Hartford Insurange Group is watching its shares cut in half today after a shaky earnings report and concerns about its capital position. The company insists that it’s comfortable with where it’s at, but analysts are sceptical, and they voice their concerns on yesterday’s call:
Ed Spehar – Merrill Lynch
I want to stay on this too because Liz I guess I don’t understand how you can say you feel comfortable with your capital position and yet you say you can’t give us any idea what the number is. I think at this point it’s impossible to say those two things in my view. So I really want to keep on this and hopefully we can get some more hard numbers on this because I find it very hard to believe that the Hartford doesn’t have an idea about what the statutory capital impact is from an equity market decline. If you don’t, it’s very hard for us to be comfortable about what the risk profile is of the VA business. I understand all the factors and I’d appreciate it if you could just give us a little bit more than just what are all the different inputs that affect the number and try to get us to some number.
Lizabeth H. Zlatkus
That’s a fair question. Obviously these are complicated formulas. So here’s what I’ll say. When I talk about how we feel good today, it’s because I’m trying to stop the clock today. If I wanted to look at a 30% decline from 9/30 market levels which was 1,165 on the S&P, we think that our NAIC risk based capital number would be in the 300 range. Why am I saying that that’s a number that we can kind of look at versus rating agency margins? It’s because the rating agency formulas, there are four of them, and as I said in the extreme tail all of the formulas are very different and all of these different currencies, etc. impact that. Those things also impact RBC but I feel we can say something like that. 300% RBC with a 30% decline.
With Hartford down so much and its peers getting hit as well, the pressure is on to come up with some sort of bailout for the insurers, either through the TARP or something else they can cook up. As for whether the company would like to participate, take a wild guess. The stock answer these days for financial institutions on the outside of the bubble is: “Well, we don’t need the cash, but if they offered.”
Nigel Dally – Morgan Stanley
Liz, with capital should I be reading from your comments that it’s unlikely that you will be needing additional capital based on where you stand today? And also if you could perhaps comment on whether you’d be interested in participating in the Treasury TARP if that opportunity were provided to you?
Lizabeth H. Zlatkus
As we stand here today with market levels, we feel very well capitalised. But in terms of would we access the CPP program if it’s available, we certainly think they’re favourable terms as we see it and we would look to do that.
Will money be made available to Hartford and the like? Almost certainly. Banks and insurance companies aren’t that different, and as you can see, they’re all affected by the same stuff. It’s probably more a matter of how and when than if.
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