Posted on 10 Jun 2010
In an interview at Bloomberg headquarters in New York, CEO Liam McGee of Hartford Financial said he is comfortable enough with his work that he's looking for deals in the U.S. property market.
“We’re no longer on our heels when it comes to real estate,” McGee said during his interview yesterday. “Our bias going forward would be less about selling and more about realizing value.”
McGee, 55, scaled back real-estate market bets that contributed to five straight quarterly losses under his predecessor, Ramani Ayer. As the economy improves, commercial property prices may be “bottoming out,” McGee said.
A former Bank of America Corp. executive, McGee returned Hartford to profit in the fourth quarter as rallies in the stock and bond markets increased the value of investments and reduced the insurer’s liability to customers on equity-linked retirement products. In March, he raised more than $3 billion selling stock and debt and used the funds to repay the $3.4 billion government bailout that shored up the insurer under Ayer in June 2009.
“We’re in a position now where we may even be opportunistic, realistically, in real estate assets because we do think there’s some attractive pricing there,” McGee said.
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. In the first three months of the year, Hartford sold about $600 million of subordinated mortgage loans and tagged another $400 million of the assets for disposal by year-end.
“It’s fair to say we had too much of a concentration in real estate assets,” McGee said. “We’ve made a lot of progress, we think, at very attractive rates of disposing of some of them. And actually we think there is a bottoming out” of the slide in commercial real estate prices.
The outlook for commercial real estate has improved as the expanding economy helps the owners of apartments, shopping malls and office buildings keep current on debts. In December, Prudential Financial Inc., the second-biggest U.S. life insurer, predicted a commercial property rebound. In April, Principal Financial Group Inc. CEO Larry Zimpleman said the entry of new investors was boosting the market.
Money to Be Made
“We may even opportunistically get into commercial real estate,” McGee said in a Bloomberg Television interview. “We do think some money is going to be made there in the months ahead.”
Relative yields on senior top-rated securities backed by commercial mortgages fell 1.63 percentage points to 3.07 percentage points more than Treasuries from McGee’s arrival at Hartford on Oct. 1 through June 8, according to a Barclays Plc index.
Hartford rivals including MetLife Inc., the biggest U.S. life insurer, and Prudential are drawing down the hoards of cash and government debt they accumulated in the financial crisis and buying higher-yielding securities. Insurers make money by investing policyholder premiums before paying claims.
Hartford’s holdings of bonds backed by energy companies rose 18 percent in the six months ended March 31 to more than $3 billion, while investments in debt issued by technology and communication companies rose 12 percent to more than $4 billion.
McGee is reshaping Hartford as competitors that turned down bailout funds expand by poaching customers and making acquisitions. He is continuing a retreat from Japanese and European markets that Ayer began in his last year as CEO. McGee also discontinued the sale of some life insurance products to companies. In April he vowed not to reinstate Ayer’s focus on variable annuities that contributed to losses.