HIG Misses Badly, Shares Plunge More Than 26%

On February 5, 2009, after market-close, Hartford Financial Services Group, Inc. (HIG) reported its 4Q08 and FY08 financial results. A conference call to discuss the results was held this morning.

Core losses excluding the effects of all realized investment gains and losses for the reported quarter were $208 million ($0.72 per diluted share), versus an earnings of $840 million ($2.66 per diluted share) in 4Q07. Net loss for the reported quarter came in at $806 million or $2.71 per diluted share, versus a net income of $595 million or $1.88 per diluted share for the prior-year quarter. The company recorded net realized capital loss (after-tax) of $610 million in the reported quarter, compared to a loss of $230 million in the prior-year quarter. 4Q08 also included a $597 million after-tax write-off of goodwill.

Book value excluding accumulated other comprehensive income (AOCI), declined 7.1% sequentially and 19.1% year-over-year to $51.69 per share. Reported book value decreased 31.7% sequentially and 53.4% year-over-year to $28.53 per share.

The trailing 12-month ROE [return on equity] including AOCI was negative 19.3% (compared to negative 8 .6% at September 30, 2008 and 15.5% at December 31, 2007). Excluding AOCI, ROE was 4.7% at December 31, 2008 (compared to 10.5% at September 30, 2008 and 18.1% at December 31, 2007).

The company also reduced its quarterly dividend by 84% to $0.05 per share.

Following the declaration of the results, Moody’s again lowered the credit ratings of HIG and its key operating subsidiaries, and placed a negative outlook on the ratings.

Based on 4Q08 results, we are moderating our FY09 core earnings estimate to $5.90 per share and installing our FY10 core earnings estimate at $6.25 per share. We remain concerned with the company’s huge exposure to variable annuities and the current capital levels and also suspect that the company will continue to incur increasing losses on its investment portfolio.

As a result, HIG may need to raise additional capital in near-to-medium term. The rating downgrades and negative outlook of rating agencies also remains a big concern for HIG. We are maintaining our Sell recommendation on the shares.

Read the full analyst report on HIG

“HIG” Free Stock Analysis: Buy? Sell? Hold?
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