Allianz's $2.5B Stake Not A Takeover Effort, Says Hartford

The $2.5 billion stake that Allianz has taken in the Hartford is an investment, not a prelude to a takeover, the chief operating of the Hartford said today.

"Allianz's capital injection is an investment," said Tom Marra, president and chief operating officer of the Hartford, in a telephone interview today.

"They will have no board seats, no management oversight; they are an investor," he added.

Mr. Marra said the Hartford decided to make the deal because "demonstrating superior capital strength is hugely important" during a period of market turmoil.

He said that before the added capital injection, the Hartford had more than $1 billion in capital above the level needed to maintain its ratings, but decided that, "in this kind of environment, it is critical that you take this opportunity to remain one of the strongest."

"This will help us weather the volatility of the market, even if it gets worse," he said.

Others, however, have different views. "Given the size of Hartford's in-force book combined with the slowdown in its recent business production, we have viewed it as ripe of acquisition, and this transaction increases the likelihood that Allianz may ultimately buy [the company]," Citi Global Markets analyst Joshua Shanker said in an investment note this morning.

But Mr. Marra disagreed. "They [Allianz] did this because they are great investors, they know our business, and they have confidence in our company and our execution ability," he said.

He added that "they are investing on an attractive basis in a brand like the Hartford."

"Obviously, we view this as allowing us to continue to operate autonomously in the market," Mr. Marra said. He also said that there are standstill provisions in the contract that put limits on Allianz's "ability to take additional steps."

Under the terms of the deal, Allianz will purchase $750 million of preferred shares convertible to common stock after receipt of regulatory approval, equivalent to the purchase of 24 million common shares, and $1.75 billion of 10 percent junior subordinated debentures callable by the Hartford at par beginning 10 years after issuance.

It will also receive warrants which will entitle it to purchase $1.75 billion of common stock at an exercise price of $25.32 a share, subject to shareholder approval.

Mr. Marra confirmed that shoring up capital during a period of market turmoil is important because well-capitalized insurers are taking business away from troubled insurers, although he declined to mention AIG by name, and having strong capital is a positive in the current marketplace.

"I think there is definitely an interest, particularly in larger commercial lines, for capital strength and trustworthiness, stability in the brand, in the insurer they are doing business with," he said. "Those are all the kinds of things that customers are going to be looking for."

He acknowledged that having the added capital provided by the Allianz investment "represents a great opportunity to drive in the marketplace."

The current market volatility, he said, will help the Hartford as it lobbies for a greater federal role in oversight of U.S. insurance markets, and he noted that the Hartford is a strong supporter of legislation creating an optional federal insurance charter.

He said that, "separate of all this," the federal government "ought to be building [a greater presence in] insurance oversight."

"We are an advocate of an OFC," he said. "Having 50 state regulators is unwieldy and unnecessary.

"We think this is the strength of the argument for an OFC," Mr. Marra said. "Consumers will benefit under the less costly optional federal oversight system, and that is the direction we will ultimately reach."