The Hartford Posts $806 Million 4Q Loss, Cuts Dividend

The Hartford Financial Service Group Inc. reported for 2008 it had losses of $2.7 billion for the year and an $806 million net loss for the fourth quarter.

On a per share basis the loss amounted to $2.71 per diluted share for the quarter and $8.99 per diluted share for the year.

The Hartford also announced it intends to reduce its quarterly dividend to 5 cents per share, which the company estimates would save about $350 million annually.

Ramani Ayer, The Hartford's chairman and chief executive officer, called 2008 one of the toughest years in The Hartford's history.

For this year the company's outlook does not appear optimistic in the view of a rating service. Following the company's announcement, Moody's Investors Service downgraded The Hartford's long-term senior debt rating to "Baa1" from "A3" and the insurance financial strength ratings of The Hartford's lead p-c and life insurance operating subsidiaries to "A1" from "Aa3" and placed a negative outlook on the ratings.

The quarterly loss compares to 2007 fourth-quarter net income of $595 million, or $1.88 per diluted share. The loss was attributed in part to an after-tax, net realized capital loss of $610 million, due mostly to losses from the company's variable annuity Guaranteed Minimum Withdrawal Benefit (GMWB) hedging program and other-than-temporary impairments.

"A vast majority of the impairments in the fourth quarter of 2008 related to further price declines on previously impaired commercial mortgage-backed securities and financial securities, as well as impairments on securities for which the company seeks to maintain trading flexibility," the company explained.

For its property-casualty operations, The Hartford said written premiums were $2.5 billion for the quarter, down 2 percent from the fourth quarter of 2007. For the year, written premiums were $10.2 billion, down from $10.4 billion in 2007.

Net income from ongoing operations in the 2008 fourth quarter was $297 million, including a $138 million net realized capital loss. The 2007 fourth quarter net income from ongoing operations was $323 million.

For the year, net income from ongoing operations fell to $189 million from $1.5 billion in 2007.

The 2008 fourth-quarter combined ratio, excluding catastrophes, was 78, compared to 88.4 in the fourth quarter of 2007. For the year, the combined ratio, including catastrophes, was 90.7, which The Hartford said was in line with 2007 results.

Mr. Ayer said, "From an operational perspective, our core insurance-based businesses had a strong 2008. We had outstanding underwriting results in property and casualty, and loss estimates for the current and prior accident years developed better than expected."

For the life insurance subsidiaries, Moody's said the downgrade and negative outlook "reflect the entities' diminished stand-alone credit profile due to the potential for further losses from the investment portfolio and the variable annuity business.

For the p-c subsidiaries, Moody's said although core underwriting profitability remains "very good," the downgrade and negative outlook reflect "the actual and potential capital strain associated with the support of the life insurance operations, and recent investment losses which contributed to the material reduction in statutory capital and the risk of further significant losses from investment exposures."

In a conference call, Mr. Ayer said he was disappointed in Moody's decision, and stated that the company is still well capitalized.

For 2009, Mr. Ayer said in a statement, "we are optimistic about the resolve shown by the federal government in its efforts to stimulate the economy, but the risks still appear severe."

"As a result, it is prudent for us to put capital preservation and risk mitigation at the forefront of our priorities in 2009. We intend to take actions on a number of fronts. The effort to de-risk our variable annuity product portfolio is ongoing, and we will look across the enterprise for additional opportunities to reduce risk."