Ayer: Year Most Challenging In My Life

As the current economic environment continues to take its toll on The Hartford, the company's chairman and CEO Ramani Ayer, who will be stepping down at year-end, acknowledged how challenging the last nine months have been. But he said the company, armed with a new strategy to focus on its core strengths, is positioned to rebound effectively.

Speaking to the unprecedented struggles driven by the financial meltdown, Mr. Ayer said, “For me, by far, there is no comparison–last year has been the most challenging in my entire life.”

He credited the Federal Reserve, Treasury, and the administration as a whole with taking measures to ensure the economy did not go into a complete tailspin, stating that they have done an “outstanding job” given the circumstances.

He stated, “I think you and I will live to tell our grandchildren what the year 2008 looked like from an American economic environment perspective.”

For The Hartford, Mr. Ayer said he and a lot of others across multiple industries simply did not see the financial meltdown coming. “We did not foresee, and a lot of very great minds did not foresee, what happened in the fourth quarter of last year, and continued to persist through the first quarter of this year,” he said. “That was clearly one that was not seen by most people.

“But 20/20 hindsight, obviously less exposure to [banks and other financial companies], and less exposure to commercial mortgage backed securities–if we had had the foresight to be able to lighten up on all of that, it would have been a good thing. But we don't have that luxury today.”

Looking to the future, and what The Hartford needs to do as a company to recover, Mr. Ayer said, “We went through an in-depth analysis of what the company's strategy should be going forward, and we concluded that the best way to deliver long- term value to shareholders is to return to our core historical strengths as a U.S.-centric insurance company, and that's really what we have done.”

He said the company will focus on property-casualty, group benefits, life, and then have wealth management business in mutual funds and retirement plans. The annuity business, he noted, will be substantially re-structured.

“In a nutshell,” Mr. Ayer said, “I'd say the company's on sure footing at this time, and now it's our job to go out there and win the hearts and minds of our distribution [system].”

Shellie Stoddard, an analyst with Standard & Poor's, indicated the future of The Hartford is still uncertain, noting the company is currently at a “strategic crossroads” as it makes the decision to de-emphasize international and institutional business.

She said the company “continues to face significant challenges with the credit cycle and the level of instability in the equity markets.”

In receiving an expected $3.4 billion in Troubled Asset Relief Program (TARP) funds that it qualified for, Ms. Stoddard said that will add some financial flexibility that the company has lacked.

The Hartford also received a $2.5 billion investment by European insurer Allianz in October 2008.

Overall, Ms. Stoddard said S&P will monitor The Hartford's existing product lines on the life and p-c sides to see if the company can maintain its distribution and level of sales so that its credit position is not permanently impaired. If the company is successful, she said, earnings should follow and the company can rebuild capital.

Paul Bauer, an analyst with Moody's Investors Service, said, “The Hartford's biggest challenges are likely to be managing future investment volatility, maintaining the company's historically strong franchise and reputation during a time of turbulence, and successfully reducing some of their product risk, particularly in their annuity business, without losing customers.”

Currently, Moody's has an “A2″ financial strength rating on the Hartford p-c operations, and S&P's rating is “A.”

On the impending leadership change at The Hartford, Ms. Stoddard said S&P is “fairly indifferent.”

In a report released this month by Citi Investment Research, Analyst Joshua Shanker noted that Mr. Ayer's departure will represent the “fifth and most significant member of top management to leave the company in two years. While the board begins an external search for new top management, we believe that a meaningful management vacuum has been created where future strategic decision making could be stifled.”

Mr. Ayer played down the idea of a leadership vacuum at The Hartford and expressed his confidence in the board's ability to find a successor. “On the leadership gap,” he said, “I just want to be very clear. The board has a search committee, and I'm quite confident we will be very successful replacing me.”

He said the company will likely be looking for one replacement, rather than splitting the chairman and CEO roles as American International Group is doing as that company searches for replacements for current chairman and CEO Edward Liddy.

Mr. Ayer said, “I believe The Hartford's board for now has decided that that role is one role. My successor will be the chairman and CEO of The Hartford.”

As noted by NU Editor-In-Chief Sam Friedman in his editorial for this edition, Mr. Ayer was not just a leader at The Hartford, but a leader within the industry as well. (See page 5.)

Leigh Ann Pusey, president and CEO of the American Insurance Association also spoke to Mr. Ayer's industry leadership. In a statement e-mailed to NU she wrote, “Ramani's presence and leadership style will be sorely missed. From Graham-Leach-Bliley to Terrorism Risk Insurance, [he] played a pivotal and influential role in helping shape key policies that impact property-casualty insurance. No one understands the industry's core mission and guiding principles better.”

Commenting on whether there is a leadership gap in the industry, Mr. Ayer said, “I think there are some very good leaders in the p-c industry.” He cited Travelers' Jay Fishman, ACE's Evan Greenberg, Chubb's John Finnegan, and State Farm's Edward Rust as examples of insurer chief executives who can also speak effectively to major issues facing the industry.

Mr. Ayer said fighting for the Terrorism Risk Insurance Act and its two extensions were examples of how the industry was able to speak with one voice and get needed reforms in a critical area.

Reflecting on his decade-plus tenure as chairman and CEO of The Hartford, Mr. Ayer spoke about both the successes and the challenges over that time.

“I think over the last decade, as a company, we have really built a very strong business in p-c, group life disability; life insurance.” He added the company is strong and emerging in mutual funds and retirement products as well, and he said it had a very strong variable annuity business that is now being restructured given the effects of the financial crisis.

For the challenges, aside from the current financial crisis, Mr. Ayer said the past decade has seen big events occur on both the life and p-c sides, and some events that hit both areas at once. He said some major events have been: the September 11 attacks in 2001; the bursting of the telecom/media/technology bubble shortly after, which included the Enron and Worldcom scandals; the broker compensation issues in 2004 and 2005; and the major hurricanes of 2005 and 2006.

Regarding the company he is leaving behind to his successor, Mr. Ayer said, “We are a very proud company,” noting that The Hartford is the second oldest insurance company in the United States.

“This is a great company with great assets,” Mr. Ayer said. He pointed to the company's distribution system, historic relationships, service to customers, and culture of integrity as additional strengths.

“Hartford is clearly one that believes very strongly that our brand is all about the promises we keep,” Mr. Ayer said.