Hartford Eyes Participation in CPP

On June 24, 2009, Hartford Financial Services Group, Inc. (HIG) completed the acquisition of Federal Trust Corporation for $10 million in cash. This acquisition will satisfy a key eligibility requirement for Hartford’s participation in the Capital Purchase Program (CPP) as the company will now transform into a savings and loan holding company. Previously, the Treasury had stated that some of the life insurers may qualify for Troubled Asset Relief Program (TARP) because of their Bank Holding Company status.

Most life insurers have significant exposure to Commercial Mortgage Backed Securities (CMBS), which have resulted in increasing losses in the investment portfolio with the worsening downturn in Commercial Real Estate pricing. However, the TARP funds will provide some support to these companies. On May 14, 2009, Hartford announced that it has received preliminary approval from the U.S. Treasury Department to participate in the Treasury's CPP for an amount of $3.4 billion.

We remain concerned about Hartford’s exposure to variable annuities and capital levels as of now and also suspect that the company will continue to incur increasing losses on its investment portfolio. Though it will get some comfort with the TARP fund. At the current price level, shares of Hartford trade at 0.48x its March 31, 2009 reported book value of $24.15 per share and 0.24x its adjusted book value (excluding AOCI) of $48.13 per share. It is difficult to anticipate significant price-to-book value premium, compared to its peer group (MetLife [MET], American International Group [AIG], Prudential Financial [PRU] and CIGNA [CI]) at this point in time due to the challenging environment. As such, we maintain our Hold recommendation on the shares of Hartford.

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