Hartford Cut by S&P on Concern for Insurer's Brand (Update2)

By Erik Holm
Bloomberg News
March 3, 2009

March 3 (Bloomberg) -- Hartford Financial Services Group Inc., the insurer that lost $2.75 billion last year, was downgraded by Standard & Poor's for the third time in a month on concern that the deepening recession may hurt the brand.

S&P cut the counterparty credit rating to BBB from BBB+ and said capital needed to fund Hartford's variable-annuity business could "meaningfully exceed" the amount that's not committed to other parts of the company, according to a statement today.

"Hartford's earnings, capitalization, and financial flexibility have been weakened considerably by the deepening equity market decline, continuing volatility, and significant asset impairments in the past two quarters," the statement said. "The uncertainty of this financial stress could erode Hartford's brand."

Life insurers are setting aside more funds to cover potential payouts to customers who were given minimum-return guarantees on variable annuities linked to the performance of stock markets. With the S&P 500 below 700, those guarantees absorb almost all the excess capital at Hartford and rival Prudential Financial Inc., according to Randy Binner, an analyst at Friedman, Billings, Ramsey Group Inc.

"At this point, most of the companies are at least at risk of having to raise capital," Binner said. "Investors are increasingly uncomfortable with the space."

Chief Executive Officer Ramani Ayer is cutting jobs and seeking government aid to replace capital depleted by investment declines. Hartford, with a stag logo and a Web site that says "trusted since 1810," slashed its dividend 84 percent last week after posting an $806 million fourth-quarter loss and missing its own capital target.

'Negative Implications'

The life and property insurer said in a regulatory filing Feb. 12 that a ratings cut may "have negative implications for our competitive position. We may also need to raise additional capital or consider other transactions to manage our capital position and liquidity."

Company executives have said that some of the effects of a downgrade would be mitigated by rivals also being cut by ratings firms. Standard & Poor's cut 10 life insurers Feb. 27, when it last reduced Hartford's credit grade to BBB+ from A-.

"We're in with a pack of firms that are getting challenged from a ratings standpoint," said John Walters, the president of Hartford's life insurance business, in a conference call with analysts and investors on Feb. 6. "That said, it will present a headwind that we'll have to work our way through."

The shares, which fell 9.4 percent today to $4.63 in 4:15 p.m. New York Stock Exchange composite trading, have tumbled from more than $106 in 2007 as investors grew concerned that insurers might run short on assets needed to pay claims. The stock fell another 48 cents, or 10 percent, at 5:29 p.m. in after-hours trading.

Shannon Lapierre, a Hartford spokeswoman, declined to comment on the downgrade in an e-mail.

American International Group Inc., whose advertising slogan used to state that the insurer had "the strength to be there," changed the name of an auto insurance unit that sells coverage on the internet and said this week it would rebrand its commercial insurance operations. AIG yesterday said it lost $61.7 billion in the fourth quarter, the biggest loss of any corporation in U.S. history.

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