Lizabeth H. Zlatkus was named executive Vice President and Chief Financial Officer of The Hartford Financial Services Group Inc. in May. She has responsibility for corporate strategy, finance, capital and enterprise risk management, investor relations, real estate, procurement and corporate information systems functions. Ms. Zlatkus previously was co-chief operating officer of The Hartford’s life operations. In an interview with Business Insurance Senior Editor Sally Roberts, Ms. Zlatkus discussed how the current economic crisis is affecting The Hartford and other challenges facing today’s insurer CFOs.
Shortly after the interview, Fitch Ratings revised its outlook on the Hartford, Conn.-based insurer to “negative” from “stable,” reflecting concerns about the insurer’s financial profile and challenging credit market environment.
Q: The Hartford has said it is not immune to the collapse of the subprime mortgage market. What exactly is your exposure and do you feel that you have a handle on the extent of the losses?
A: Certainly from a subprime perspective, we had just over $2 billion subprime assets as of (July 31). This is based on a portfolio of close to $95 billion as of June 30, so really as a percentage of our overall portfolio, it’s not material. Clearly, the entire housing market and the resulting impacts — not just on subprime, but other asset classes — have been quite dramatic, and I think The Hartford has been watching that and watching our exposure, and we do think the overall subprime (exposure) is not material.
Q: What impact has the financial crisis had on The Hartford’s liquidity situation? Have you, for example, had difficulty in securing or renewing lines of credit or other borrowing difficulties from your banks?
A: Earlier this year we prefunded two of our debt payments that were due at the second half of this year. We are very pleased to have been able to do that because we did that at very favorable terms…I do think obviously with what you’re seeing today and over the last several weeks, the debt markets are very challenging for really the entire financial services industry.
Q: How do you as a CFO of a publicly traded insurer balance the competing interests of regulators and rating agencies, which like to see more capital in reserve, and investors and analysts, which like to see capital earning higher returns?
A: It’s certainly a balancing act. Most importantly, you have to stay focused on managing for long-term success. However, I would say today more than ever that our constituencies are more in line. As the markets have turned more volatile, investors have become much more interested in ensuring that companies are appropriately capitalized. This of course is consistent with rating agencies and even our customers, who really look to make sure that the companies they invest with are well-capitalized.
Q: What is the biggest issue or challenge facing insurer CFOs today?
A: My answer today is different than it would have been even a month ago. I think that we’re living in unprecedented times right now, truly. The capital markets are extraordinarily volatile. Times are very challenging. They are challenging for our customers, our agents, our shareholders and our employees.
When you think about it, this financial turmoil is affecting everyone…The biggest challenge is ensuring that we’re prepared for what’s next, what’s going to happen tomorrow, and looking out to see what is going to be on the horizon. I don’t think too many would have predicted what we’ve seen with Fannie, Freddie, Lehman and others. So (the challenge is) to be very nimble and very thoughtful, and really looking out into the future and making sure that you’re able to react—and not in a reactive manner but in a (thoughtful) manner.
Q: Any thoughts or concerns about the role enterprise risk management has taken in the ratings process?
A: We are in the risk business, so we really have to have superior risk management capabilities. I feel very good about our risk management capabilities at The Hartford. It’s something that has grown up over the years. To the extent that that helps our ratings, we are very pleased and it is certainly something ratings agencies evaluate, but I would say it’s kind of fundamental to our business even outside the ratings process.