$6.5 billion of securities affected.
New York, September 25, 2008 -- Moody's Investors Service has affirmed the debt rating (senior unsecured
at A2) of The Hartford Financial Services Group, Inc. (NYSE:
HIG) as well as the Aa3 insurance financial strength ratings (IFS) for
the company's lead property and casualty (P&C) and life insurance
operating companies. In the same action, the outlook for
holding company and the life insurance operating subsidiaries was changed
to negative. The outlook for the P&C insurance operating companies
remains stable.
The negative outlook on the life operations considers the segment's
significant investment exposure to both structured securities (including
non prime RMBS and CRE CDO) and preferred stock in financial institutions
relative to life capitalization. The Hartford, particularly
in its life operations, has experienced notable variability in earnings
and capital from the volatility in the capital markets. Over the
last several quarters, widening credit spreads have caused an increase
in its unrealized loss position and net income has been hampered by realized
losses due to increased credit related impairments. Additional
price declines on structured securities and impairments in the financial
institutions sector, particularly given material positions in Fannie
Mae, Freddie Mac and Lehman Brothers, are expected to lead
to higher impairments in the third quarter of 2008 compared to previous
quarters.
Moody's notes the outlook also reflects the potential for diminished
earnings from asset-based fee businesses given depressed market
levels as well as the potential for increased statutory capital requirements
for variable annuity products (C-3 phase 2). While Moody's
believes that near term life capital needs could be met from dividend
capacity from the P&C operations and parent company resources,
the risk of continued deterioration in market conditions places incremental
stress on the current ratings. A downgrade in the ratings of the
life operation could occur if material investment losses occur over the
next several quarters, prospective organic capital generation is
diminished due to materially lower profitability, particularly in
variable products, or risk based capital levels fall below 325%.
Conversely, the outlook could return to stable if investment losses
diminish after the third quarter, organic capital generation restarts
and risk based capital levels are sustained above 325%.
According to Moody's, the two notches between the IFS of the
lead operating companies and the senior debt rating at the holding company,
which is narrower than normal for US based insurance groups, is
based on the diversification of earnings and cash flows to the holding
company from the life and P&C insurance operations. However,
the outlook for the holding company was changed to negative because a
rating downgrade of either operation could result in a downgrade of the
holding company's debt ratings and widening of the notching relative
to the stronger operating unit. Conversely, stabilization
of the outlook at the life company could return the outlook for the holding
company to stable.
Moody's notes that the stable outlook on the P&C operations
reflects its strong franchise, well capitalized insurance subsidiaries,
its diversified revenue and earnings streams, and its solid investment
portfolio. These strengths are tempered by the group's significant
exposure to both natural and man-made catastrophes as well as pricing/reserving
risk associated with specialty business in a declining pricing environment.
The last rating action occurred on June 3, 2008 when Moody's assigned
an A3 subordinated unsecured debt rating to The Hartford's junior subordinated
debentures.
The following ratings were affirmed with a negative outlook:
Hartford Financial Services Group, Inc.-- senior
long-term debt at A2; commercial paper at Prime-1;
provisional senior unsecured debt shelf at (P)A2; provisional subordinated
debt shelf at (P)A3; provisional preferred shelf at (P)Baa1;
Hartford Capital III - preferred stock 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; commercial paper at Prime-1;
Hartford Life & Accident Insurance Company -- insurance
financial strength at Aa3;
Hartford Life Insurance Company -- insurance financial strength
at Aa3; short-term insurance financial strength at Prime-1;
Hartford Life & Annuity Insurance Company -- insurance
financial strength at Aa3;
Hartford Life Global Funding Trusts—senior secured funding agreement-backed
notes at Aa3;
Hartford Life Institutional Funding -- senior secured funding
agreement-backed notes at Aa3.
The following ratings were affirmed with a stable 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.
The Hartford 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.
For the six months ended June 30, 2008, 2008, HIG reported
revenues of $9.0 billion and net income of $688 million.
As of June 30, 2008, shareholders' equity was $16.8
billion.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to repay punctually senior policyholder claims
and obligations. For more information, visit our website
at www.moodys.com/insurance.
New York
Jeffrey S. Berg
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Scott Robinson
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms The Hartford's ratings; changes outlook on life subs & holdco to negative