A.M. Best Co. has removed from under review with negative implications and downgraded the financial strength ratings (FSR) to ‘A-‘ (Excellent) from ‘A’ (Excellent) and the issuer credit ratings (ICR) to “a-” from “a+” of Hartford Life and Accident Insurance Company (HLA), Hartford Life Insurance Company (HLIC), Hartford Life and Annuity Insurance Company (ILA) and Hartford International Life Reassurance Corporation (HILRE) (collectively referred to as Hartford Life).
Best also removed from under review with developing implications and downgraded the ICR to “bbb-” from “bbb+” and the debt ratings of Hartford Life, Inc. and has removed from under review with negative implications and downgraded all debt ratings of Hartford Life Global Funding Trusts, Hartford Life Institutional Funding and HLIC.
Concurrently, Best removed from under review with developing implications and affirmed the FSR of ‘A’ (Excellent) and ICRs of “a+” of Hartford Fire Insurance Company and its pooling subsidiaries and affiliates, collectively referred to as the Hartford Insurance Pool.
Best has also removed from under review with developing implications and affirmed the ICR of “bbb+” and all debt ratings of The Hartford Financial Services Group, Inc., the ultimate parent of the aforementioned operating insurance companies.
The outlook assigned to all of the ratings is stable. All of the companies are headquartered in Hartford, Connecticut.
The ratings of the Hartford Insurance Pool reflect its “solid risk-adjusted capitalization, strong underwriting fundamentals and operating profitability and excellent market position within the property/casualty industry,” Best said.
However, Best also noted that these strengths are “somewhat offset by the Hartford Insurance Pool’s recent underwriting losses and decline in operating results relative to its historical levels, above-average exposure to affiliated investments and commercial real estate assets compared to the overall property/casualty peer group and by variability of earnings and return measures, which were driven by realized and unrealized investment losses during the most recent five years.”
Best nonetheless indicated that given the “depth and breadth of operations, generally conservative underwriting practices and effective utilization of multiple distribution channels,” it expects operations “will generate sufficient income to maintain the group’s strong risk-adjusted capital position while continuing to pay dividends to fund The Hartford’s obligations.
“Positive actions could be taken on the pool’s ratings if its underwriting and operating results improve to levels that outperform its similarly-rated peers, while maintaining strong risk-adjusted capitalization. Positive actions also could result from a reduction in Best’s concerns regarding The Hartford’s variable annuity business.
“Key factors that could trigger negative rating actions on the pool’s ratings include a weakening in operating performance, particularly if the resulting performance is below Best’s expectations, which results in a deterioration of risk-adjusted capitalization.”
Best explained that the rating downgrades for Hartford Life “recognize its narrower business profile as a result of the closing of The Hartford’s previously announced strategic divestitures. On a forward basis, the life operations will reflect The Hartford’s strong market position in group benefits business and its discontinued annuity business lines (fixed, variable and institutional).
“While the group benefits business is of value to The Hartford’s overall commercial market strategy as it re-positions itself to primarily be a property/casualty company,” Best said it “believes its earnings contribution to the consolidated group will be modest, based on recent performance.” However, Best also noted that “operating margins in group benefits have recently improved. Although capitalization levels at Hartford Life are viewed as adequate (with some improvement post divestiture).”
The report added that Best “continues to have concerns about the potential strain from The Hartford’s run-off variable annuity business,” and as a result it “will continue to monitor The Hartford’s ongoing initiatives to further de-risk its variable annuity exposure through a combination of policyholder initiatives, expansion of hedging as well as continued de-risking of its investment portfolio.
“Hartford Life is well positioned at its current rating level,” the report continued. “Negative rating actions could occur if the group were to experience a material decline in capital and/or operating earnings. Additionally, the ratings could come under pressure if the group’s business profile, which is now limited, is further reduced by the realigning of The Hartford’s group benefits business outside of the life group’s structure.”
Best added that the Hartford’s debt-to-total capital ratio (excluding accumulated other comprehensive income) and interest coverage ratios remain within its guidelines for its current ratings.
“In addition to cash and invested assets at the holding company, The Hartford maintains access to a $500 million contingent capital facility and has $1.75 billion available in a syndicated bank facility,” Best said. “A portion of the proceeds from the sale of the life and retirement services business will be used to reduce outstanding debt, improving the company’s financial leverage ratios and reducing future debt service obligations.”
In conclusion Best said it “expects that The Hartford will continue to maintain strong liquidity at the holding company to support potential capital needs of Hartford Life under extreme stress scenarios.
A complete listing of Hartford Financial Services Group, Inc. and its subsidiaries, FSRs, ICRs and debt ratings may be obtained.
Source: A.M. Best
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