Rating analysts are taking a second look at The Hartford Financial Services Group in light of its recent hit on Wall Street, third quarter investment losses and infusion of outside capital.
Analysts at A.M. Best Co. have placed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of The Hartford’s key life/health and property/casualty insurance subsidiaries under review with negative implications.
A.M. Best also said it has placed the ICR of “a” and all debt ratings of The Hartford under review with negative implications.
Standard & Poor’s Ratings Services revised its outlook on Hartford Financial Services Group Inc. to negative from stable.
Standard & Poor’s also said that it affirmed its ‘A’ counterparty credit rating on HIG and its ‘AA’ counterparty credit and financial strength ratings on all of HIG’s core insurance operating subsidiaries, including Hartford Life & Accident Insurance Co. and affiliates and Hartford Fire Insurance Co. Intercompany Pool. Its outlook on all of these companies except HIG remains stable.
A.M. Best said its rating actions reflect The Hartford’s announcement on Monday that it has entered into a binding agreement with Allianz Societes Europaea to provide a $2.5 billion capital investment, following significant realized and unrealized investment losses and other charges incurred through third quarter 2008, which are heavily weighted to the life/health operations.
Standard & Poor’s rating analysts said they took the action following HIG’s announcement that for the third quarter of 2008 it expects to report material asset impairments estimated at $2.1 billion to $2.2 billion after taxes and will take a significant deferred acquisition cost (DAC) write-down estimated at $915 million.
Standard & Poor’s also cited HIG’s announcent that it is raising $2.5 billion of capital from Allianz SE.
“We affirmed all the ratings and maintained our stable outlook on HIG’s core insurance operations because the fundamentals of Hartford’s diversified life and property/casualty operations remain strong despite the current financial stress,” explained Standard & Poor’s credit analyst Robert A. Hafner.
Hafner said S&P expects that the group’s consolidated capitalization will remain redundant at extremely strong (‘AAA’) levels, even excluding the investment from Allianz SE and that its operating performance will be strong but below recent record earnings.
“The company’s effective expense management and underwriting discipline will help support continued earnings strength and limit the decline in earnings through the cycle,” he said. “In addition, management’s aggressive action to raise $2.5 billion of additional capital ensures that it is among the U.S. insurance companies best positioned to weather the current economic downturn and maintain its competitive advantages and consumer confidence.”
He said S&P’s negative outlook on HIG reflects its reduced financial flexibility because of the increase in leverage and the associated material reduction in fixed-charge coverage levels resulting from the high servicing costs on the Allianz SE investment and the expected softening of its operating performance.
“We view very favorably HIG’s 40 percent reduction in dividends on common shares, which is necessary to appropriately support fixed-charge coverage,” Hafner said.
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