$6.1 billion in outstanding debt.
New York, March 06, 2014 -- Moody's Investors Service has affirmed the debt ratings (Baa3 senior)
of The Hartford Financial Services Group, Inc. (NYSE:
HIG) and the insurance financial strength (IFS) ratings of its ongoing
property & casualty (P&C) and Hartford Life & Accident Insurance
Company operating subsidiaries. The outlook on these entities has
been changed to positive from stable. In the same action,
Moody's downgraded the IFS rating of Hartford Life Insurance Co.
(HLIC) to Baa2 from A3 to reflect the recent restructuring of this entity,
which now consists primarily of run-off business. Moody's
also affirmed the Baa2 IFS rating of the run-off companies,
Hartford Life and Annuity Company and of the First State Group.
The outlook for all run-off entities remains stable. Please
see below for a complete list of rating actions.
RATINGS RATIONALE
According to Moody's lead analyst Paul Bauer, "The positive outlook
on The Hartford reflects the company's gradual de-risking
of its business profile, particularly the group's legacy variable
annuity business, and our expectation of an ongoing gradual decline
in these long-term liabilities." The analyst added
that "The Hartford's credit profile is characterized by a strong,
well diversified P&C operation with a good position in group benefits
and mutual funds, offset by lingering legacy risks associated with
the group's run-off operations."
P&C Insurance Group
The affirmation of the A2 IFS ratings on the members of The Hartford's
P&C Insurance Group are based on the group's significant market presence,
strong brand name recognition, excellent product and geographic
diversification, healthy pre-tax operating income,
good capital adequacy and reasonably positioned investment portfolio.
These strengths are offset by exposure to catastrophes, pricing
and reserving risk associated with its commercial and specialty lines,
a risk of adverse development on run-off reserves, and the
continued implied support of the group's affiliated life run-off
businesses.
The positive outlook on the primary P&C entities is based on Moody's
expectation that the extent of implied support to the run-off life
insurance companies will continue to decline as the run-off life
business continues to shrink, possibly enabling the P&C companies'
rating to be upgraded to its stand-alone credit profile over the
next 12-18 months.
The following factors could lead to an upgrade in Hartford's P&C ratings:
1) further material reduction in the size and long-term risk profile
of the run-off life company liabilities 2) long-term reduction
in gross underwriting leverage (e.g. less than 3.5x,
excluding affiliated investments from capital); 3) resolution of
the company's asbestos liabilities such that its inherent volatility is
substantially reduced; and/or 4) sustained cash flow coverage of
interest of 4x or higher.
Given the positive outlook, a downgrade is unlikely, but the
following could result in Hartford's P&C rating outlook returning
to stable: 1) no material reduction in size and risk profile of
the run-off life company liabilities; 2) sustained gross underwriting
leverage above 4x; 3) annual operating losses from either catastrophes
or investments resulting in P&C equity declining 10% or more;
or 4) cash flow coverage of interest of 3x or lower.
Life Insurance Group
Moody's affirmation of the A3 IFS rating on Hartford Life, Inc.'s
(HLI) primary US life insurance operating company, Hartford Life
and Accident Insurance Co. (HLA), and the Baa3 senior debt
rating for HLI are based upon the continued strong market position in
group insurance and The Hartford's recognizable brand name. HLA's
historical profitability has been improving from modest levels after the
financial crisis. Prospectively, Moody's expects that
profitability in the group business will continue to stabilize as the
company demonstrates pricing discipline. The positive outlook for
HLA is driven by the outlooks on HIG and the P&C operation,
which provide implied support to HLA.
An upgrade of parent HIG or the affiliated P&C companies could result
in an upgrade of HLA. Additionally, the following could place
upward pressure on HLA's standalone credit profile: 1) improving
profitability at the group life and disability (DI) operations; 2)
A loss ratio in group DI consistently below 70%; and 3) successful
expansion into group voluntary benefits. To the contrary,
a downgrade of the P&C entities or removal of support by HIG could
result in a downgrade of HLA. In addition, the following
could lead to downward pressure on the standalone credit profile of the
HLA: 1) unanticipated regulatory capital volatility and/or RBC ratio
levels (company action level) below 350%; and 2) a decline
in group life or disability earnings of more than 20%.
The downgrade of Hartford Life Insurance Co. (HLIC) to Baa2 from
A3 aligns HLIC's rating with that of Hartford Life & Annuity
Insurance Company (ILA; IFS affirmed at Baa2) reflecting the 2014
legal entity restructuring of the operation. These entities will
no longer write any "core" business following the sales of the individual
life and retirement plan business in 2013. The stable outlooks
on HLIC and ILA (the run-off entities) reflect the improvement
in the overall risk profile of the variable annuity exposure over the
past year as a result of company actions and improved market conditions.
