Oct. 31 (Bloomberg) -- Hartford Financial Services Group Inc., the Connecticut-based life and property-casualty insurer that reported a $2.63 billion loss, had its credit grade cut by Fitch Ratings as investment declines eroded capital.

The downgrade reflects the insurer's ``exposure to the current volatile credit and investment market conditions,'' Fitch said today in a statement about the Hartford, Connecticut-based company. Hartford said in a statement it ``does not have a solvency issue.''

Chief Executive Officer Ramani Ayer secured a $2.5 billion investment from Germany's Allianz SE three weeks ago to cushion against declines in the insurer's holdings. Hartford, whose stock is down 88 percent this year, was rocked by the declining value of equities that back client annuities and a slump in bonds tied to ailing financial companies.

``While the additional capital provided by Allianz is a positive, Fitch considers the net capital position to have been negatively impacted since mid-2008,'' the ratings firm said.

Fitch cut Hartford's issuer default rating to A from A+ and said a further reduction is possible.

``There are some businesses that will get impacted by a downgrade,'' including the unit that sells life insurance to institutional customers, Ayer said in a conference call with analysts Oct. 29 after the company posted the third-quarter loss.

`Financially Strong'

``Hartford is financially strong and well capitalized, and our liquidity position is outstanding,'' Shannon Lapierre, a spokeswoman for the insurer said in an e-mail. ``Despite our recent challenges, I am very confident in our capital position and ability to meet all our policyholder obligations.''

Hartford said in a statement earlier in the day that the company had $10 billion in liquidity as of Sept. 30 including cash and short-term investments of $7.3 billion, and the insurer is able to access $1.9 billion from a bank credit facility.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: October 31, 2008 17:43 EDT