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The Hartford's Own Woes Only Part Of Its Problems

By DIANE LEVICK

October 04, 2008

Losing nearly $9 billion of market value can really ruin your week.

It did at The Hartford, which now faces even tougher challenges after panicked investors hacked its stock price by nearly 52 percent.

However, the stock slide doesn't mean that The Hartford Financial Services Group is failing or that it will need a federal bailout, as American International Group did, experts say.

In a time when one financial firm after another fails or is taken over, The Hartford is getting punished for more than its own troubles.

"We've got contagion right now" affecting "perfectly fine, sound institutions," said Walter Dolde, a finance professor at the University of Connecticut School of Business in Stamford who worked on Wall Street for 10 years. "Investors are very wary of anything that's a financial institution, and they're damning them all."

A depressed stock price can make it harder for a company to make acquisitions and make it more costly to borrow money by issuing bonds. It can also hurt customer perception and employee morale.

The Hartford was already dealing with more soured investments than some insurers, an issue that will eat into profits and the company's financial cushion. But those were disclosed before the Panic on Wall Street led to the Nightmare on Elm Street slashing of The Hartford's stock price.

The Hartford's stock began its downfall this week with another rating agency lowering its outlook on the company's ratings. The stalling in Congress of the $700 billion financial rescue plan until Friday affected insurer stocks, too.

On Thursday, the stocks of The Hartford, MetLife and Prudential were smashed after a comment Wednesday by U.S. Senate Majority Leader Harry Reid — later retracted by a spokesman — that an unnamed insurer is on the brink of bankruptcy.

The Hartford's stock started a recovery Friday, rising as much as $7.37 during the day before closing up $1.49 from Thursday's close. Still, Friday's closing price of $27.40 a share represented a drop of $29.24 from the previous Friday.

The sell-off of life insurer stocks such as The Hartford "seems way overdone," and solvency concerns are "overblown," Andrew Kligerman, an analyst at UBS, said in a note to investors Friday.

He noted that the companies didn't have units like AIG did writing "credit default swaps," which are used to protect against bond defaults or speculate on a company's creditworthiness. AIG lost billions on the business.

"AIG wrote enormous amounts of that, and for a time it was very profitable, but now it's coming back to haunt them," Dolde said.

Volatile stock and bond markets are affecting The Hartford's own businesses, such as annuities and mutual funds. In addition, losses in its own investment portfolio could reduce third-quarter earnings more than $191 million, the company has said. It has disclosed its stock and bond investments in such ailing companies as Lehman Brothers and AIG.

Analysts expect that the issues will reduce The Hartford's financial cushion — $1.5 billion a few months ago — by hundreds of millions of dollars, and that could lead to a downgrade of financial health ratings.

Downgrades are more likely than the stock slide to make it harder for the company to keep and attract new customers, said David Bradford, executive vice president of Advisen, which provides information services to the commercial insurance industry.

However, Bradford said "there's probably a pretty strong reservoir of trust and goodwill with The Hartford." Customers may simply spread their coverage among more insurers, rather than abandon The Hartford, and the same trend is likely to occur at AIG, he said.

The Hartford may find it has to compete "a little bit more aggressively" on price to hang on to some commercial customers, Bradford said. That could be a tough situation because the cyclical industry has already been waging price wars and is worried about profit margins.

The Hartford, which has about 13,000 employees in Connecticut, isn't saying whether any of its challenges could mean layoffs. "We are always evaluating our business needs," is all company spokeswoman Shannon Lapierre would say on the matter.

She reiterated Friday that The Hartford "has a strong history of managing through challenging times. Our core operations are performing well, and our liquidity remains strong."

"Of course, we are disappointed with the recent volatility in our share price," Lapierre said, "but we recognize we are truly living in unprecedented times."