S&P revises Hartford Financial outlook to negative

NEW YORK, Oct 6 (Reuters) - Standard & Poor's on Monday revised its outlook on Hartford Financial Services Group Inc to "negative" from "stable" after the company issued a profit warning for the third quarter and said it is raising fresh capital.

S&P affirmed its "A" counterparty credit rating on the company and its "AA" counterparty credit and financial strength ratings on its core insurance businesses.

The "A" rating is the sixth-highest investment grade in S&P's scale, while "AA" is the third-highest.

Hartford Financial (HIG.N) said earlier it expects after-tax write-downs of $2.1 billion to $2.2 billion and will take a deferred acquisition cost write-down of about $915 million for the third quarter.

The company said it is taking swift steps to respond to current events and is raising $2.5 billion of capital from Germany's Allianz.

The company's shares lost about half their value last week, while the cost to insure its debt swelled to record levels on fears about its exposure to credit markets. See [ID:nN06374078].

S&P said the fundamentals of Hartford's life and property and casualty operations remain strong despite the current financial stress.

"We also expect its operating performance to be strong but below recent record earnings, largely because of reduced asset-based fees due to the lower equity markets, the softening rate environment in commercial lines, and generally higher credit losses resulting from the economic downturn," analyst Robert Hafner said in a statement.

The negative outlook reflects an expected weakening of earnings as the company pays more to service debt, he said.

The cost of protecting Hartford debt against possible default fell on Monday. Five-year credit default swaps were trading at 685 basis points, or $685,000 a year to insure $10 million of debt, compared with 703 basis points late Friday, according to data from Markit Intraday. (Reporting by Ciara Linnane; Editing by Leslie Adler)