NU Online News Service, Feb. 17, 8:42 a.m.EST

If the Hartford decides to split its property and casualty andlife operations, as proposed by a hedge fund manager who owns an 8.4 percent stakein the company, insurer financial strength ratings could beaffected depending on how each entity holds up to an analysis, saysFitch Ratings.

“While we do not speculate on the likelihood of a splitoccurring, Fitch would review any announced transaction for itsimpact on the credit quality and financial strength of theresulting company structure,” the ratings agency says in astatement.

Fitch says its analysis would focus on the new entities'debt-service capabilities and financial flexibility. Fitch ads thatcash to service debt is dependent on dividends fromoperating-company subsidiaries, and notes that only the P&Coperations have provided dividend capacity in recent years.

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

Additionally, Fitch notes that the company's P&C companiesserved as a source of capital to the life operations when thosecompanies struggled during the financial crisis. “While we do notexpect the P&C insurance operations will be needed to fundpotential future capital needs of the life companies, the P&Ccompanies continue to have the ability to provide such support,”says Fitch. “This could serve as a particularly valuable source offinancial flexibility should the life operations require anadditional capital boost.”

Fitch also says consideration would be given to the willingnessand ability of the parent company to provide support to theseparate entities, as well as the impact to the company's businessposition, franchise value and management team.

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

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