Risk Management

Insurance: Hartford Sells Allianz a $2.5B Stake

The move, along with a dividend cut, should help the struggling U.S. insurer keep its AA rating.
Alan RappeportOctober 7, 2008

The Hartford Financial Services Group is receiving a $2.5-billion capital investment from German insurer Allianz SE. The Hartford also is cutting its quarterly dividend by 40 percent, to 32 cents a share.

The moves, announced by The Hartford this week, will allow the company to finish the year with a projected capital margin of $3.5 billion in excess of the ratings agencies’ requirements for the company to maintain its AA rating. Last week The Hartford’s stock price plunged when Fitch warned that its exposure to the credit markets could trigger ratings downgrades.

“We are pleased that Allianz, one of the world’s leading insurers and financial services providers, will make such a significant investment in The Hartford,” said Ramani Ayer, The Hartford’s chairman and chief executive officer. “We are taking decisive action to ensure that The Hartford remains well capitalized for long-term success. This investment strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses.”

Allianz agreed to purchase $750 million of preferred shares that are convertible to common stock at $31 per share, and $1.75 billion of junior subordinated debentures. The German insurer also will receive warrants entitling it to purchase $1.75 billion of Hartford’s common stock at $25.32 per share within 10 years as long as shareholders approve the transaction.

Meanwhile, The Hartford appointed Greg McGreevey chief investment officer. McGreevey joined the company in August and replaces Dave Znamierowski, who was with the firm for 12 years. “Given the recent unprecedented turmoil in the financial markets and its effect on the company’s investment portfolio, we agreed that it would be best to bring a fresh perspective to our investment operations,” said Ayer.