Allianz to invest $2.5 billion in insurer Hartford

Hartford Financial Services Group Inc. said Monday that it would receive a $2.5-billion investment from Allianz, a move that may foretell a possible acquisition.

The Hartford, Conn., insurer also predicted a steep third-quarter loss and said it was cutting its dividend in conjunction with the investment by Allianz.

The news sent Hartford Financial shares up $3.50, or 12.8%, to $30.90. The company lost nearly $9 billion of market value last week as investors cut the share price by more than half. The stock is down 65% for the year.

Hartford said Allianz would purchase $750 million in preferred stock at $31 a share that is convertible to common stock. The German financial services firm also plans to purchase $1.75 billion of 10% junior subordinated debentures.

The investment increases the chance that Allianz will acquire all of Hartford Financial, a Citi Investment Research analyst said in a research report.

“Given the size of Hartford’s in-force book combined with the slowdown in its recent business production, we have viewed it as ripe for acquisition, and this transaction increases the likelihood that Allianz may ultimately buy,” analyst Joshua Shanker wrote.

Hartford Financial also provided Allianz with warrants to purchase an additional $1.75 billion in common stock at a price of $25.32 a share. The warrants expire in seven years.

The investment comes as Hartford Financial expects to record a third-quarter loss of $8.50 to $8.80 a share, mostly because of losses in its investment portfolio.