UPDATE: Hartford Plans Include Request For Capital Relief

Hartford Financial (HIG) said Friday it will sell off some commercial mortgage-backed securities, introduce less risky variable annuity products and ask its regulator to relax capital requirements in a multi-pronged approach to improve its capital position.

But the initiatives - coming after the life and property casualty insurer reported a fourth-quarter loss, a dividend cut and capital levels below expectations - did little to turn around sentiment that pulled down Hartford's share price as much as 28% in afternoon trading. Recently, shares of Hartford were down 16.3% at $12.65. Life insurers that already reported better results traded higher Friday, with Prudential Financial (PRU) up 6.1% recently and Metlife (MET) up 0.1%. Genworth Financial (GNW) and Lincoln National Corp. (LNC) have not yet reported fourth quarter earnings. Both traded down recently.

Hartford Financial finished the year with a risk-based capital ratio of 385%, well below the estimate it gave in December of 535%, raising fears the number could drop even further, which would threaten its credit ratings. Moody's already downgraded Hartford late Thursday and has a negative outlook for the insurer.

Hartford could boost its ratio if its main regulator, the Connecticut insurance department, allows it relief from a required $600 million reserve increase, which Lizabeth Zlatkus, Hartford's chief financial officer, called too "conservative" a standard.

If that request and another the company made regarding deferred tax assets were granted, company could potentially increase its ratio by 75 percentage points.

In a statement Friday Connecticut Insurance Department Commissioner Thomas R. Sullivan said he couldn't comment publicly on such requests or the department's analysis.

"The Connecticut Insurance Department takes seriously its obligations to monitor and review the financial positions and solvency of insurance companies licensed to do business in this state. We will continue to be vigilant on this front and be guided by balancing what is in the best interest of the consumer and the companies while also maintaining a sound and competitive marketplace," he said in an emailed statement.

Last month, the National Association of Insurance Commissioners turned down a request by life insurer groups to cut regulatory capital requirements.

Hartford also will try to improve its situation by reducing its holdings of commercial mortgage-backed securities, or CMBS. These securities represent only about 10% of Hartford's investment holdings but around 40% of its unrealized losses, Chief Investment Officer Greg McGreevey said Friday.

Hartford has already faced problems in previous quarters over its exposure to financial services companies and replaced its chief investment officer in October, partly as a result of those losses.

On Thursday, Hartford reported a fourth-quarter net loss of $806 million, or $2.71 a share, compared with year-earlier net income of $595 million, or $1.88 a share. It also cut its quarterly dividend by 84%, to 5 cents.

McGreevey said the company will try to sell some of its CMBS, which may not be easy to sell in this market, he said.

The securities are mostly double-A or triple-A rated, and Hartford expects the losses to "substantially" reverse themselves over time, McGreevey said.

But a coming Moody's review of all the CMBS securities it has rated could result in more downgrades, making the market even tougher.

Going forward, Hartford will refashion its variable annuity offerings to present less risk. A new product it will launch in May will offer much-valued lifetime income, but will come with less features and a lower price than what some competitors are offering.

"Our camp will constrain features and benefits and keep costs more in line," said John Walters, president of Hartford's life insurance company. "There is a price at which these are not as attractive to customers."

-By Lavonne Kuykendall, Dow Jones Newswires; [phone]; [e-mail]