UPDATE 3-Hartford soars on higher outlook, strong capital
(Adds comment, updates share price for Hartford and sector)
By Lilla Zuill and Jonathan Stempel
NEW YORK, Dec 5 (Reuters) - Hartford Financial Services Group Inc (HIG.N) raised its 2008 profit forecast and said it had more than enough capital to withstand significant further deterioration in equity markets, sending its shares up as much as 52 percent.
The outlook, which boosted the insurance sector overall, provided reassurance to investors who had driven Hartford's shares down 92 percent this year on worries that the life, property and casualty insurer could run short of capital needed to back policies.
"We are well capitalized to withstand further downdrafts in equity markets," Chief Executive Ramani Ayer said at an investor presentation. "We expect investments will recover even in a severe recession scenario. And we are taking steps to de-risk our annuities business."
Excluding some investments, the Hartford, Connecticut-based company now expects full-year profit of $4.70 to $4.90 per share, up from an Oct. 29 forecast of $4.30 to $4.50.
Analysts on average expected $4.38 per share, according to Reuters Estimates.
Hartford said the higher outlook reflected an increase of 62 cents per share from the release of $300 million of reserves for property and casualty claims.
Offsetting this were lower-than-expected investment results as equity markets tumbled. The outlook assumes the Standard & Poor's 500 .SPX index ends the year at 860, about 2 percent above Thursday's close. Ayer said Hartford could withstand capital erosion even if the S&P 500 fell below 700.
Hartford has been rebuilding capital after poor investment results led to a $2.63 billion third-quarter loss.
In October the company raised $2.5 billion from German insurer Allianz SE (ALVG.DE).
Chief Financial Officer Liz Zlatkus said Hartford's liquidity was strong, with a revolving credit facility of $1.9 billion and contingent capital of $500 million available and untapped. She said there was currently no need to draw on either.
The company is cutting costs, and reducing risks in its investment portfolio as it seeks to weather what it called the toughest market since the Great Depression.
Chief Investment Officer Greg McGreevy said Hartford was curbing its holdings of financial services equity and debt. Over the long-term, it will invest much less in derivatives, including commercial mortgage-backed securities and asset backed securities, he added.
Last month Hartford agreed to buy a small Florida thrift and said it would apply to become a savings and loan holding company, making it eligible to receive up to $3.4 billion under the U.S. government's $700 billion financial rescue plan.
Hartford characterized its capital level as strong, warranting at least a "double-A" credit rating, and said it held more than $12 billion of cash, short-term investments and U.S. Treasuries on Nov. 30.
The company's shares were up $3.14, or 43.6 percent, at $10.35 in morning New York Stock Exchange trading after earlier rising to $10.95.
The S&P Insurance index .GSPINSC rose 1.5 percent, led by Hartford and larger life insurer rivals Prudential Financial (PRU.N) and MetLife Inc (MET.N). (Reporting by Jonathan Stempel and Lilla Zuill; Editing by Lisa Von Ahn)
