Hartford Financial Services Group, whose investment losses in 2008 led to a U.S. bailout, was asked by regulators to explain why it expects its worst-performing holdings to rebound.
The SEC instructed Hartford to provide more details on $2.1 billion of securities that have traded at less than half of what the company says they’re worth for more than a year. The unrealized loss on these investments, held by Hartford’s life insurance subsidiary, totaled $1.5 billion as of Dec. 31, the SEC said in a letter to the company dated April 13 and disclosed Monday.
“Please revise your disclosure to indicate the nature of these securities and to explain why these unrealized losses, which appear to be significantly greater than credit spreads in the marketplace, are apparently not indicative of credit losses and/or other-than-temporary impairment,” Jim Rosenberg, senior assistant chief accountant, said in the letter to Glenn Lammey, CFO of Hartford’s life insurer.
Hartford agreed to include more information on the securities in its quarterly filings, according to a reply from the insurer to the SEC dated April 27. The holdings are primarily commercial mortgage-backed securities and collateralized debt obligations tied to commercial property and have floating coupon rates, said Hartford.
The drop in market prices reflects “market illiquidity and risk premiums,” Hartford said. The company “has concluded that no credit impairment exists for these securities. Furthermore, the company neither has an intention to sell nor does it expect to be required to sell these securities.”
Losses on the investments “may be significant” if property values perform worse than the company expects, Hartford said.
Hartford repaid its $3.4 billion U.S. bailout in March.