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Hartford to Sell Commercial Mortgage Assets

Source: Business Week

Posted on 11 May 2010

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Hartford Financial Services Group Inc. is "opportunistically" selling some commercial mortgage assets as the market improves, said Chief Executive Officer Liam McGee.

"We're doing some of that," McGee said on Monday in an interview at the New York Stock Exchange. “Our view is that the commercial market is beginning to bottom out. We’ve been opportunistic in disposing of some commercial real estate assets at prices that were very attractive and better than we had marked them.”

McGee is repositioning Hartford as the firm enters its third century of business. The former Bank of America Corp. executive is investing Hartford's cash in higher-rated corporate bonds and reducing risk. The portfolio had been “overweight” on structured securities and financial services under his predecessor, Ramani Ayer.

“We have a lot of cash that we’re putting into our ‘model’ portfolio, which tends to be more weighted towards high-grade corporate bonds,” McGee said after ringing the bell at the opening of trading on the NYSE to mark Hartford’s 200th anniversary.

McGee cut Hartford’s investments in commercial mortgage- backed securities to 11.5 percent of fixed-maturity assets as of March 31 from 13.1 percent six months before. Holdings of CMBS fell to $8.72 billion at the end of the first quarter from $9 billion at the end of September.

Shopping Malls, Office Buildings

The market for commercial mortgage-backed securities has advanced as the expanding economy helps the owners of apartments, shopping malls and office buildings keep current on their debts.

Yields on senior top-rated securities backed by mortgage payments for commercial property have fallen 1.86 percentage points to 2.84 percentage points more than Treasuries since McGee’s arrival at Hartford on Oct. 1, according to a Barclays Plc index.

“The CMBS market in general is improving, valuations are improving,” said McGee. “So we’re more positive on that sector than we would have been even a few months ago.”

Life insurers use policyholder premiums to write commercial mortgages and buy securities backed by the debts as part of their investment strategy. Last year, the group added to reserves against losses as vacancies accumulated, pressuring property owners.

MetLife Inc., the biggest U.S. life insurer, said last month that prices in the commercial real estate market had reached a bottom, and Des Moines, Iowa-based Principal Financial Group Inc. said that valuations were rising. No. 2 Prudential Financial Inc. said on May 6 that opportunities in the market outweighed some of the risks.