Is It Safe? The Hartford's Lost Years

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The Hartford(HIG Quote) has a conundrum.

The official AARP provider of choice for auto and home insurance represents itself as a pillar of the community. It also symbolizes how offering guaranteed minimum payments on variable annuities can come back to bite you. How can the insurer demonstrate stability?

The Hartford, which lost $2.7 billion in 2008, has said it will no longer try to drum up business in Japan or the U.K. The insurer has canceled plans to expand into Germany and may sell its loss-making Canadian life unit to Sun Life(SLF Quote). It has announced some layoffs, and Chairman and Chief Executive Officer Ramari Ayer is stepping down this year.

The Hartford and Lincoln National(LNC Quote) are the only insurers that will take Troubled Asset Relief Program funding. The Hartford will take $3.4 billion and give the Treasury preferred shares and warrants for common stock. The insurer will now fall under the watchful eye of the proposed new federal banking regulator.

Like it or not, The Hartford probably would have failed to raise this much capital from the market, at a price it was willing to pay, and TARP funding is comparatively cheap.

The decision also adds a big check mark to the additional capital box despite analysts' concerns about the message being sent. It will provide policyholders some comfort to know that the insurer is now government-backed.

The Hartford's problems are self-inflicted, most notably the overly generous guaranteed minimum returns on variable annuities. A year later, the insurer is still taking hits as losses stretched into the first quarter.