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Rating Action:

Moody's downgrades The Hartford's debt to A3/P2; affirms Aa3 subsidiary ratings

03 Nov 2008
Moody's downgrades The Hartford's debt to A3/P2; affirms Aa3 subsidiary ratings

$5.0 billion of securities affected

New York, November 03, 2008 -- Moody's Investors Service has downgraded the senior unsecured debt rating of The Hartford Financial Services Group, Inc. (NYSE: HIG) to A3 from A2 and its short-term debt rating to Prime-2 from Prime-1. The rating outlook is now stable. The downgrade concludes a review for possible downgrade initiated on October 8, 2008, following the company's announced preliminary third quarter results and its subsequent $2.5 billion capital raise from Allianz SE. Also in today's action, Moody's has affirmed the Aa3 insurance financial strength (IFS) ratings for the company's lead property and casualty (P&C) and life insurance operating companies. The ratings outlook for the life insurance operating subsidiaries remains negative (changed to negative from stable on September 25, 2008 and affirmed with a negative outlook on October 8th) while the ratings outlook for the P&C insurance operating companies remains stable (previously affirmed stable on both September 25th and October 8th).

The review of The Hartford's ratings focused on the extent to which the historical benefit of diversified earnings and cash flows would be diminished now that the credit profiles of approximately half of its business units -- the life insurance operations -- have weakened and that the investment market pressures affecting both main operating units are highly correlated.

"The Hartford's recently released final third quarter results and continuing weakness in both credit and equity markets have confirmed our concerns," Moody's Jeffrey Berg, Senior Vice President said.

According to Moody's, the previous two-notch rating differential between the IFS ratings of the lead operating companies and the senior debt at the holding company had been narrower than normal for US insurance groups based on the benefits of the diversification provided to the holding company from two equally strong operating units.

The financial strength of the life insurance subsidiaries has been diminished on a stand-alone basis and their current rating outlook remains negative. The companies remain pressured by (1) the potential for further significant losses from investment exposure to both structured securities and financial institution bonds and preferred stock, and (2) the impact on regulatory capital and prospective profitability from depressed equity markets given the company's large variable annuity business. However, the companies' IFS ratings of Aa3 are one notch higher than the A1 that would be applied on a stand-alone basis given the uplift provided by the excess capital, strong implied support, and financial strength of the P&C companies. The Aa3 IFS rating also reflects the benefit of the recent capital raise, which is available to support NAIC Risk-Based Capital (RBC) levels.

Moody's noted that further deterioration of the stand-alone credit profile of the life companies could result in a further downgrade of the holding company's senior debt rating. Such a downgrade to the life companies could occur if material additional investment losses were to occur over the next several quarters (i.e. - credit impairments in the life companies in excess of $750 million pre-tax), prospective organic capital generation is diminished due to materially lower profitability (i.e. - 20% decline in core earnings), or the group fails to address regulatory capital stress associated with the variable annuity business and RBC levels fall below 325%. Conversely, the outlook for the life companies could return to stable if investment losses are moderate, organic capital generation reemerges, and the group addresses regulatory capital volatility with sustained RBC levels above 325%.

Moody's also noted that the affirmation of the Aa3 IFS ratings and continued stable outlook for the P&C operations reflect their strong franchise, well capitalized subsidiaries, and diversified revenue and earnings streams. These strengths are tempered by the group's significant exposure to both natural and man-made catastrophes and pricing/reserving risk associated with a specialty business in a declining pricing environment, as well as the potential need to inject additional capital to support the life operations. The rating agency added that the following factors could lead to a downgrade of the P&C companies: gross underwriting leverage above 5x, annual catastrophe losses resulting in shareholders' equity declining 10% or more, consolidated earnings coverage of interest consistently below 8x or an extraordinary dividend from the P&C operations which pressures capital adequacy.

THE FOLLOWING RATINGS WERE DOWNGRADED:

Hartford Financial Services Group, Inc.-- senior long-term unsecured debt to A3 from A2; commercial paper to Prime-2 from Prime-1; provisional senior unsecured debt shelf to (P)A3 from (P)A2; provisional subordinated debt shelf to (P)Baa1 from (P)A3; provisional preferred shelf to (P)Baa2 from (P)Baa1;

Hartford Capital III - preferred stock to Baa1 from A3;

Hartford Capital IV -- provisional preferred shelf to (P)Baa1 from (P)A3;

Hartford Capital V -- provisional preferred shelf to (P)Baa1 from (P)A3;

Hartford Capital VI -- provisional preferred shelf to (P)Baa1 from (P)A3;

Hartford Life, Inc. -- senior long-term unsecured debt to A3 from A2;

Glen Meadow Pass-Through Trust -- senior secured debt to Baa1 from A3.

THE FOLLOWING RATINGS WERE AFFIRMED WITH A NEGATIVE OUTLOOK:

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; senior unsecured medium term note program at A1;

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 nine months ended September 30, 2008, HIG reported revenues of $8.6 billion and a net loss of $1.9 billion. As of September 30, 2008, shareholders' equity was $12.6 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
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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