$6.2 billion of securities affected.
New York, March 30, 2009 -- Moody's Investors Service lowered the credit ratings of The Hartford Financial
Services Group, Inc. (The Hartford; NYSE: HIG)
and its key operating subsidiaries and continued the negative outlook
on the ratings because of expected continued weakness in earnings and
reduced capitalization resulting from investment losses and substantial
business exposure to variable annuities. Moreover, the risk
of further investment losses and diminished earnings beyond our base case
expectations is meaningful in view of unsettled markets and deteriorating
economic conditions.
The Hartford's long-term senior debt rating was downgraded
to Baa3 from Baa1 and the short-term debt rating to P-3
from P-2. In the same action, Moody's downgraded
the insurance financial strength (IFS) ratings for the company's lead
property and casualty (P&C) to A2 from A1 and life insurance operating
subsidiaries to A3 from A1.
Life Insurance:
According to Moody's, the downgrade of the life insurance
subsidiaries and the continued negative outlook reflect the entities'
diminished stand-alone credit profile due to the potential for
further losses from the investment portfolio and the variable annuity
business in both the U.S. and Japan, as well as the
risk of a deterioration in the company's market position in terms
of new business and retention.
The life insurance subsidiaries hold material levels of structured securities
relative to capital. "The expectation of higher investment
losses for the life insurance subsidiaries is consistent with Moody's
recent upward revision to cumulative expected loss rates on a variety
of asset backed securities," said Moody's Vice President/
Senior Credit Officer Scott Robinson.
The life insurance subsidiaries also have material exposure to secondary
guarantees emanating from their large variable annuity business,
which has faced increasing pressure due to declines in equity markets.
"If equity markets deteriorate even more, this could have
a meaningful impact on capital -- both regulatory capital and economic
capital - and profitability at The Hartford vis-à-vis
other highly rated insurers," continued Mr. Robinson.
In particular, Moody's remains concerned about the volatility
of the life insurance subsidiaries' capitalization under various
stress scenarios.
The IFS rating reflects the benefit of the capital raise from last October
currently retained at the parent level, which is available to support
NAIC Risk-Based Capital (RBC) levels at the life companies.
The rating agency also noted that the companies' A3 IFS ratings
benefit from implicit support of the property & casualty companies.
However, the company has noted its intent to not materially decapitalize
the property & casualty companies in support of the life operations.
Moody's noted that a further downgrade of the life companies could
occur if (1) material additional investment losses were to occur over
the next several quarters (e.g., - impairments
in the life companies in excess of $1.5 billion pre-tax),
and/or (2) the group fails to address regulatory capital stress associated
with the variable annuity business and RBC levels fall below 275%.
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.
P&C Insurance:
According to Moody's, the downgrade and negative outlook of
the P&C insurance subsidiaries reflects the potential strain associated
with its affiliation with and support for the life insurance operations.
Moody's notes that the stand alone credit profile of the P&C
operating companies is higher than the public rating, reflective
of its strong business profile coupled with its solid core underwriting
profitability and reserve adequacy.
"Moody's continues to believe a significant amount of support
could be forthcoming from the P&C operations should additional capital
be needed by the life operations," said Jeff Berg, Moody's
Senior Vice President. "Further deterioration in the stand-alone
credit profile of the life companies could therefore result in a further
downgrade of the P&C operations," Berg added.
In addition, investment losses in the P&C operating subsidiaries
in excess of $1 billion pre-tax, which would inhibit
organic capital generation, could also result in a downgrade.
The P&C subsidiaries do not have the same level of investment risk
exposure as the life operations; however, the rating agency
noted that in addition to structured securities, Hartford P&C
has above average holdings relative to other P&C peers in corporate
debt and preferred stock -- asset classes likely to see increased
defaults during the current economic recession.
Moody's said the outlook for the P&C companies could return
to stable if investment losses are moderate and dividends to the parent
are less than $500 million for 2009, thus enabling the P&C
companies to retain capital.
The Hartford (holding company):
The downgrade of The Hartford's holding company debt ratings was
driven primarily by the credit deterioration of the life insurance subsidiaries,
as well as a reduction in financial flexibility.
