Hartford soars on higher outlook, strong capital

NEW YORK (Reuters) - HARTFORD (HIG.NY)Financial Services Group Inc raised its 2008 profit forecast and said it had more than enough capital to withstand significant further deterioration in equity markets, sending its shares up as much as 77 percent.

The outlook provided reassurance to investors who have driven Hartford's shares down 92 percent this year on worries the life, property and casualty insurer could run short of capital needed to back policies.

Hartford had the biggest percentage gain of any stock trading on the New York Stock Exchange. In spite of Friday's gains, the shares are still about 87 percent below where they traded about a year ago.

"We are well capitalized to withstand further downdrafts in equity markets," Chief Executive Ramani Ayer said at an investor presentation. "We expect investments will recover even in a severe recession scenario. And we are taking steps to de-risk our annuities business."

Excluding some investments, the Hartford, Connecticut-based company now expects full-year profit of $4.70 to $4.90 per share, up from an October 29 forecast of $4.30 to $4.50.

Analysts on average expected $4.38 per share, according to Reuters Estimates.

Hartford said the higher outlook reflected an increase of 62 cents per share from the release of $300 million of reserves for property and casualty claims.

It does not include any easing in regulatory capital requirements for life insurers that are currently being considered by nationwide insurance commissioners, said Chief Financial Officer Liz Zlatkus.

Such a change would be "upside" for Hartford's results in 2008 and 2009, she added.

Offsetting this were lower-than-expected investment results as equity markets tumbled. The outlook assumes the Standard & Poor's 500 index ends the year at 860, about 2 percent above Thursday's close. Ayer said Hartford could withstand capital erosion even if the S&P 500 fell below 700.

Hartford has been rebuilding capital after poor investment results led to a $2.63 billion third-quarter loss.

In October, the company raised $2.5 billion from German insurer Allianz SE .

CFO Zlatkus said Hartford's liquidity was strong, with a revolving credit facility of $1.9 billion and contingent capital of $500 million available and untapped. She said there was currently no need to draw on either.

The company is cutting costs and reducing risks in its investment portfolio as it seeks to weather what it called the toughest market since the Great Depression.

Chief Investment Officer Greg McGreevy said Hartford was curbing its holdings of financial services equity and debt. Over the long-term, it will invest much less in derivatives, including commercial mortgage-backed securities and asset backed securities, he added.

Last month, Hartford agreed to buy a small Florida thrift and said it would apply to become a savings and loan holding company, making it eligible to receive up to $3.4 billion under the U.S. government's $700 billion financial rescue plan.

Hartford characterized its capital level as strong, warranting at least a "double-A" credit rating, and said it held more than $12 billion of cash, short-term investments and U.S. Treasuries on November 30.

The company's shares were up $5.19, or about 72 percent, at $12.40 in midday trading on the New York Stock Exchange after earlier rising to $12.78. Option traders scooped up bullish call options in Hartford. According to Trade Alert, about 48,000 calls and 12,000 puts traded, three times the normal combined volume.

The S&P Insurance index rose 1.5 percent, led by Hartford and larger life insurer rivals Prudential Financial Inc and MetLife Inc , getting a boost from the possibility regulatory capital requirements could soon be eased.

(Reporting by Jonathan Stempel and Lilla Zuill; additional reporting by Doris Frankel; Editing by Lisa Von Ahn and Andre Grenon)