Hartford Financial Services Group Inc. Chief Executive Officer Liam McGee, who repaid a $3.4 billion government bailout yesterday, said he'll avoid focusing on variable annuity sales that contributed to two straight annual losses.
“We learned our lessons from the last two years,” McGee told analysts and investors today at a presentation in New York. “Never again will we have a concentration in any product, whether it be annuities or anything else, of the size that VA was.”
McGee, hired in October, is repositioning Hartford after losses under his predecessor forced the firm into the U.S. rescue. The stock market's recovery helped Hartford return to profit in the fourth quarter and aided McGee as he sold stock and debt to repay the U.S. Treasury Department. McGee, 55, said when he was hired that he would reduce risk and conduct “an intense review” of the 199-year-old insurer's businesses and strategy.
“De-risking general parts of the business is a focus,” said Randy Binner, an analyst with FBR Capital Markets, in an interview before the Hartford presentation. “Their risk profile is more market-sensitive than other life insurers.”
Hartford, based in the Connecticut city of the same name, was caught off guard by the bank failures, stock market decline and credit freeze of 2008. The firm's life insurance and retirement businesses, which former CEO Ramani Ayer expanded in his 12-year tenure, accumulated losses tied to guarantees on equity-linked variable annuities and soured investments in financial firms and commercial mortgages.
The insurer expects total annuity sales of $5 billion in 2012, the company said today. It didn't give a comparable figure for 2009 in a slide presentation available on its Web site. Limra, the trade group, said Hartford's individual annuity sales were $4.3 billion last year and $10.7 billion in 2008.
Hartford swung to a profit in the final three months of 2009 with net income of $557 million. The company posted more than $4 billion of losses in Ayer's last 15 months on the job.
The company said in March it expects 2010 operating earnings of $2.60 a share to $2.90 a share. That compares with the $3.28 a share average estimate of 18 analysts surveyed by Bloomberg. Hartford's core earnings in 2009 were $1.85 a share.
McGee raised $1.65 billion selling stock and another $1.1 billion of debt last month to help Hartford repay the U.S. aid received in June under Treasury's Troubled Asset Relief Program. Hartford's bailout was second among U.S. insurers to American International Group Inc.'s $182.3 billion rescue.
MetLife Inc., the biggest U.S. life insurer, and No. 2
Prudential Financial Inc. shunned aid. Lincoln National Corp. took $950 million.
“I'm impressed by what they did with the capital raise,” said FBR's Binner, who has a “market perform” rating on Hartford. “I view that as a positive reflection on management.”
Hartford said yesterday it repaid the bailout after having paid $130 million in dividends on the investment. The government still owns warrants that give it the right to buy about 52 million Hartford shares at $9.79 apiece. The insurer said it doesn't intend to repurchase the warrants, which would pay the government about $960 million if redeemed at yesterday's closing price of $28.42.
Hartford, which sells property-casualty policies as well as life insurance, has been hurt by reduced demand for the coverage amid the economic slump. Customers have scaled back on the purchase of protection and insurers have cut prices to win new business. Sales in the property-casualty business fell 4 percent to $2.4 billion in the fourth quarter.
“The
recession continues to take its toll,” then-Chief Financial Officer Lizabeth Zlatkus told investors on Feb. 9. Zlatkus became chief risk officer when Christopher Swift moved from
AIG to the CFO position in March.
