A.M. Best Co. has downgraded the financial strength ratings andthe issuer credit ratings of the key property-casualty insurancesubsidiaries of The Hartford Financial Services Group, due to thestrain placed on the subsidiaries by The Hartford's lifeoperations.

The Oldwick, N.J.-based rating agency lowered the p-csubsidiaries' (called Hartford Insurance Pool) FSR to "A" with astable outlook from "A-plus," and lowered the ICR to "a-plus" witha negative outlook from "aa-minus".

The ICR of The Hartford also was lowered to "bbb-plus" with anegative outlook from "a-minus." Additionally, the FSR of three keyHartford life and health subsidiaries (collectively called HartfordLife) were lowered to "A" from "A-plus," and the ICR to "a-plus"from "aa-minus".

A.M. Best cited the recent performance of Hartford Life'sgeneral account investment portfolio and retail variable annuitybusinesses in light of the current economic environment as drivingthe downgrade. The rating agency also pointed to the potential fora material decline in the company's risk-based capital positionshould the current economic climate--particularly the equitymarkets--continue to deteriorate.

A.M. Best said it "remains concerned over the future performanceof Hartford Life's commercial mortgage investments--both wholeloans and structured securities--as it expects rising defaults inresponse to the deepening recession."

These concerns regarding Hartford Life, in addition to thereduced financial flexibility of the holding company, led to thedowngrade of Hartford Insurance Pool.

In addition, A.M. Best said uncertainties exist regarding thepotential for continued investment losses due to volatile capitalmarkets and the further strain that this may place on risk-adjustedcapitalization.

The rating agency expressed concern regarding the potential foradditional dividends out of the property-casualty companies "shouldextraordinary additional capital be provided to the [life andhealth] operations."

But A.M. Best said Hartford Insurance Pool's ratings "recognizeits continued supportive risk-adjusted capitalization, strongunderwriting fundamentals and solid business position within theproperty-casualty industry."

A.M. Best added that the stable outlook on Hartford InsurancePool's FSR "reflects A.M. Best's view that it is well positioned tomanage challenging property-casualty market dynamics such asreduced pricing and increased competition, due to its significantdepth and breadth of operations, generally conservativeunderwriting practices, effective utilization of multipledistribution channels and supportive risk-adjustedcapitalization."