In addition, while Moody's positively noted The Hartford's
4Q08 capital raise, shareholder dividend reduction, meaningful
liquid securities at the holding company, no debt maturities before
June 2010, and considerable alternative liquidity (in terms of bank
lines and contingent capital facilities), it also noted a continued
deterioration in financial flexibility . The group's financial
leverage and earnings and cash coverage are expected to deteriorate further
and be constrained over the medium term due to potential realized losses
and reduced earnings capacity at the operating units.
THE FOLLOWING RATINGS WERE DOWNGRADED AND THE OUTLOOK IS NEGATIVE:
Hartford Financial Services Group, Inc. --
senior long-term unsecured debt to Baa3 from Baa1; junior
subordinated notes to Ba1 from Baa2: provisional senior unsecured
debt shelf to (P)Baa3 from (P)Baa1; provisional subordinated debt
shelf to (P)Ba1 from (P)Baa2; provisional preferred shelf to (P)Ba2
from (P)Baa3; short-term rating for commercial paper to Prime-3
from Prime-2
Hartford Capital III - preferred stock to Ba1 from Baa2;
Hartford Capital IV -- provisional preferred shelf to (P)Ba1 from
(P)Baa2;
Hartford Capital V -- provisional preferred shelf to (P)Ba1 from
(P)Baa2;
Hartford Capital VI -- provisional preferred shelf to (P)Ba1 from
(P)Baa2;
Hartford Life, Inc. -- senior long-term unsecured
debt to Baa3 from Baa1;
Glen Meadow Pass-Through Trust -- senior secured debt to Ba1
from Baa2;
Hartford Life & Accident Insurance Company -- insurance
financial strength to A3 from A1;
Hartford Life Insurance Company -- insurance financial strength
to A3 from A1; short-term insurance financial strength to
Prime-2 from Prime-1; senior unsecured medium term
note program to Baa1 from A2;
Hartford Life & Annuity Insurance Company -- insurance
financial strength to A3 from A1;
Hartford Life Global Funding Trusts—senior secured funding agreement-backed
notes to A3 from A1;
Hartford Life Institutional Funding -- senior secured funding
agreement-backed notes to A3 from A1;
Hartford Fire Insurance Company -- insurance financial strength
to A2 from A1;
Hartford Accident & Indemnity Co. -- insurance
financial strength to A2 from A1;
Hartford Casualty Insurance Co. -- insurance financial
strength to A2 from A1;
Trumbull Insurance Company -- insurance financial strength
to A2 from A1;
Hartford Insurance Company of Illinois -- insurance financial
strength to A2 from A1;
Hartford Insurance Company of Midwest -- insurance financial
strength to A2 from A1;
Hartford Insurance Company of Southeast -- insurance financial
strength to A2 from A1;
Hartford Lloyd's Insurance Company -- insurance financial
strength to A2 from A1;
Hartford Underwriters Insurance Company -- insurance financial
strength to A2 from A1;
Nutmeg Insurance Company -- insurance financial strength
to A2 from A1;
Pacific Insurance Company, Limited -- insurance financial
strength to A2 from A1;
Property & Casualty Insurance Company of Hartford --
insurance financial strength to A2 from A1;
Sentinel Insurance Company -- insurance financial strength
to A2 from A1;
Twin City Fire Insurance Company -- insurance financial
strength to A2 from A1.
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 year ended December 31, 2008, The Hartford reported
revenues of $9.2 billion and a net loss of $2.7
billion. As of December 31, 2008, shareholders' equity
was $9.3 billion.
The last rating action occurred on February 6, 2009 when Moody's
downgraded the senior debt rating of The Hartford to Baa1 from A3.
The principal methodologies used in rating The Hartford are "Moody's Global
Rating Methodology for Property and Casualty Insurers" and "Moody's Global
Rating Methodology for Life Insurers", which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating The Hartford can also
be found in the Credit Policy & Methodologies directory.
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/insurance.com for more
information.
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 downgrades The Hartford's senior debt to Baa3; negative outlook
