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Hartford Financial gets halved

The battered insurer's stock plunged 51.6% Thursday as Wall Street worries that it may need more capital to make it through the credit crisis.

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By Catherine Clifford, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Beleaguered insurer Hartford Financial Services Group lost more than half of market value Thursday as investors fear that the company may need to raise capital and could have trouble doing so.

Shares plunged 51.6% Thursday to close at $9.62 per share, a new 52-week low. The stock is trading 90% lower than year ago levels.

Hartford (HIG, Fortune 500) reported a third-quarter loss of $1.40 per share Wednesday -- actually not as bad as the $1.54 per share loss expected by analysts, according to Thomson Reuters.

But analysts said the stock nosedived Thursday because Hartford management was unable to give Wall Street a straight answer about how much capital it might need to endure the credit crisis.

Hartford, like several other insurers, has suffered massive losses in its investment portfolio during the past few months due to bets on financial firms such as Fannie Mae, Freddie Mac, Lehman Brothers, American International Group and Washington Mutual.

As such, analysts, investors and most importantly, credit ratings agencies, are paying particularly close attention to exactly how much cash a company has on hand.

The potential need for more capital and concerns about a possible credit downgrade has investors spooked -- particularly after the bankruptcy of Lehman and virtual collapse of insurance giant AIG.

When ratings agencies downgrade a company's debt, it makes it more expensive to borrow money and also has tended to lead to more slides in the company's stock price.

During Hartford's conference call on Wednesday night, several analysts repeatedly pressed management to put a number on their capital. Hartford would not provide a direct answer to the question, except to say that they were well capitalized and liquid.

"The perception is that they need to raise capital," said Michael G. Paisan, an analyst with Stifel Nicolaus & Company. "The reality may be different but unfortunately in this market, perception is 99% of today's reality."

Another analyst said that the company's management team was playing it safe. "For whatever reason, the answer to the question is uncertain enough that they feel it is more prudent not to say anything," said Randy Binner, analyst of Friedman, Billings, Ramsey and Company.

In a research note, Binner added that "this implies there is some risk of a further capital raise."

Investors worry when companies seek to raise more capital because they are often forced to do so by selling more stock, which dilutes the value for current shareholders.

While analysts said Hartford has traditionally been a very respected, conservative investment firm, investors no longer seem to be willing to take the management team at their word this time.

"The first time when they said they were well capitalized, the Street took them at face value," said Paisan. But earlier this month, Hartford turned to German insurer Allianz for a $2.5 billion capital infusion.

This time, analysts and investors are more skeptical.

"Based on the fact that the stock is down 50%, that is the proof at least today that investors don't believe that they are well capitalized," Paisan said. "The absolute worst thing that you could have in this kind of volatile market is a loss of credibility."

The stock's huge drop Thursday has also raised questions about the company's fate. Analysts said that Hartford should be considering every option, including a sale of the firm.

"They are going to look at and explore all alternatives at this point," said Paisan, including "raising capital through an equity offering, asset sales of the property casualty business or selling themselves to a larger company."

However, even if Hartford put itself on the shopping block, not many companies have enough cash on hand to make such a large purchase.

"Companies need to keep their cash, it is tough to get capital," Binner said.

MetLife (MET, Fortune 500), which also reported third-quarter results Wednesday, appears to be doing better than other life insurers. Its stock rose 2% Thursday. Still, its profits fell nearly 40% in the quarter.

Other prominent life insurers, such as Lincoln National (LNC, Fortune 500) and Prudential Financial (PFC), are also struggling. Their stocks fell 13.6% and 18.1% Thursday after also reporting dismal quarterly results Wednesday.

According to Paisan, one alternative would be a bid from a stronger overseas company.

Rumors have also swirled for days as to whether the government might extend its bailout lifeline to insurance companies the same way it has stepped in to shore up banks.

Insurance companies have yet to take part in the Treasury Department's Troubled Asset Relief Program (TARP) but the thought of insurers asking for government help is a hot topic within the industry.

On Wednesday's conference call, Hartford Chief Financial Officer Lizabeth Zlatkus said the company would consider an investment as part of TARP if it was offered.

Binner stressed that the topic of whether insurance companies would get capital from the government is very unclear at this point. "It is a highly debated point, highly contentious, highly uncertain," he said.  To top of page

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