Hartford CEO McGee Says There's Money to Be Made in Commercial Real Estate

Hartford Financial Services Group Inc., the insurer that sold commercial mortgage assets after more than $1 billion of writedowns since the end of 2007, may increase its real-estate holdings amid signs of a rebound.

“We may even opportunistically get into commercial real estate,” Chief Executive Officer Liam McGee said today in an interview with Bloomberg Television. “We do think some money is going to be made there in the months ahead.”

McGee, 55, hired in October, scaled back real-estate market bets that contributed to five straight unprofitable quarters under his predecessor, Ramani Ayer. The new CEO, who promised to reduce risk at 200-year-old Hartford, has been seeking investments that yield more than Treasuries to improve returns on Hartford’s $75 billion fixed-income portfolio.

McGee, a former Bank of America Corp. executive, returned Hartford to profit in the fourth quarter as rallies in the stock and bond markets increased the value of investments and reduced the insurer’s liability to customers on equity-linked retirement products. In March, he raised more than $3 billion selling stock and debt and used the funds to repay the $3.4 billion government bailout that shored up the insurer under Ayer in June 2009.

“We’re no longer on our heels when it comes to real estate,” McGee said in an earlier interview today at Bloomberg headquarters in New York.

Hartford fell 1 cent to $22.74 at 4:30 p.m. in New York Stock Exchange composite trading. The insurer, based in the Connecticut city of the same name, has slipped 2.2 percent this year, compared with the 3.2 percent increase in the 24-company KBW Insurance Index.

Investments

McGee cut Hartford’s investments in commercial mortgage- backed securities to 11.5 percent of fixed-maturity assets as of March 31 from 13.1 percent six months before. In that period, Hartford has added to its corporate bond portfolio.

Hartford’s holdings of bonds backed by energy companies rose 18 percent in the six months ended March 31 to more than $3 billion, while investments in debt issued by technology and communication companies rose 12 percent to more than $4 billion.

The outlook for commercial real estate has improved as the expanding economy helps the owners of apartments, shopping malls and office buildings keep current on their debts. In December, Prudential Financial Inc., the second-biggest U.S. life insurer, predicted a commercial property rebound. In April, Principal Financial Group Inc. CEO Larry Zimpleman said the entry of new investors was boosting the market.

Mortgage Securities

Relative yields on senior top-rated securities backed by commercial mortgages fell 1.63 percentage points to 3.07 percentage points more than Treasuries from McGee’s arrival at Hartford on Oct. 1 through yesterday, according to a Barclays Plc index. Yields have risen from a low of 2.19 percentage points on April 16 amid concern that European debt woes would derail the economic recovery.

Hartford rivals including MetLife Inc., the biggest U.S. life insurer, and No. 2 Prudential Financial Inc. are drawing down the hoards of cash and government debt they accumulated in the financial crisis and buying higher-yielding securities. Insurers make money by investing policyholder premiums before paying claims.

McGee is reshaping Hartford as competitors that turned down bailout funds expand by poaching customers and making acquisitions. He is continuing a retreat from Japanese and European markets that Ayer began in his last year as CEO. McGee also discontinued the sale of some life insurance products to companies. In April he vowed not to reinstate Ayer’s focus on variable annuities that contributed to losses.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Adam Johnson in New York at ajohnson65@bloomberg.net.

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