The Hartford Financial Services Group has announced a binding agreement with Allianz, which provides for a $2.5 billion capital investment.

Allianz will purchase, at $31 per share, $750 million of preferred shares convertible to common stock after receipt of applicable approvals, and $1.75 billion of 10% junior subordinated debentures. The debentures are callable by The Hartford at par beginning 10 years after issuance.

Allianz will also receive warrants which entitle it to purchase $1.75 billion of common stock at an exercise price of $25.32 per share, subject to shareholder approvals. The warrants expire in seven years.

Ramani Ayer, chairman and CEO of The Hartford Financial Services Group, said: We are taking decisive action to ensure that The Hartford remains well capitalized for long-term success. This investment strengthens our ability to weather volatile markets and continue to invest and vigorously compete in our businesses. We are dedicated to honoring our commitments to customers.

Michael Diekmann, chairman of the board of management and CEO of Allianz, added: We believe in the fundamental strength of the US economy and its insurance industry and respect The Hartford as a great insurance brand. We anticipate a favorable return on our investment.