Allianz SE Invests $2.5 Billion in The Hartford
October 6, 2008
German financial giant Allianz SE had made a $2.5 billion capital investment in The Hartford Financial Services Group, The Hartford announced Monday afternoon. Goldman Sachs advised on the deal, and Hartford planned to cut its quarterly dividend to 32 cents a share.
Pending approvals, Allianz will purchase, at $31 per share, $750 million of preferred shares convertible to common stock, and $1.75 billion of 10% junior subordinated debentures, callable by The Hartford at par beginning ten years after issuance.
The Hartford expects a net loss for the third quarter in the range of $8.50 to $8.80 per share, including net realized capital losses in the range of $7.05 to $7.25 per share, or approximately $2.1 billion to $2.2 billion.
The vast majority of the realized capital losses are impairments on The Hartford’s investment portfolio. About 75 percent of the impairments are related to investments in the financial services sector, which were negatively affected by recent market turmoil.
Effective immediately, Greg McGreevey, who joined the company in August, will assume the position of executive vice president and chief investment officer for The Hartford and president of Hartford Investment Management Company. He succeeds Dave Znamierowski who is leaving the company.
News of the investment spread quickly among insurance, investment, and retirement income professionals at the NAVA annual meeting in Philadelphia Monday afternoon. Some worried aloud that investors would consider no U.S. insurer entirely safe if a seemingly impregnable firm like The Hartford needed money.
One clearing firm executive immediately called a friend at Allianz, and was told that Allianz felt that The Hartford’s strong distribution infrastructure made the deal attractive.
Allianz SE will also receive warrants to purchase $1.75 billion of common stock at an exercise price of $25.32 per share, subject to shareholder approvals. The warrants expire in seven years.
“We are taking decisive action to ensure that The Hartford remains well capitalized for long-term success. This investment strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses. We are dedicated to honoring our commitments to customers,” said Ramani Ayer, The Hartford’s chairman and CEO.
“We believe in the fundamental strength of the U.S. economy and its insurance industry and respect The Hartford as a great insurance brand,” said Michael Diekmann, chairman of the Board of Management and chief executive officer of Allianz SE. “We anticipate a favorable return on our investment."
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