Rating agencies A.M. Best Co. and Standard & Poor's have revised their outlook on The Hartford Financial Services Group after the company received a $2.5 billion cash infusion from competitor Allianz AG in exchange for a stake in the firm.

A.M. Best Co. placed The Hartford's "A-plus" financial strength (FSR) ratings under review with negative implications. Best also placed under review with negative implications the "a" issuer credit ratings (ICR) and all debt ratings of The Hartford, and the "aa-minus" ICR of the company's key life and health and property-casualty subsidiaries.

Standard & Poor's Ratings Services said it has revised its outlook on The Hartford to negative from stable but has affirmed the company's "A" counterparty credit rating and the "AA-minus" counterparty credit and financial strength ratings on all of The Hartford's core insurance operating subsidiaries.

Both rating agencies cited circumstances surrounding The Hartford's deal with Allianz in which Allianz will receive a stake in The Hartford in exchange for a $2.5 billion cash infusion.

As reported yesterday by NU Online News Service, The Hartford sought a cash infusion in advance of announcing projected losses due to the market turmoil.

Additionally, before the cash infusion announcement, Fitch ratings had revised The Hartford's rating outlook from stable to negative, citing potential troubled assets in its portfolios.

Best said it is "evaluating the ultimate impact of these events--as well as the risks associated with continued market dislocation and increased financial leverage--on the ratings of The Hartford and its insurance subsidiaries."

Standard & Poor's said its adjustment is due to The Hartford's announcement that it expects to report "material asset impairments estimated at $2.1 billion to $2.2 billion after taxes and will take a significant deferred acquisition cost (DAC) write-down estimated at $915 million."

The rating agency added, "The negative outlook on [The Hartford] reflects its reduced financial flexibility because of the increase in leverage and the associated material reduction in fixed-charge coverage levels resulting from the high servicing costs on the [Allianz] investment and the expected softening of its operating performance."

The ratings and the outlook for The Hartford's core insurance subsidiaries remain unchanged, Standard & Poor's said, because "the fundamentals" of the company's life and p-c operations remain strong.

Standard & Poor's credit analyst Robert A. Hafner said he expects The Hartford's operating performance to be strong but below recent record earnings because of the continuing soft market and higher credit losses resulting from the economic downturn.

"The company's effective expense management and underwriting discipline will help support continued earnings strength and limit the decline in earnings through the cycle," Standard & Poor's said.

"In addition, management's aggressive action to raise $2.5 billion of additional capital ensures that it is among the U.S. insurance companies best positioned to weather the current economic downturn and maintain its competitive advantages and consumer confidence," the rating service commented.

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