Hartford: To Reduce Exposure To Comml Mortgage Securities

Hartford Financial Services Group Inc.'s (HIG) weak fourth-quarter results should be considered as part of a bigger picture that includes good underwriting results and investment losses that will eventually "substantially recover" as the company works its way through a recession, Chief Executive Ramani Ayer urged Friday.

The company will move to reduce its exposure to troubled market segments such as commercial mortgage-backed securities and its exposure to financial services fixed-income investments, Chief Investment Officer Greg McGreevey said.

The reassurances did little to stem a decline in Hartford's stock. Shares were recently trading at $11.33, down $3.76, or 25%.

McGreevey said the company's holdings of commercial mortgage-backed securities, or CMBS, stood at about 10% of its total invested assets but represented around 40% of its total unrealized losses. "Opportunities to sell CMBS will be limited, as the likely ultimate value of the CMBS is out of alignment" with market prices, McGreevey said. He said the company's overall plan is to reduce its exposure to the securities over time and to continue to explore ways to hedge against losses in the portfolio.

The company's total fixed-income and equity exposure to financial services was $7.9 billion, or 9% of its portfolio, with around $900 million of that in the E.U. bank-issued hybrid securities that have raised concerns about repayment.

But the life and property/casualty insurer's falling capital position amid rising costs on its variable annuity business, along with a downgrade from ratings agency Moody's Investor Service, drove down the company's share price by as much as 27% in trading Friday.

The company has asked its regulator, the Connecticut insurance department, to allow it to relax some capital standards related to deferred tax assets and other rules, according to the company's chief financial officer.

If the requests are allowed, it could improve the company's risk-based capital position by as much as 75 percentage points. At the end of 2008, Hartford's risk-based capital ratio was at about 385%.

Citing its weakened capital position and investment losses, Moody's Investors Service cut Hartford's financial strength and debt ratings on Friday.

In a Friday note, Keefe, Bruyette & Woods analyst called Hartford's capital position "very fluid," which he said would hurt the company's valuation.

Atlantic Equities cut Hartford to underweight from neutral on Friday.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; [e-mail]