Moody's Rates Hartford Notes - Analyst Blog

On Friday, rating agency Moody’s Investors Service, a division of Moody’s Corp. (MCO), assigned a stable rating of Baa3 on Hartford Financial Services Group Inc.’s (HIG) $1.1 billion in senior notes that the company plans to sell as part of its preparation to repay the entire $3.4 billion of bailout money it received from the government under the Troubled Asset Relief Program (TARP) at the height of the credit crisis.

The offering is part of Hartford’s plan to raise $3.05 billion by issuing new securities.

According to the rating agency, the successful execution of Hartford’s new securities offering will show that the financial markets support the company.

After incurring sturdy credit losses, Hartford reduced its dividend and raised billions of dollars in private and public transactions last year. It has also reduced headcount to stabilize its financial position. However, Hartford has been losing money on its financial investments.

The rating agency expects Hartford to lose a maximum of $1.75 billion on its investments. Also, the company is expected to maintain a debt-to-capital ratio below 40%.

During fourth quarter of 2009, Hartford returned to profitability for the first time since mid-2008. Hartford’s fourth quarter core earnings came in at $1.51 per share, substantially ahead of the Zacks Consensus Estimate of $1.40. This also compares favorably with the core loss of 72 cents in the year-ago quarter.

The upside was primarily attributable to stability in Hartford’s life and property and casualty businesses. Also, Hartford ended the year with a strong capital position. Despite the overall market conditions remaining timid, Hartford delivered strong underwriting results. During the fourth quarter, rising stock markets helped strengthen investment income in the company’s life insurance business.

However, the results suffered from losses in Hartford’s investment portfolio and higher costs related to the variable-annuity business. We remain concerned with Hartford’s exposure to variable annuities and pressure on Life segment as consumers seek relatively safe investment vehicles for their retirement assets.

In Jan 2009, Hartford became a thrift holding company with the approval of the Office of Thrift Supervision. The holding company status made Hartford eligible to apply for TARP fund.

The repayment of TARP money will free the life and property insurer from government involvement in its affairs and pay restrictions, though the Treasury will still hold Hartford’s warrants for about 52 million shares at an exercise price of $9.79 each. However, Hartford does not intend to repurchase the warrants at this point.

Most of the major institutions in the financial market like JPMorgan Chase and Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) have repaid the TARP loan. Also, the Treasury has started auctioning stock warrants it acquired from the banks that received a significant portion of taxpayers’ money and have fully repaid the same.