Hartford Financial Services Group Inc. (HIG:US), the seller of life insurance and property-casualty coverage, said profit fell 81 percent on realized losses tied to hedges against a stronger yen and stock market drops.
First-quarter net income (HIG:US) dropped to $96 million, or 18 cents a share, from $501 million, or 99 cents, according to a statement today from Hartford, which is based in the Connecticut city of the same name. Operating earnings, which exclude some investment results, were $1.25 per share, beating by 34 cents the average estimate of nine analysts surveyed by Bloomberg.
Chief Executive Officer Liam McGee hedges against a stronger yen and declines in stock markets to guard against losses on contracts with Japanese clients in which the insurer guarantees minimum returns on equity-linked investments. The yen weakened 7.2 percent against the dollar in the first quarter and Japan’s Nikkei 225 Index (NKY) jumped 19 percent.
“Losses increased in the first quarter of 2012 due primarily to depreciation of the yen in relation to the euro and U.S. dollar and an improvement in global and domestic equity markets,” Hartford said in the statement.
The net realized loss of runoff operations, which include the Japanese annuity market where Hartford no longer sells new policies, widened to $587 million from $170 million.
Policy sales climbed 3 percent in the commercial property- casualty coverage business to $1.69 billion, while they declined 3 percent to $861 million in the consumer markets segment, which provides auto and homeowners coverage to individuals.
Hartford’s book value, a measure of assets (HIG:US) minus liabilities, fell to $43.25 a share from $44.31 as of Dec. 31, the company said in a regulatory filing.
McGee is shrinking the firm as he fends off calls from billionaire hedge-fund manager John Paulson, his biggest investor, to break the company in two after a 39 percent stock plunge in 2011. McGee is seeking buyers for life insurance and retirement plan units and Woodbury Financial Services. Hartford agreed to sell its individual annuities distribution business to Forethought Financial Group Inc., the insurer said April 26.
“There’s been significant pressure from the folks at Paulson to try and come up with something that will allow for a more rapid benefit to shareholders,” Meyer Shields, an analyst at Stifel Nicolaus & Co., said by phone before the results were announced. Hartford’s vision for the restructuring is “pretty clear and pretty final. It’s just a matter of executing on it.”
Hartford gained (HIG:US) 26 percent this year to $20.43 at 4:01 p.m. in New York, after slumping 39 percent in 2011. Hartford has had the second-biggest advance in the 24-company KBW Insurance Index this year. Results were released after the close of regular trading. The shares slipped to $20.35 as of 4:53 p.m. in trading after regular hours.
Hartford needs to reach about $24.70 to recoup Paulson’s investment, filings to the U.S. Securities and Exchange Commission and data compiled by Bloomberg in February show.
Paulson’s fund controls (HIG:US) about 8.5 percent of Hartford, according to data compiled by Bloomberg. He said in February that the company should be split to free Hartford’s property- casualty business from life insurance and the risks associated with annuity liabilities.
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