Fitch Affirms Hartford's Ratings; Outlook Stable
CHICAGO -- March 19, 2013
Fitch Ratings has affirmed all ratings for the Hartford Financial Services
Group, Inc. (HFSG) and its primary life and property/casualty insurance
subsidiaries. The Rating Outlook is Stable. A full list of ratings follows at
the end of this release.
KEY RATING DRIVERS
Fitch's rating action incorporates HFSG's near-term capital management
initiative, announced in February 2013, which reflects the company's
significantly altered business profile. HFSG's recent sale of its individual
life business to Prudential Financial, Inc. and its retirement plans business
to Massachusetts Mutual Life Insurance, represents the final step in the
company's strategy to focus on its property/casualty, group benefits, and
mutual funds businesses.
These transactions generated a positive net statutory capital impact to
Hartford life of approximately $2.2 billion. This is comprised of an increase
in U.S. life statutory surplus and a reduction in the U.S. life risk-based
As a result, the company's U.S. life subsidiaries paid approximately $1.5
billion to the holding company in the first quarter of 2013. This included a
$1.2 billion extraordinary dividend from its Connecticut domiciled life
insurance companies, primarily Hartford Life and Annuity Insurance Company
(HLAIC). In addition, the company dissolved Champlain Life Reinsurance Co., a
Vermont-based captive subsidiary of HFSG, and returned approximately $0.3
billion of surplus to the holding company.
HFSG expects to utilize this capital for approximately $1.0 billion of debt
repayments over the next year, including maturities in July 2013 ($320
million) and March 2014 ($200 million). This should help the company to reduce
its financial leverage and improve its debt service. HFSG also anticipates
returning capital to shareholders through a $500 million multi-year share
repurchase program that expires at Dec. 31, 2014.
Fitch expects HFSG to maintain a financial leverage ratio at or below 25%
following the successful execution of the company's capital management
actions. HFSG's financial leverage ratio (excluding accumulated other
comprehensive income [AOCI] on fixed maturities) increased to 27.2% at Dec.
31, 2012 from 22.5% at Dec. 31, 2011, due to additional debt issued to redeem
the company's 10% junior subordinated debentures investment by Allianz SE.
HFSG's operating earnings-based interest and preferred dividend coverage has
been reduced in recent years, averaging a low 3.5x from 2008 to 2012. This
reflects both constrained operating earnings and increased interest expense
and preferred dividends paid on capital over this period. Fitch expects HFSG's
run-rate operating earnings-based interest and preferred dividend coverage to
improve to at least 5.0x, with a reduced overall level of fixed charges.
Fitch maintains separate IFS ratings on HFSG's life and property/casualty
companies that reflect each businesses respective financial profile. Fitch
considers the primary life insurance subsidiaries to be non-core as the
majority of life businesses are not considered to be a material strategic
focus of the company.
Fitch continues to rate HFSG's three main life insurance companies as a group,
and thus they all share the same 'A-' IFS rating based on their combined
financial profile, with some uplift from being part of the HFSG organization.
This includes HLAIC, which is no longer writing new business and holds the
large book of runoff annuities. Given its legacy status, in the event of
material changes in capital, reinsurance, asset or liability risk profiles or
branding within HLAIC, Fitch may differentiate its ratings from that of the
active members of the life group, Hartford Life and Accident (HLA) and
Hartford Life Insurance Company (HLIC). Fitch notes HLAIC makes significant
use of reinsurance to captive White River Life Reinsurance Company (WRR) that
is directly owned and supported by HFSG.
The ratings for Hartford life's operations reflect an adequate U.S.
consolidated statutory capital position. While capital generation is expected
to remain flat through 2013, Fitch expects consolidated U.S. life insurance to
remain above the company's 325% RBC targets for its life operations and 125%
for its VA captive operation, WRR.
The key rating triggers that could result in an upgrade to HFSG's debt ratings
include a financial leverage ratio maintained near 20%, maintenance of at
least $1 billion of holding company cash, and interest and preferred dividend
coverage of at least 6x. Continued success with the strategic plan and
successful seasoning of run-off operations would also be considered favorably.
Fitch considers a rating upgrade to be unlikely in the near term for HFSG's
life and property/casualty insurance subsidiaries.
The key rating triggers that could result in a downgrade include significant
investment or operating losses that materially impact GAAP shareholders'
equity or statutory capital within the insurance subsidiaries, particularly as
they relate to any major negative surprises in the runoff VA business; a
financial leverage ratio maintained above 25%; a sizable drop in holding
company cash; failure to improve interest and preferred dividend coverage; and
an inability to execute on the company's strategic plan.
Fitch affirms the following ratings with a Stable Outlook:
Hartford Financial Services Group, Inc.
--Long-term IDR at 'BBB+';
--$320 million 4.625% notes due 2013 at 'BBB';
--$200 million 4.75% notes due 2014 at 'BBB';
--$300 million 4.0% senior notes due 2015 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';
--$325 million 4.0% senior notes due 2017 at 'BBB';
--$500 million 6.3% notes due 2018 at 'BBB';
--$500 million 6% notes due 2019 at 'BBB';
--$499 million 5.5% senior notes due 2020 at 'BBB';
--$796 million 5.125% senior notes due 2022 at 'BBB';
--$298 million 5.95% notes due 2036 at 'BBB';
--$299 million 6.625% senior notes due 2040 at 'BBB';
--$325 million 6.1% notes due 2041 at 'BBB';
--$424 million 6.625% senior notes due 2042 at 'BBB';
--$600 million 7.875% junior subordinated debentures due 2042 at 'BB+';
--$500 million 8.125% junior subordinated debentures due 2068 at 'BB+';
--$556 million 7.25% mandatory convertible preferred stock, series F at 'BB+'.
Hartford Financial Services Group, Inc.
--Short-term IDR at 'F2';
--Commercial paper at 'F2'.
Hartford Life, Inc.
--Long-term IDR at 'BBB';
--$149 million 7.65% notes due 2027 at 'BBB-';
--$92 million 7.375% notes due 2031 at 'BBB-'.
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+'.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--Insurance Rating Methodology (Jan. 11, 2013).
Applicable Criteria and Related Research
Insurance Rating Methodology - Amended
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
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.
Brian C. Schneider, CPA, CPCU, ARe
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
R. Andrew Davidson, CFA
Keith M. Buckley, CFA
Press spacebar to pause and continue. Press esc to stop.