Under a stress scenario, these entities are viewed as requiring
less support from the P&C operation because of the following actions
taken: 1) improved hedging and 2) reduction of the variable annuity
block as a result of variable annuity exchanges and lapses. Additionally,
positive capital market trends have helped improve the risk profile of
the block.
Given the companies' runoff status and the volatility of the variable
annuity business, an upgrade is unlikely. However,
the following factors could place upward pressure on the standalone credit
profile of HLIC and ILA: 1) minimizing the volatility associated
with stress scenarios for the legacy block of variable annuities;
2) statutory earnings more in line with GAAP earnings (adjusting for movement
in hedges). Conversely, the following could place downward
pressure on the ratings of HLIC and ILA: 1) material increase in
volatility of total statutory capital; or a decline in total statutory
capital by 25% over a short period of time; or 2) unanticipated
regulatory capital volatility and/or RBC ratio levels below 275%
(company action level).
Holding Company
The debt ratings of The Hartford are supported by its diversified revenue
and earnings streams with a strategic focus on P&C insurance,
group benefits and mutual funds, disciplined underwriting and financial
management, good product breadth, multiple distribution channels,
and good brand name recognition. These strengths are somewhat offset
by the volatility associated with the group's run-off individual
annuity businesses, exposure to structured securities, and
exposure to natural and manmade catastrophes. The debt ratings
of The Hartford reflect that combined credit characteristics of its various
operating units; however, from a cash flow perspective,
we consider the group's P&C operating subsidiaries to be the primary
supporter of parent company obligations.
The following factors could lead to an upgrade in The Hartford's debt
ratings: 1) upgrade of the financial strength ratings of the company's
lead operating P&C and/or life companies; 2) sustained cash flow
coverage of interest of 4x or higher; and 3) maintaining financial
leverage below 30%. Given the positive outlook, a
downgrade is unlikely, however the following could result in the
outlook returning to stable: 1) change in outlook to stable or downgrade
of the financial strength ratings of the company's lead operating P&C
and/or life companies; 2) cash flow coverage of interest of 3x or
lower; or 3) financial leverage greater than 40%.
The methodologies used in this rating were Global Property and Casualty
Insurers published in December 2013, and Global Life Insurers published
in December 2013. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
The following ratings were affirmed and their outlook changed to positive:
Hartford Financial Services Group, Inc. --
senior long-term unsecured debt at Baa3; junior subordinated
notes at Ba1(hyb): provisional senior unsecured shelf at (P)Baa3;
provisional subordinated shelf at (P)Ba1; junior subordinated shelf
at (P)Ba1; provisional preferred shelf at (P)Ba2; short-term
rating for commercial paper at Prime-3;
Hartford Life, Inc. -- senior long-term
unsecured debt at Baa3;
Glen Meadow Pass-Through Trust -- pass through trust
securities at Ba1;
Hartford Life & Accident Insurance Company -- insurance
financial strength at A3;
Hartford Fire Insurance Company -- insurance financial strength
at A2;
Hartford Accident & Indemnity Co. -- insurance
financial strength at A2;
Hartford Casualty Insurance Co. -- insurance financial
strength at A2;
Trumbull Insurance Company -- insurance financial strength
at A2;
Hartford Insurance Company of Illinois -- insurance financial
strength at A2;
Hartford Insurance Company of Midwest -- insurance financial
strength at A2;
Hartford Insurance Company of Southeast -- insurance financial
strength at A2;
Hartford Lloyd's Insurance Company -- insurance financial
strength at A2;
Hartford Underwriters Insurance Company -- insurance financial
strength at A2;
Nutmeg Insurance Company -- insurance financial strength
at A2;
Pacific Insurance Company, Limited -- insurance financial
strength at A2;
Property & Casualty Insurance Company of Hartford --
insurance financial strength at A2;
Sentinel Insurance Company -- insurance financial strength
at A2;
Twin City Fire Insurance Company -- insurance financial
strength at A2.
The following ratings were affirmed with a stable outlook:
First State Insurance Company -- 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 & Annuity Insurance Company -- insurance
financial strength at Baa2;
Hartford Life Insurance Company -- short-term insurance
financial strength at Prime-2.
The following ratings were downgraded with a stable outlook:
Hartford Life Insurance Company -- insurance financial strength
to Baa2 from A3; and senior unsecured to Baa3 from Baa1;
Hartford Life Institutional Funding -- senior secured funding
agreement-backed notes to Baa2 from A3;
Hartford Life Global Funding Trusts -- senior secured funding
agreement-backed notes to Baa2 from A3.
Hartford Financial Services Group, Inc. is an insurance and
financial services holding company that offers P&C, group life,
accident and disability insurance products through its insurance operating
subsidiaries as well as mutual funds. The company reported total
revenue of $26.2 billion and net income of $176 million
as of December 31, 2013. Shareholders' equity was $18.9
billion at December 31, 2013.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations.
Visit Moody's website at www.moodys.com for more information.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Paul Bauer
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Hartford Financial's outlook to positive (Baa3 senior)
