Multiline insurer the Hartford Insurance Group announced today it had given a stake in the firm to competitor Allianz AG for a $2.5 billion cash infusion and informed investors it will take a huge charge in the third quarter to account for a diminished investments portfolio.

Bank of America analysts said the total capital infusion could be $4.25 billion if Allianz decides to exercise warrants it would be given in the deal. However, the analysts said, that would give Allianz a total 30 percent stake in the company.

In other moves designed to reassure markets and preserve cash, HIG also said it will cut its dividend and named a new chief investment officer, Greg McGreevey, a former ING executive.

A research analyst who declined to be named reacted by saying, "Personally, I find it rather stunning considering that Allianz and Hartford are competitors in some significant areas; it makes me wonder if this is a prelude to a takeover."

The stock market appeared to like the move. At 10 a.m. HIG stock was $32.30, up $4.90, or almost 18 percent, in heavy trading on the New York Stock Exchange. That was in contrast to overall trading, with U.S. stock markets opening sharply lower amidst signs the problems facing U.S. financial institutions are spreading to European banks.

HIG's stock has declined precipitously over the past few months as the financial turmoil mainly affecting investment banks has moved into the insurance sector.

The stock has been as high as $99.52 over the past 52 weeks, but dropped below $26 at one point last week as the turbulence in financial markets overtook insurers.

Another factor was a decision by Fitch Ratings to revise its rating outlook for HIG from stable to negative. Fitch cited potential troubled assets, like mortgage-backed securities in its portfolio, as well as the annual deferred acquisition cost analysis that HIG does in the third quarter.

HIG sought to add cash in advance of announcing a projected loss because of the market turmoil. It said it 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 vast majority of the realized capital losses are impairments on The Hartford's investment portfolio," about three-quarters of which are losses in investments in the financial services sector, the company said.

The new dividend will be 32 cents a share, down from 53 cents a share.

Specifically, HIG officials said 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 percent 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.

Allianz is based in Munich. Its U.S. operations include the Fireman's Fund, a personal lines property-casualty based in California. Its U.S. life assets include Allianz Life, based in Minneapolis; PIMCO, Newport Beach, Calif.; Allianz Global Investors, an asset management company based in New York.

The Hartford has huge life and p-c assets, both in the U.S. and overseas.

It has a large asset management business, sells annuities and disability products, has a large group life business, and administers retirement plans. Its p-c business includes personal lines, small commercial, middle market, specialty commercial and other operations.

The firm provides investment products; individual life, group life and group disability insurance products; and property and casualty insurance products in the United States. HIG has operations in the Japan, Brazil, Ireland and the United Kingdom.

Mr. McGreevey, the new chief investment officer, joined the company in August. He will become an executive vice president of HIG and president of Hartford Investment Management Company, the firm said.

He succeeds Dave Znamierowski, who is leaving the company.

Hartford CEO Ramani Ayer said Mr. McGreevey and his team "are immersed in our portfolio, evaluating our investments and setting a course to navigate in this very volatile marketplace."

Mr. Ayer said the decision to change investment managers was made because, "given the recent unprecedented turmoil in the financial markets and its effect on the company's investment portfolio, we agreed that it would be best to bring a fresh perspective to our investment operations."

Mr. Znamierowski has been with the company for 12 years.

Special Reports /

Allianz To Help Out Hartford With $2.5 Billion

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