Overall, Fitch Ratings views as positive Hartford Financial Services Group, Inc.'s (HFSG) announcement that it will participate in the U.S. Treasury's Capital Purchase Program (CPP) and that it also intends to raise equity capital. Fitch believes that CPP eligibility enhances near-term financial flexibility in a period of challenging capital markets access, and could ultimately help stabilize ratings. One exception, however, is Fitch's belief that the receipt of government support and the accompanying tighter debt service requirements could increase risk of deferral for hybrid securities, particularly given the sizable amount of CPP funds relative to the existing capital structure.
Accordingly, Fitch has placed the following HFSG hybrid security ratings on Rating Watch Negative:
--$500 million 8.125% junior subordinated debentures due 2068 'BB+';
--$1.75 billion 10% junior subordinated debentures due 2068 'BB+'.
Fitch expects to resolve the Negative Watch following finalization of the terms and conditions and receipt of the CPP funds, which will most likely result in a one notch downgrade of the hybrid securities.
Fitch has also affirmed the Issuer Default Rating (IDR) and senior debt ratings of HFSG and the Insurer Financial Strength (IFS) ratings of HFSG's primary life and property/casualty insurance subsidiaries. The affirmation reflects Fitch's more positive view on receipt of CPP funds to the overall organization, as well as the company's announced discretionary equity issuance plan to issue up to $750 million of common stock from time to time. A full list of rating actions follows at the end of this release.
Fitch's Negative Outlook for the ratings that were affirmed continues to reflect HFSG's exposure to the volatile credit and investment market conditions, particularly in its variable annuity business and asset portfolio. Also, the added debt service on the CPP funds increases HFSG's cash needs and reduces holding company interest coverage margins, although the company has also substantially reduced its quarterly common share dividend by 90% to conserve cash. If the company suffers additional significant losses, the ratings could be lowered. However, if the company is able to improve its earnings and generate internal capital growth, the Outlook could return to Stable.
The Negative Outlook also reflects Fitch's concerns about the potential impact to HFSG's business position, franchise value and management team as a result of recent financial stress and its need to participate in CPP, particularly given the federal government restrictions imposed on companies. Fitch anticipates that the company will focus in the near-term on mitigating any such disruptions so as to preserve the long-term success of the business. Any actual impact of these changes will be monitored closely in Fitch's rating analysis going forward.
HFSG also maintains financial flexibility with approximately $1 billion available in holding company cash following the company's repayment of $375 million borrowed under the Federal Reserve's Commercial Paper Funding Facility. The source of this remaining cash is primarily the $1 billion from Allianz SE that was not contributed to the life insurance operations following Allianz's $2.5 billion investment in Hartford in the fourth quarter of 2008. Additional financial flexibility is provided through a $1.9 billion revolving credit facility and a $500 million contingent capital facility.
Fitch has placed the following ratings on Negative Watch:
Hartford Financial Services Group, Inc.
--$500 million 8.125% junior subordinated debentures due 2068 'BB+';
--$1.75 billion 10% junior subordinated debentures due 2068 'BB+'.
Fitch has affirmed the following ratings with a Negative Rating Outlook:
Hartford Financial Services Group, Inc.
--Long-Term IDR at 'BBB';
--$275 million 7.9% notes due 2010 at 'BBB-';
--$400 million 5.25% notes due 2011 at 'BBB-';
--$319 million 4.625% notes due 2013 at 'BBB-';
--$199 million 4.75% notes due 2014 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-';
--$500 million 6.3% notes due 2018 at 'BBB-';
--$499 million 6% notes due 2019 at 'BBB-';
--$298 million 5.95% notes due 2036 at 'BBB-';
--$323 million 6.1% notes due 2041 at 'BBB-';
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Hartford Life, Inc.
--Long-term IDR at 'BBB';
--$147 million 7.65% notes due 2027 at 'BBB-';
--$92 million 7.375% notes due 2031 at 'BBB-';
--Short-term IDR at 'F2'.
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+'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
Contacts:
Fitch Ratings, Chicago
Brian C. Schneider, CPA, CPCU, 312-606-2321
R.
Andrew Davidson, CFA, 312-368-3144
Gregory W. Dickerson,
212-908-0220, New York
or
Media Relations:
Brian Bertsch,
212-908-0549, New York
Email: brian.bertsch@fitchratings.com