Fitch: Possible Hartford Split of P&C, Life Operations Could Have Ratings Impact

Staff Writer
Property & Casualty 360
Feb, 17, 2012

NU Online News Service, Feb. 17, 8:42 a.m. EST: If the Hartford decides to split its property and casualty and life operations, as proposed by a hedge fund manager who owns an 8.4 percent stake in the company, insurer financial strength ratings could be affected depending on how each entity holds up to an analysis, says Fitch Ratings.

“While we do not speculate on the likelihood of a split occurring, Fitch would review any announced transaction for its impact on the credit quality and financial strength of the resulting company structure,” the ratings agency says in a statement.

Fitch says its analysis would focus on the new entities’ debt-service capabilities and financial flexibility. Fitch ads that cash to service debt is dependent on dividends from operating-company subsidiaries, and notes that only the P&C operations have provided dividend capacity in recent years.

“Any analysis of a proposed split would consider the allocation of holding company debt between the life and P&C companies and the capitalization and leverage metrics of the individual standalone entities,” says Fitch.

Additionally, Fitch notes that the company’s P&C companies served as a source of capital to the life operations when those companies struggled during the financial crisis. “While we do not expect the P&C insurance operations will be needed to fund potential future capital needs of the life companies, the P&C companies continue to have the ability to provide such support,” says Fitch. “This could serve as a particularly valuable source of financial flexibility should the life operations require an additional capital boost.”

Fitch also says consideration would be given to the willingness and ability of the parent company to provide support to the separate entities, as well as the impact to the company’s business position, franchise value and management team.

Finally, Fitch says market reaction to a split would be “significant.” The ratings agency contends, “Each stakeholder has a particular interest in the company that has to be considered and balanced relative to the interests of the others, and our analysis of these more qualitative credit factors remains an important part of any rating review.”

Currently, Fitch rates The Hartford’s life-insurance subsidiaries A- and the P&C subsidiaries A+.

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