April 22, 2014 / 7:22 PM / in 4 years

Fitch Affirms Hartford and P/C Sub's Ratings; Outlook Stable; Takes Various Actions on Life Subs

(The following statement was released by the rating agency) CHICAGO, April 22 (Fitch) Fitch Ratings has affirmed the 'A+' Insurer Financial Strength (IFS) rating of the members of Hartford Fire Insurance Intercompany Pool, the principal property/casualty (P/C) subsidiaries of Hartford Financial Services Group, Inc. (HFSG). Fitch has also affirmed the following ratings for HFSG: --Issuer Default Rating (IDR) at 'BBB+'; --Senior unsecured notes at 'BBB'. The Rating Outlook is Stable. Fitch has also upgraded the IFS rating of Hartford Life and Accident Insurance Company (HLA) to 'A' from 'A-' with a Stable Outlook. Concurrently, Fitch has downgraded the IFS ratings of Hartford Life Insurance Company (HLIC) and Hartford Life and Annuity Insurance Company (HLAIC) to 'BBB+' from 'A-'. The Rating Outlook on HLIC and HLAIC is Stable. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Fitch's rationale for the rating actions on HSFG's life insurance subsidiaries follows a March 2014 legal entity reorganization, which resulted in HLIC and its subsidiary HLAIC becoming a direct subsidiary of Hartford Life, Inc. These two entities were previously subsidiaries of HLA. Fitch believes that the separation of these two entities, which house most of HFSG's life run-off businesses, reduces the exposure of HLA's capital to the risks inherent in HFSG's run-off life and VA operations. As the businesses now contained within HLIC and HLAIC are considered to be in run-off status, Fitch now considers both of these entities to be of limited importance to the overall organization, and has lowered the ratings to reflect their stand-alone rating as run-off entities. Fitch's affirmation of HFSG's and its P/C subsidiary ratings reflects the company's reasonable financial leverage, sizable levels of holding company cash and financial resources, and strategic focus is on P/C, group benefits and mutual funds businesses. The ratings also consider the risks associated with the company's runoff annuity and life businesses and HFSG's near-term capital management initiative to reduce overall financial leverage to reflect the company's significantly altered business profile following the sales of its retirement plans and individual life businesses in 2013. HFSG's net income has been weak in recent periods as earnings on ongoing businesses have been offset by losses related to its Talcott Resolution runoff life operations and losses on extinguishment of debt. GAAP net income was $166 million in 2013, following a net loss of $80 million in 2012. A key challenge for HFSG remains the management of the Talcott runoff business. Fitch would favorably view a successful execution of opportunities to reduce the size and risk of the annuity book of business from the company's U.S. annuity, international annuity and institutional and private placement life insurance businesses while honoring the company's obligations to its annuity contract holders. HFSG's P/C operations reported a 97.5% GAAP combined ratio in 2013 improved from 101.9% in 2012. Included in the 2013 combined ratio were 3.2 points for catastrophe losses and 1.9 points of unfavorable prior year reserve development, primarily driven by reserve strengthening in commercial auto and net asbestos reserves. HFSG's financial leverage ratio (FLR) improved to 26.7% at year-end 2013, from 27.2% at year-end 2012, with overall debt reductions offset in part by a decline in shareholders' equity due in part to increased equity repurchase and common stock dividends. Fitch expects HFSG to maintain a FLR at or below 25% once the execution of the company's capital management plan to reduce debt is completed in 2014. HFSG's operating earnings-based fixed charge coverage has averaged a weak 3.3x from 2009 to 2013. Fitch expects coverage to improve to at least 5.0x over the next 12 to 18 months with a reduced overall level of fixed charges from lower financial leverage. Holding company cash and investments of $1.9 billion covered 2013 fixed charges by more than 4.5x but also provides flexibility for funding potential capital requirements in adverse markets and announced capital management plans including debt repayment. RATING SENSITIVITIES Key rating triggers that could result in an upgrade to HFSG's debt ratings include a FLR maintained near 20%, maintenance of at least $1 billion of holding company cash and fixed charge coverage of at least 6x. Triggers that could result in an upgrade of the P/C insurance subsidiaries include destacked operating leverage sustained below 1.1x and combined ratio sustained in the mid90s or better. Rating triggers that could result in an upgrade of group benefits subsidiary, Hartford Life and Accident Insurance Company, include sustained RBC above 450%, continued improvement in operating earnings and sustained total loss ratio below 76%. Key rating triggers that could result in a downgrade include significant investment or operating losses that materially affect GAAP shareholders' equity; a FLR maintained above 25%; a sizable drop in holding company cash; and failure to improve fixed charge coverage. The two runoff life insurance subsidiaries could be downgraded further if RBC falls below 325%, or with any major adverse development in the runoff of variable annuity (VA) business. Fitch affirms the following ratings with a Stable Outlook: Hartford Financial Services Group, Inc. --Long-term IDR at 'BBB+'; --4.0% senior notes due 2015 at 'BBB'; --7.3% notes due 2015 at 'BBB'; --5.5% notes due 2016 at 'BBB'; --5.375% notes due 2017 at 'BBB'; --4.0% senior notes due 2017 at 'BBB'; --6.3% notes due 2018 at 'BBB'; --6% notes due 2019 at 'BBB'; --5.5% senior notes due 2020 at 'BBB'; --5.125% senior notes due 2022 at 'BBB'; --5.95% notes due 2036 at 'BBB'; --6.625% senior notes due 2040 at 'BBB'; --6.1% notes due 2041 at 'BBB'; --6.625% senior notes due 2042 at 'BBB'; --4.3% senior notes due 2043 at 'BBB'; --7.875% junior subordinated debentures due 2042 at 'BB+'; --8.125% junior subordinated debentures due 2068 at 'BB+'. Hartford Financial Services Group, Inc. --Short-term IDR at 'F2'; --Commercial paper at 'F2'. Hartford Life, Inc. --Long-term IDR at 'BBB'; --7.65% notes due 2027 at 'BBB-'; --7.375% notes due 2031 at 'BBB-'. 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+'. Fitch upgrades the following rating with a Stable Outlook: Hartford Life and Accident Insurance Company --IFS to 'A' from 'A-'. Fitch downgrades the following ratings with a Stable Outlook: Hartford Life Insurance Company --IFS to 'BBB+' from 'A-'; --Medium-term note program to 'BBB' from 'BBB+'. Hartford Life Global Funding --Secured notes program to 'BBB+' from 'A-'. Hartford Life Institutional Funding --Secured notes program to 'BBB+' from 'A-'. Hartford Life and Annuity Insurance Company --IFS to 'BBB+' from 'A-'. Contact: Primary Analyst Martha M. Butler, CFA Senior Director +1-312-368-31911 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Bradley S. Ellis, CFA Director +1-312-368-2089 Committee Chairperson Julie A. Burke, CPA, CFA Managing Director +1-312-368-3158 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --Insurance Rating Methodology (Nov. 13, 2013). Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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