Sept. 30 (Bloomberg) -- Hartford Financial Services Group Inc. hired Bank of America Corp.’s Liam McGee as chief executive officer to rebuild the 199-year-old insurer that was pushed into a government bailout by bad stock and bond bets.

McGee, who headed Bank of America’s consumer and small- business banking, replaces Ramani Ayer, 62, effective Oct. 1, Hartford said yesterday in a statement. Ayer announced his departure in June after 12 years at the helm.

McGee, 55, left Bank of America last month. He takes over after what Ayer called “the most challenging” year for the insurer that has paid claims on disasters from New York’s Great Fire of 1835 to the Sept. 11 terrorist attacks. Hartford, downgraded three times by Standard & Poor’s this year, has rivals with higher credit grades including MetLife Inc., the biggest U.S. life insurer, and No. 2 Prudential Financial Inc.

“The risk profile of the company needs to be less,” McGee said yesterday in an interview. “You should expect me to do an intense review of the business, its strategies, the businesses it’s in, its cost structure” and set a course by the start of 2010, he said.

The insurer fell 94 cents, or 3.4 percent, to $26.50 at 4:15 p.m. in New York Stock Exchange composite trading. Hartford, based in the Connecticut city of the same name, dropped 81 percent last year while accumulating a $2.7 billion annual net loss.

At Bank of America, McGee oversaw an effort to boost credit-card lending after the 2006 acquisition of MBNA Corp. That responsibility was removed in 2008, when card oversight was handed to Bruce Hammonds. The bank now has the largest percentage of defaults among big U.S. credit-card lenders.

‘Greatest Lesson’

The failure to adequately consider the effect of a severe real estate slump on different asset types is probably “the greatest lesson” that banks take away from the recession, McGee said. Hartford executives will be “aggressive in managing our investment portfolio and be opportunistic as market conditions allow us to lessen our exposure to some asset classes.”

Hartford was caught off guard by the 2008 bankruptcy of Lehman Brothers Holdings Inc. and began reporting losses as Ayer’s “overweight” positions in structured debt and financial services investments soured. Equities dropped, and Hartford also accrued losses on stock-market guarantees extended to savers with retirement products called variable annuities.

Executive Departures

Top executives departed as Hartford’s stock slid from a high of $106.02 on May 22, 2007, leaving Ayer to reshape senior management in his last two years at the firm. Chief Financial Officer David Johnson was replaced by Lizabeth Zlatkus in February 2008. Greg McGreevey took the place of David Znamierowski as chief investment officer later that year. Chief Operating Officer Thomas Marra left in February.

McGee, who will also serve as Hartford’s chairman, said he would review top management and had no plans to name a new operating chief. Last week, Hartford hired Robert Froehlich, a former vice chairman of Deutsche Bank AG’s asset-management unit, as senior managing director to boost the mutual fund business and take over the duties of former chief investment strategist, Quincy Krosby.

The new CEO will have to “re-energize people to go out there and sell the products,” Randy Binner, an analyst with FBR Capital Markets, said in an interview. “There’s this idea out there that they are losing” the fight for new business to competitors, Binner said.

Irish Roots

McGee is a native of County Donegal, Ireland, who headed consumer banking at Bank of America from 2001. He joined the company in 1990, and worked in Los Angeles before moving to Charlotte, North Carolina, where Bank of America is based. McGee left in August after CEO Kenneth Lewis shifted Brian Moynihan to run the consumer banking division. In a statement at the time, McGee said he would “pursue my goal of running a company.”

McGee will get a $1.1 million annual salary, $2.7 million in restricted units and $4.4 million in deferred units, Hartford said today in a regulatory filing. The board set his compensation in consultation with Kenneth Feinberg, the Obama administration’s so-called special master for executive pay, McGee said yesterday. Hartford will pay back U.S. aid from the Troubled Asset Relief Program “when it is prudent,” he said.

Ayer’s compensation fell 72 percent in 2008, with his package valued at $4.47 million compared with $15.8 million the year earlier. Ayer’s 2008 compensation included a $1.15 million salary, and he received no award from an incentive plan, the company said in a regulatory filing in April.

“We view positively what appears to be McGee’s ambitious plan to turn around Hartford,” Bret Howlett, an equity analyst for Standard & Poor’s, said today in a research note. “But we somewhat question Hartford’s choice of McGee, since he lacks any experience in the insurance industry.”

AIG, MetLife

Robert Benmosche, named last month as the CEO of Hartford’s larger rival American International Group Inc., will get a $7 million annual salary including $3 million in cash and $4 million in common stock. AIG received a $182.5 billion federal rescue, and Benmosche’s package was approved “in principle,” by Feinberg, the company said last month.

MetLife, led by CEO Robert Henrikson, and Newark, New Jersey-based Prudential shunned government aid. Lincoln National Corp. of Philadelphia accepted $950 million from the U.S.

Ayer resisted pressure to break the company up as the stock slipped as low as $3.33 in March. He told employees in a memo in May that Hartford would focus on the U.S., maintaining insurance and a “strong” wealth management and retirement business.

“That is a good place to start,” McGee said. “By the beginning of the year, we’ll have a clear sense if that remains the course, or if we’ll take different actions.”

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: September 30, 2009 17:10 EDT