MOODY'S PLACES DEBT RATINGS OF THE HARTFORD ON REVIEW FOR POSSIBLE DOWNGRADE; CONFIRMS INSURANCE FINANCIAL STRENGTH RATINGS WITH NEGATIVE OUTLOOKS
Approximately $4.4 Billion of Debt Securities Affected.
New York, May 12, 2003 -- Moody's Investors Service has placed the A2 debt ratings of both The Hartford
Financial Services Group, Inc. and Hartford Life, Inc.
under review for possible downgrade following the company's announcement
today of a $1.7 billion net after-tax asbestos charge.
In the same action, Moody's confirmed the insurance financial strength
ratings (Aa3) of The Hartford's insurance group's property
and casualty intercompany pool as well as those of Hartford Life and its
affiliates.
The outlook for the property and casualty intercompany pool remains negative
which reflects the increased burden on it to fund fixed charges and common
stock dividends following the charge and the proposed $1.85
billion recapitalization. However, Moody's views The
Hartford's asbestos study and resulting reserve strengthening as
both comprehensive and conservative. Moody's also changed
the outlook for the insurance financial strength ratings (Aa3) of the
life insurance companies to negative, from stable, reflecting
the group's lower statutory profitability as a result of the down
equity markets and credit losses on its investment portfolio.
Expanding on its review for possible downgrade of the debt ratings,
Moody's noted that The Hartford's existing financial leverage
is high for its rating category. Further, while Moody's
views the proposed $1.85 billion capital raise favorably
given the substantial equity content, the capital raise will also
increase the amount of on-going funding needed by the ultimate
parent company, to meet increased fixed charges and common stock
dividends over time, which will add incremental pressure to coverage
ratios. Moody's believes that more conventional notching
(i.e., three notches) between the insurance financial
strength ratings and the debt ratings may be warranted, in view
of a) the group's structure with debt at both the ultimate and life
holding companies, and b) the life group's lower statutory
profitability.
The confirmation of The Hartford's insurance financial strength ratings
reflects the group's significant market presence and strong franchises
in its chosen businesses, diversified earnings and cash flows,
conservative underwriting standards, and a high-quality investment
portfolio. The property and casualty group has a strong position
among small to medium-size commercial accounts and also benefits
from its multiple distribution channels in its personal lines business.
The pricing environment for property and casualty insurance is also favorable.
Hartford Life has a leading market position in individual variable annuity
business as well as top tier positions in the group life and disability
markets and benefits from its diversified distribution channels and productive
company-owned annuity wholesaler. In addition, HLI
has good asset quality and ample liquidity, and is a well-managed
company whose strong brand is enhanced by its solid record in customer
service.
These positive credit factors are tempered by significant financial leverage,
competition in the group's core business segments, and exposure
to manmade and natural catastrophes. Statutory dividend capacity
and coverage of fixed charges -- including common stock dividends
to shareholders -- is below peer averages for both the P&C and
life operations.
The negative outlook on the life insurance subsidiaries recognizes that
the statutory surplus as well as earnings have come under pressure over
the past two years. The combined impact of reduced revenue on its
variable annuity and life block, guaranteed minimum death benefit
claims activity and related reserve increases, and credit losses
in its investment portfolio contributed to consolidated statutory losses
in 2002 and continue to challenge profitability in 2003. While
there are some initial signs of improvement, the credit profile
of HLI's operating companies over the medium term has shifted with
increased volatility around its statutory earnings capabilities.
The following ratings were placed under review for possible downgrade:
Hartford Financial Services Group, Inc.-- senior
long-term debt at A2; commercial paper at Prime-1;
prospective senior unsecured debt shelf at (P)A2; prospective senior
subordinated debt shelf at (P)A3; prospective preferred shelf at
(P)Baa1;
Hartford Capital I - preferred stock at A3;
Hartford Capital II - preferred stock at A3;
Hartford Capital III - preferred shelf at A3;
Hartford Capital IV - preferred shelf at (P)A3;
Hartford Capital V - preferred shelf at (P)A3;
Hartford Capital VI - preferred shelf at (P)A3.
Hartford Life, Inc. -- senior long-term
unsecured debt at A2; prospective junior subordinated debt at (P)A3;
commercial paper at Prime-1;
Hartford Life Capital I -- preferred stock at A3;
Hartford Life Capital II -- preferred stock at A3;
Hartford Life Capital III -- preferred shelf at (P)A3;
Hartford Life Capital IV - preferred shelf at (P)A3;
Hartford Life Capital V - preferred shelf at (P)A3.
The following ratings were confirmed with a negative outlook:
Hartford Fire Insurance Company -- insurance financial strength
at Aa3;
Hartford Accident & Indemnity Co. -- insurance
financial strength at Aa3;
Hartford Casualty Insurance Co. -- insurance financial
strength at Aa3;
Trumbull Insurance Company -- insurance financial strength
at Aa3;
Hartford Insurance Company of Illinois -- insurance financial
strength at Aa3;
Hartford Insurance Company of Midwest -- insurance financial
strength at Aa3;
Hartford Insurance Company of Southeast -- insurance financial
strength at Aa3;
Hartford Lloyd's Insurance Company -- insurance financial
strength at Aa3;
Hartford Underwriters Insurance Company -- insurance financial
strength at Aa3;
Nutmeg Insurance Company -- insurance financial strength
at Aa3;
Pacific Insurance Company, Limited -- insurance financial
strength at Aa3;
Property & Casualty Insurance Company of Hartford --
insurance financial strength at Aa3;
Sentinel Insurance Company -- insurance financial strength
at Aa3;
Twin City Fire Insurance Company -- insurance financial
strength at Aa3;
First State Insurance Co. -- insurance financial
strength at Baa2;
New England Insurance Company -- insurance financial strength
at Baa2;
New England Reinsurance Company -- insurance financial strength
at Baa2.
Hartford Life & Accident Insurance Company -- insurance
financial strength at Aa3;
Hartford Life Insurance Company -- insurance financial strength
at Aa3;
Hartford Life & Annuity Insurance Company -- insurance
financial strength at Aa3.
The Hartford (NYSE: HIG) is an insurance and financial services
organization that offers a wide variety of property and casualty as well
as life and annuity insurance products through its insurance operating
subsidiaries. As of December 31, 2002, The Hartford
reported revenues for 2002 of $15.9 billion and net income
of $1.0 billion with total assets of nearly $182
billion and shareholders' equity of $10.7 billion.
Visit our website at www.moodys.com/insurance.
New York
Sarah Hibler
VP - Senior Credit Officer
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Ted Collins
Managing Director
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653