The Hartford to Bankruptcy? Part Deux: It was closer than they admitted.

Turns out they needed $2.5 billion to tide them over until next payday. The WSJ has the story and I’ll follow with coverage from the National Underwriter:

Hartford Financial Services Group said it will receive a $2.5 billion capital investment from German insurer Allianz SE while also warning of a big third-quarter loss and announcing a 40% cut to its quarterly dividend.

The investment from Allianz “strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses,” Hartford Chief Executive Ramani Ayer said in a statement. With the investment, Hartford will finish the year with a capital margin about $3.5 billion in excess of its requirements to maintain AA-level credit ratings.

The move comes as Hartford’s stock has tumbled in recent weeks amid industry-investor worries concerning problems in the stock and credit markets. Shares traded at $30.90 in 4 p.m. New York Stock Exchange composite trading Monday, up 13% for the day but down 65% on the year.

Monday, Hartford said it expects a third-quarter net loss of $8.50 to $8.80 a share, hurt by $7.05 to $7.25 a share in net realized capital losses. The company said the “vast majority” of the losses are write-downs on its investment portfolio, with about 75% of them related to investments in the financial-services sector amid recent market turmoil. Amid those losses, Hartford announced a new investment chief.

The news positively impacted the credit rating of the Hartford per the National Underwriter:

Rating agencies A.M. Best Co. and Standard & Poor’s have revised their outlook on The Hartford Financial Services Group after the company received a $2.5 billion cash infusion from competitor Allianz AG in exchange for a stake in the firm.

A.M. Best Co. placed The Hartford’s “A-plus” financial strength (FSR) ratings under review with negative implications. Best also placed under review with negative implications the “a” issuer credit ratings (ICR) and all debt ratings of The Hartford, and the “aa-minus” ICR of the company’s key life and health and property-casualty subsidiaries.

Standard & Poor’s Ratings Services said it has revised its outlook on The Hartford to negative from stable but has affirmed the company’s “A” counterparty credit rating and the “AA-minus” counterparty credit and financial strength ratings on all of The Hartford’s core insurance operating subsidiaries.

Both rating agencies cited circumstances surrounding The Hartford’s deal with Allianz in which Allianz will receive a stake in The Hartford in exchange for a $2.5 billion cash infusion.

As reported yesterday by NU Online News Service, The Hartford sought a cash infusion in advance of announcing projected losses due to the market turmoil.

Additionally, before the cash infusion announcement, Fitch ratings had revised The Hartford’s rating outlook from stable to negative, citing potential troubled assets in its portfolios.

5 thoughts on “The Hartford to Bankruptcy? Part Deux: It was closer than they admitted.”

  1. Sop, I can’t help but ask if any of these “revelations” have changed your mind that mutual insurance companies should become stock companies? I havent seen any mutual insurer zinged yet…does being owned by the policyholder serve as some sort of “shield” to the excesses these stock company insurers are facing?

  2. Proximo that is a great question.

    I’m not so certain mutual companies don’t have these problems as much as we might not be hearing of them.

    I’m going to have to think about your question.

    sop

  3. The big difference between a stock and mutual insurance company is no one knows what is happening inside a mutual company and they don’t have to tell us. Ever wonder why one of the largest mutual companies brags about being “The Silent Company?” Could it be there is a lot they don’t want us to know? The only option when dealing with a mutual company is to rely on the Best’s rating. As there have been a number of A+ rated companies that have failed, what are we to think? http://www.bobmaconbusiness.com

  4. It is an interesting question, Proximo, but policyholders are not a shield to anythings IMO – they’re just shielded from the knowledge that would be available if they “owned” a stock company instead of a mutual fund.

  5. Bob your blog is excellent. The larger topic of corporate governance has been of great interest to me after the accounting scandals in the early part of this decade.

    Welcome to slabbed.

    sop

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