TEXT-Fitch affirms Hartford's ratings after deal with Prudential

Thu Sep 27, 2012 4:57pm EDT

Sept 27 - Fitch Ratings has affirmed all Issuer Default Ratings (IDRs), debt
and Insurer Financial Strength (IFS) ratings for the Hartford Financial Services
Group, Inc.  (HFSG) and its primary life and property/casualty insurance
subsidiaries. The Rating Outlook is Stable. A full list of ratings follows at
the end of this release.

Fitch's rating action follows HFSG's announcement today that it has reached an
agreement to sell its individual life business to Prudential Financial, Inc.
 (Prudential) for a ceding commission of $615 million. No legal entities
will be sold. The transaction is expected to close in early 2013, subject to
regulatory approval. The sale is not expected to have a material impact on
HFSG's GAAP shareholders' equity (excluding accumulated other comprehensive
income ) but is expected to have a positive net statutory capital impact
to Hartford Life of approximately $1.5 billion.

This transaction represents the final step in HFSG's strategy (announced in
March 2012) to focus on its property/casualty, group benefits, and mutual funds
businesses. The company has already reached agreements to sell its retirement
plans business to Massachusetts Mutual Life Insurance Company (MassMutual) and
to sell Woodbury Financial Services (its independent broker-dealer) to American
International Group, Inc. (AIG), with both transactions expected to close by the
end of 2012. In addition, U.S. individual annuity and Japan annuity have been
placed into runoff, and HFSG has signed an agreement to sell its individual
annuity new business capabilities to Forethought Financial Group.

Fitch favorably views HFSG's ability to enter into these agreements in a timely
manner and for a reasonable price. A lengthy time horizon for a sale could have
increased uncertainty and impaired the market position of these businesses and
potentially forced a distressed sale. Favorably, over the long term,
management's decision to exit the more volatile variable annuities (VA) and
individual life businesses should help to reduce risk by making the company less
vulnerable to swings in performance.

Fitch expects HFSG to maintain a financial leverage ratio at or below 25%
following the final successful execution of the company's strategic initiatives
and any ultimate subsequent capital management actions. HFSG's financial
leverage ratio (excluding AOCI on fixed maturities) increased to 26.8% at June
30, 2012 from 23.8% at Dec. 31, 2011, due to additional debt issued to redeem
the company's 10% junior subordinated debentures investment by Allianz SE.

HFSG's operating earnings-based interest and preferred dividend coverage has
been reduced in recent years, averaging a low 3.4x from 2008 to 2011. This
reflects both constrained operating earnings and increased interest expense and
preferred dividends paid on capital over this period. Fitch expects HFSG's
run-rate operating earnings-based interest and preferred dividend coverage to
improve to at least 5.0x, with a reduced overall level of fixed charges.

As the company completes its restructuring efforts, Fitch will review future
capitalization plans and earnings capabilities, as well as capital needs in
various run-off operations. Over the past two years, HFSG has significantly
altered its business profile. The management of the new business profile and
ultimate capital structure could influence Fitch's rating opinion. Fitch expects
to assess these factors in the coming months as management plans become clear.

Fitch maintains separate IFS ratings on HFSG's life and property/casualty
companies that reflect each businesses respective stand-alone financial profile.
Fitch considers the primary life insurance subsidiaries to be non-core as the
life businesses are not considered to be a material strategic focus of the
company. As such, the life insurance subsidiaries continue to receive an IFS
rating of 'A-', reflecting their own combined financial profile. Upon the
closing of the transactions, Fitch will review the ratings of the life insurance
companies within the context of its group ratings methodology to consider
differentiating the ratings of each life insurance entity based on its
stand-alone profile or retaining its group approach for the life subsidiaries.

Fitch expects that HFSG will continue to support its insurance subsidiaries and
maintain insurance company capitalization that is consistent with the current
ratings. The ratings for Hartford Life's operations reflect an adequate U.S.
consolidated statutory capital position. While capital generation is expected to
remain flat through 2012, Fitch expects consolidated U.S. life insurance to
remain above the company's 325% RBC targets for its life operations and 125% for
its VA captive operations.
The key rating triggers that could result in an upgrade to HFSG's debt ratings
include a financial leverage ratio maintained near 20%, maintenance of at least
$1 billion of holding company cash, and interest and preferred dividend coverage
of at least 6x. Continued success with the strategic plan and successful
seasoning of run-off operations would also be considered favorably. Fitch
considers a rating upgrade to be unlikely in the near term for HFSG's life and
property/casualty insurance subsidiaries.

The key rating triggers that could result in a downgrade include significant
investment or operating losses that materially impact GAAP shareholders' equity
or statutory capital within the insurance subsidiaries, particularly as they
relate to any major negative surprises in the runoff VA business; a financial
leverage ratio maintained above 25%; a sizable drop in holding company cash;
failure to improve interest and preferred dividend coverage; and an inability to
execute on the company's strategic plan.

Fitch affirms the following ratings with a Stable Outlook:

Hartford Financial Services Group, Inc.
--Long-term IDR at 'BBB+';
--$320 million 4.625% notes due 2013 at 'BBB';
--$200 million 4.75% notes due 2014 at 'BBB';
--$300 million 4.0% senior notes due 2015 at 'BBB';
--$200 million 7.3% notes due 2015 at 'BBB';
--$300 million 5.5% notes due 2016 at 'BBB';
--$499 million 5.375% notes due 2017 at 'BBB';
--$325 million 4.0% senior notes due 2017 at 'BBB';
--$500 million 6.3% notes due 2018 at 'BBB';
--$500 million 6% notes due 2019 at 'BBB';
--$499 million 5.5% senior notes due 2020 at 'BBB';
--$800 million 5.125% senior notes due 2022 at 'BBB';
--$298 million 5.95% notes due 2036 at 'BBB';
--$299 million 6.625% senior notes due 2040 at 'BBB';
--$325 million 6.1% notes due 2041 at 'BBB';
--$425 million 6.625% senior notes due 2042 at 'BBB';
--$600 million 7.875% junior subordinated debentures due 2042 at 'BB+';
--$500 million 8.125% junior subordinated debentures due 2068 at 'BB+';
--$556 million 7.25% mandatory convertible preferred stock, series F at 'BB+'.

Hartford Financial Services Group, Inc.
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.

Hartford Life, Inc.
--Long-term IDR at 'BBB';
--$149 million 7.65% notes due 2027 at 'BBB-';
--$92 million 7.375% notes due 2031 at 'BBB-'.

Hartford Life Global Funding
--Secured notes program at 'A-'.

Hartford Life Institutional Funding
--Secured notes program at 'A-'.

Hartford Life and Accident Insurance Company
--IFS at 'A-'.

Hartford Life Insurance Company
--IFS at 'A-';
--Medium-term note program at 'BBB+'.

Hartford Life and Annuity Insurance Company
--IFS at 'A-'.

Members of the Hartford Fire Insurance Intercompany Pool:
Hartford Fire Insurance Company
Nutmeg Insurance Company
Hartford Accident & Indemnity Company
Hartford Casualty Insurance Company
Twin City Fire Insurance Company
Pacific Insurance Company, Limited
Property and Casualty Insurance Company of Hartford
Sentinel Insurance Company, Ltd.
Hartford Insurance Company of Illinois
Hartford Insurance Company of the Midwest
Hartford Underwriters Insurance Company
Hartford Insurance Company of the Southeast
Hartford Lloyd's Insurance Company
Trumbull Insurance Company
--IFS at 'A+'.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--Insurance Rating Methodology (Sept. 19, 2012).

Applicable Criteria and Related Research:
Insurance Rating Methodology
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