Hartford: To Reduce Exposure To Comml Mortgage Securities
February 06 2009 - 11:25AM
Dow Jones News
Hartford Financial Services Group Inc.'s (HIG) weak
fourth-quarter results should be considered as part of a bigger
picture that includes good underwriting results and investment
losses that will eventually "substantially recover" as the company
works its way through a recession, Chief Executive Ramani Ayer
urged Friday.
The company will move to reduce its exposure to troubled market
segments such as commercial mortgage-backed securities and its
exposure to financial services fixed-income investments, Chief
Investment Officer Greg McGreevey said.
The reassurances did little to stem a decline in Hartford's
stock. Shares were recently trading at $11.33, down $3.76, or
25%.
McGreevey said the company's holdings of commercial
mortgage-backed securities, or CMBS, stood at about 10% of its
total invested assets but represented around 40% of its total
unrealized losses. "Opportunities to sell CMBS will be limited, as
the likely ultimate value of the CMBS is out of alignment" with
market prices, McGreevey said. He said the company's overall plan
is to reduce its exposure to the securities over time and to
continue to explore ways to hedge against losses in the
portfolio.
The company's total fixed-income and equity exposure to
financial services was $7.9 billion, or 9% of its portfolio, with
around $900 million of that in the E.U. bank-issued hybrid
securities that have raised concerns about repayment.
But the life and property/casualty insurer's falling capital
position amid rising costs on its variable annuity business, along
with a downgrade from ratings agency Moody's Investor Service,
drove down the company's share price by as much as 27% in trading
Friday.
The company has asked its regulator, the Connecticut insurance
department, to allow it to relax some capital standards related to
deferred tax assets and other rules, according to the company's
chief financial officer.
If the requests are allowed, it could improve the company's
risk-based capital position by as much as 75 percentage points. At
the end of 2008, Hartford's risk-based capital ratio was at about
385%.
Citing its weakened capital position and investment losses,
Moody's Investors Service cut Hartford's financial strength and
debt ratings on Friday.
In a Friday note, Keefe, Bruyette & Woods analyst called
Hartford's capital position "very fluid," which he said would hurt
the company's valuation.
Atlantic Equities cut Hartford to underweight from neutral on
Friday.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com