Hartford shares plunge 52 percent after massive loss

By Lilla Zuill

NEW YORK (Reuters) - Shares of Hartford Financial Services Group Inc (HIG.N) plunged nearly 52 percent on Thursday, a day after the property and life insurer posted a larger than expected quarterly loss, stoking concerns it may need to raise even more capital to survive.

But with Hartford's share price having declined to all-time low levels, raising capital would be difficult and expensive, analysts said.

"Their shares were trading above $90 a year ago, and are below $10 now, so you know darn well there are going to be some significant problems in raising a lot more capital," said Sean Egan, principal at ratings agency Egan-Jones Ratings Co, in Haverford, Pennsylvania.

Markets are especially concerned about insurers after American International Group Inc (AIG.N), once the largest insurer in the world by market value, was overwhelmed by margin calls last month and forced to take U.S. government money.

Hartford does not face the same potential margin calls as AIG, and is therefore less likely to face possible bankruptcy, said Rob Haines, analyst at CreditSights in New York.

"It's a capital issue for them. It's an earnings issue, but it's not a solvency issue," Haines said, noting that Hartford's risk-based capital ratio, which regulators watch, was high at the end of the third quarter.

Haines said Hartford's difficulties may encourage the U.S. government to buy assets from insurers under the Troubled Assets Relief Program, a $700 billion rescue fund that authorizes the Treasury to buy assets from financial institutions.

Sources told Reuters last week that the Treasury was looking at how the program could give relief to insurers.

Hartford's share decline brought its market value down to $2.9 billion, not much more than the $2.5 billion that German insurer Allianz SE (ALVG.DE) agreed earlier this month to inject into the company.

Chief Executive Ramani Ayer told investors late Wednesday that the third quarter was the worst in the insurer's 198-year-old history. Hartford lost money mainly from bad investments in financial companies.

"I honestly missed the degree to which markets have cratered," Ayer said on Wednesday.

Hartford shares fell to an all-time low of $8.23, before closing at $9.62 on the New York Stock Exchange, down $10.24.

The cost of insuring Hartford debt rose, indicating that investors see greater potential for default. Credit default swaps rose about 1.39 percentage points to 6.05 percent, or $605,000 annually for five years to insure $10 million of debt, according to Markit Intraday.

CAPITAL CUT

The loss cut into the company's capital position, a serious problem as agencies decide whether to downgrade the company's credit ratings.