The Hartford Gets $1 Billion in Regulatory Relief

Feb. 18, 2009 – Officials for The Hartford Financial Services Group said state regulators have approved easing capital requirements for its life-insurance units by nearly $1 billion. Lincoln National was approved for about $300 million in relief. The regulatory approvals give the insurers more leeway in how they allocate their capital holdings and reduce the need to raise more capital.

The Hartford disclosed the approval in a recent federal filing that also confirmed that recent credit ratings downgrades rendered the insurer and financial services provider ineligible to continue participating in a federal relief program for companies that issue commercial paper. The Hartford already owes the program $375 million.

The regulatory approvals were granted despite opposition from consumer-advocacy groups said the weakened capital requirements endangers holders of annuities, life insurance and other financial products sold by life insurers.

Recent market downturns have put pressure on life insurance companies to meet their minimum-return guarantees on variable annuities. The Hartford is one of the nation’s top sellers of variable annuity products.

Officials for the Connecticut-based The Hartford are updating the insurer’s core annuities products that suffered steep losses during the recent global credit crisis.

Shares of Hartford were down 83 percent over the past 12 months and fell nearly 19 percent in recent trading after Standard & Poor’s affirmed the insurance industry’s negative outlook and Wall Street analysts warned of possible increased insurance industry losses on its bond portfolios.

Hartford officials are concerned about the company’s dependence on its variable annuity product, which is a tax-advantaged mutual fund usually sold with guaranteed minimum investment returns for policyholders. Variable annuities have been very popular among investors in recent years and accounted for more than 20 percent of the Hartford’s $3 billion profit in 2007. But the popular investment products inflicted severe losses as the stock market tumbled in 2008, and insurers are scrambling to avoid further damage.

“This game’s going to change,” said Ramani Ayer, chief executive officer of the Hartford, while addressing insurance industry analysts in December.

Ayer has tasked dozens of senior-level managers to strengthen the insurer’s annuity products and expects “major modifications” during the first half of 2009. In the meantime, the Hartford and some the insurer’ s competitors already have raised prices on their annuity products and eliminated some costly features.

The Hartford has been a life insurance industry leader in annuity sales as insurers began offering guaranteed returns for annuity owners during thee 1980s and 1990s.