A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength ratings of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of the key life/health (Hartford Life) and property/casualty (Hartford Insurance Pool)
insurance subsidiaries of The Hartford Financial Services Group, Inc.
However, Best also said it has removed “from under review with negative implications and downgraded the ICR to “a-” from “a” and senior debt ratings to “a-” from “a” of The Hartford and Hartford Life, Inc. The outlook assigned to these ratings is negative.
(See link below for a detailed listing of the companies and ratings.)
Best noted that it had place the Hartford companies under review on October 6, 2008, following The Hartford’s announcement that it has entered into a binding agreement with Germany’s 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.”
“The rating actions for The Hartford reflect the removal of extraordinary notching due to the deterioration in earnings generation and diversification as well as financial leverage and coverage ratios to a level that is not considered unusually strong relative to A.M. Best’s expectations for The Hartford’s rating level,” the announcement continued.
In addition Best explained that the “deterioration was driven by the significant investment losses experienced across the enterprise during third quarter 2008, although weighted much heavier towards the life/health operations. As a result, The Hartford reported a significant decline in GAAP equity through third quarter 2008.
“However, the ratings acknowledge The Hartford’s fair amount of cash and marketable securities at the holding company, access to a $500 million contingent capital facility and $1.9 billion revolving credit facility, not including any potential funds received from its recently announced application to participate in the U.S. Treasury Department’s Capital Purchase Program.”
Commenting on its ratings on Hartford Life, Best said that they “reflect that its risk-based capital position has been replenished by a significant capital contribution from The Hartford, following significant year-to-date statutory losses driven largely by asset impairments, and to a lesser extent, net operating losses. The ratings also recognize Hartford Life’s significant market position in several life insurance and retirement savings businesses (most notably variable annuities), its diversified sources of revenues and earnings and its broad multi-channel distribution platform.”
As far as the negative outlook on Hartford Life’s ratings is concerned Best said it reflects the existence of “significant unrealized loss positions maintained across a variety of asset classes such as ABS, CMBS, residential subprime mortgages and corporate fixed income securities. A.M. Best recognizes that Hartford Life continues to aggressively monitor its investment exposures and has stress-tested them utilizing a variety of economic scenarios.
“However,” Best added, “while much of Hartford Life’s unrealized losses are more a function of spread widening rather than credit deterioration, the potential exists for additional asset impairments. Additionally, the company’s earnings remain heavily correlated to the equity markets—particularly within its retail variable annuity
businesses—which indicates the potential for further earnings decline.
“Hartford Insurance Pool’s ratings recognize its solid risk-adjusted capitalization, strong underwriting fundamentals, continued core operating profitability and excellent business position within the property/casualty industry.”
Best did note, however, that these “strengths are somewhat offset by the significant realized capital losses reported during third quarter 2008, dividends taken out of the property/casualty companies to support the life/health operations and continued softening throughout most commercial lines, driving low single-digit premium decreases and modest pressure on underwriting margins.”
In conclusion Best said that” despite increasing competitive pressures,” it expects the Hartford Insurance Pool “to maintain a sound underwriting performance and pre-tax operating earnings over the near term.
“Nevertheless, the negative outlook acknowledges A.M. Best’s concerns that continued uncertainties surrounding Hartford Life could lead to further strains throughout the enterprise should the capital markets remain volatile or decline further.”
Best added that it has also assigned a debt rating of “bbb” to The Hartford’s $1.75 billion fixed-to-floating rate junior subordinated debentures with a negative outlook. “The assigned debt rating reflects the debentures’ subordinated status in right of payment to all existing and future indebtedness of The Hartford, the replacement capital covenant and a 10-year optional interest deferral feature.”
For a complete listing of The Hartford Financial Services Group, Inc.’s
FSRs, ICRs and debt ratings, go to: www.ambest.com/press/122309hartford.pdf.
Source: A.M. Best – www.ambest.com
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