Hartford Financial (HIG) Announces $2.5B Investment From Allianz; Sees Large Q3 Loss, Cuts Dividend

October 6, 2008 7:17 AM EDT

The Hartford Financial Services Group, Inc. (NYSE: HIG) announced a binding agreement with Allianz SE, which provides for a $2.5 billion capital investment.

Allianz will purchase, at $31 per share, $750 million of preferred shares convertible to common stock after receipt of applicable approvals, and $1.75 billion of 10% junior subordinated debentures. The debentures are callable by The Hartford at par beginning ten years after issuance.

Allianz SE will also receive warrants which entitle it 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.

Hartford Financial 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.

In conjunction with Allianz's financial investment and the increase in shares outstanding, The Hartford has reduced its quarterly dividend to $0.32 per share.

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