The Hartford Financial Services Group, Inc. announced that it will receive a $2.5 billion capital investment from Allianz SE.
The agreement came after a tough week on Wall Street for The Hartford. It lost nearly $9 billion of market value last week as investors fled the financial sector during the worst crisis in decades.
“We are taking decisive action to ensure that The Hartford remains well capitalized for long-term success,” said The Hartford’s chairman and chief executive officer Ramani Ayer. “This investment strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses. We are dedicated to honoring our commitments to customers.”
“We believe in the fundamental strength of the U.S. economy and its insurance industry and respect The Hartford as a great insurance brand,” said Michael Diekmann, chairman of the Board of Management and chief executive officer of Allianz SE. “We anticipate a favourable return on our investment.”
Terms of the Investment
Allianz will purchase, at $31 per share, $750 million of preferred shares convertible to common stock after receipt of applicable approvals, and $1.75 billion of 10% junior subordinated debentures. The debentures are callable by The Hartford at par beginning ten years after issuance.
Allianz SE will also receive warrants which entitle it to purchase $1.75 billion of common stock at an exercise price of $25.32 per share, subject to shareholder approvals. The warrants expire in seven years.
Preliminary Third Quarter Results
The Hartford expects a net loss for the third quarter in the range of $8.50 to $8.80 per share, including net realized capital losses in the range of $7.05 to $7.25 per share, or approximately $2.1 billion to $2.2 billion. The company said the “vast majority” of the realized capital losses are impairments on its investment portfolio. About 75 percent of the impairments are related to investments in the financial services sector, which were negatively affected by recent market turmoil.
Ayer said the Allianz investment should enable The Hartford to maintain its AA level ratings.
Last week, Fitch Ratings cautioned about possible downgrades for The Hartford due to its credit markets exposure.
In conjunction with Allianz’s financial investment and the increase in shares outstanding, The Hartford has reduced its quarterly dividend to $0.32 per share.
Chief Investment Officer Appointment
Effective immediately, Greg McGreevey, who joined the company in August, will assume the position of executive vice president and chief investment officer for The Hartford and president of Hartford Investment Management Co.. He succeeds Dave Znamierowski who is leaving the company.
Source: The Hartford