posted its smallest loss in a year and beat analysts' estimates as a stock market rally eased the cost of protecting savers from asset declines. The insurer gained in extended trading.

The net loss in the three months ended June 30 was $15 million, or 6 cents a share, compared with income of $543 million, or $1.73, in the year-earlier period, Hartford, based in the Connecticut city of the same name, said in a statement. Operating earnings, which exclude some investment results, were $1.90 a share, beating the average $1.17 estimate of 17 analysts surveyed by Bloomberg.

Hartford benefited from the 15 percent gain in the Standard & Poor's 500 Index from April through June after stock market declines pushed the firm to $4.6 billion in losses in the previous three quarters. Departing Chief Executive Officer Ramani Ayer is rebuilding capital with the help of bailout funds from the Troubled Asset Relief Program after Hartford was downgraded three times by Standard & Poor's this year.

"Some of the things that were problems are beginning to level off," said Drew Woodbury, an analyst with Morningstar Inc. in Chicago. "There remain some questions about where we go from here."

Unrealized losses, which aren't subtracted from earnings, narrowed by $1 billion, to $5.9 billion, at the end of June from the end of March as credit markets improved. A $360 million gain tied to rising stock markets boosted results.

MetLife, Prudential

Hartford, which released results after the close of regular trading, gained about 3.3 percent to $15.45 at 6:12 p.m. New York time in extended trading. Hartford has slipped 76 percent in the past 12 months, compared with the 39 percent decline at MetLife Inc., the biggest U.S. life insurer, and the 36 percent slide for No. 2 Prudential Financial Inc.

Hartford took a charge of about $300 million in the quarter after its TARP injection triggered a payout to Munich-based Allianz SE to compensate for dilution to the German insurer's investment. Allianz agreed to invest $2.5 billion in Hartford in October as the U.S. insurer braced for losses. Hartford said on June 12 that it would pay Allianz $200 million and extend the terms of warrants.

Hartford, founded two centuries ago, was caught off guard by the credit-market seizure in September after the collapse of Lehman Brothers Holdings Inc. Losses on fixed-income holdings widened and were exacerbated by the rising cost of guaranteeing minimum returns to savers on equity-linked retirement products called variable annuities.

Capital Depleted

Losses at Hartford's life insurance unit, which sells the annuities and holds mortgage-linked investments, depleted capital and threatened to discourage clients of the profitable property-casualty business.

Realized capital losses quadrupled to $649 million in the second quarter on the Allianz payment and $207 million in impairments. Investment income slipped 17 percent to $1.02 billion as the company recorded a $93 million loss on alternative investments, which typically include private equity and hedge funds. Alternative holdings generated a $25 million profit in the same period a year ago.

Hartford said 2009 operating earnings will probably be zero to 20 cents a share, which compares with a range of 5 cents to 45 cents given three months ago.

Corporate Debt

Hartford has been seeking to reduce risk by repositioning the portfolio under the direction of Greg McGreevey, appointed chief investment officer in October. In the first quarter the insurer reduced its holdings in the financial industry by $600 million and invested in pharmaceutical firms, according to a presentation on the company's Web site.

Hartford's property and casualty business is facing a contracting U.S. market as clients have fewer employees and less equipment to protect. In the three months ended June 30, Hartford added $90 million to its reserves against asbestos claims, marking at least the third-consecutive year in which second-quarter results were hurt by such an expense.

Ayer, 62, is seeking to reassemble Hartford's top management team after the departures since 2008 of Chief Financial Officer David Johnson, Chief Operating Officer Thomas Marra and Chief Investment Officer David Znamierowski. Ayer promoted Juan Andrade to president of the property-casualty business on July 16 to fill a position left vacant after Neal Wolin joined President Barack Obama's administration.

Hartford's board is seeking Ayer's replacement outside the company. The insurer must attract a manager undeterred by the prospect of government-imposed compensation curbs tied to the TARP bailout. Hartford has had to defend itself against defections since the U.S. accepted its aid request.

The insurer is suing Arch Capital Group Ltd. after more than 60 managers, underwriters and employees left a Hartford subsidiary in June to join the Bermuda-based insurer.

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