Hartford Financial Services Group Inc., the insurer that repaid a $3.4 billion bailout last year, said cuts to European holdings and mortgage investments have positioned the firm to withstand “significant stress” in markets. The stock jumped in New York trading.
“Hartford’s approach to the investment portfolio is much more sophisticated and disciplined than it was two years ago,” Chief Executive Officer Liam McGee said today at an investor presentation. “Investment losses even under future market turmoil or significant stress scenarios will be well within our capital resources.”
The Standard & Poor’s 500 Index fell 14 percent in the three months ended Sept. 30, the biggest quarterly drop since the 23 percent slide in the final period of 2008. McGee, hired two years ago, has reorganized the 201-year-old company, which under his predecessor, Ramani Ayer, took a U.S. capital injection to rebuild funds lost in the credit crunch.
“We still don’t see a repeat of the 2008 financial crisis,” McGee said. “But the economy and the country have real challenges, and we are expecting slow economic growth at best for the balance of 2011 and at least through the first half of 2012.”
Hartford jumped 71 cents, or 4.2 percent, to $17.66 at 4:01 p.m. in New York Stock Exchange composite trading, the fifth-biggest gain in the 24-company KBW Insurance Index. Hartford, based in the Connecticut city of the same name, has slumped about 33 percent this year.
Hartford’s general account had a pretax unrealized gain of $2.1 billion at the end of August, the company said in a slide presentation. Hartford, which sells life insurance, retirement products and property-casualty coverage, reported about $4.4 billion of net investment income last year.
The insurer made “significant rebalancing decisions” on European holdings, Chief Investment Officer Gregory McGreevey said. The company said it cut its commercial mortgage-backed securities portfolio 48 percent to $7.5 billion from the end of 2008 through Aug. 31 of this year.
“Today we have no direct exposure and essentially no bank exposure to the higher risk countries in Europe,” McGreevey said. “Our financial exposure is limited to the largest and most important banks in stronger European countries and our subordinated bank exposure over all has been reduced dramatically and is now at around $600 million.”
Market slumps and declines in customer retirement accounts cost the company about $500 million last quarter, Hartford said. The sum includes about $110 million tied to the Japan annuity business.
McGee curtailed the sale of equity-based retirement accounts called variable annuities to protect the company when markets decline. Hartford halted new sales in Japan in 2009 while retaining liabilities tied to annuities sold before the financial crisis. When stocks fall, Hartford’s annuity liabilities may increase.
“I have confidence today that the Japan risk is now within the appropriate risk parameters,” McGee said.
So-called core earnings were reduced by about $230 million from the costs tied to retirement products. Catastrophe claims cut core earnings by another $130 million.