A.M. Best Co. has downgraded the financial strength ratings and the issuer credit ratings of the key property-casualty insurance subsidiaries of The Hartford Financial Services Group, due to the strain placed on the subsidiaries by The Hartford's life operations.

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

The ICR of The Hartford also was lowered to "bbb-plus" with a negative outlook from "a-minus." Additionally, the FSR of three key Hartford life and health subsidiaries (collectively called Hartford Life) 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's general account investment portfolio and retail variable annuity businesses in light of the current economic environment as driving the downgrade. The rating agency also pointed to the potential for a material decline in the company's risk-based capital position should the current economic climate--particularly the equity markets--continue to deteriorate.

A.M. Best said it "remains concerned over the future performance of Hartford Life's commercial mortgage investments--both whole loans and structured securities--as it expects rising defaults in response to the deepening recession."

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

In addition, A.M. Best said uncertainties exist regarding the potential for continued investment losses due to volatile capital markets and the further strain that this may place on risk-adjusted capitalization.

The rating agency expressed concern regarding the potential for additional dividends out of the property-casualty companies "should extraordinary additional capital be provided to the [life and health] operations."

But A.M. Best said Hartford Insurance Pool's ratings "recognize its continued supportive risk-adjusted capitalization, strong underwriting fundamentals and solid business position within the property-casualty industry."

A.M. Best added that the stable outlook on Hartford Insurance Pool's FSR "reflects A.M. Best's view that it is well positioned to manage challenging property-casualty market dynamics such as reduced pricing and increased competition, due to its significant depth and breadth of operations, generally conservative underwriting practices, effective utilization of multiple distribution channels and supportive risk-adjusted capitalization."

Special Reports /

Hartford P-C Subsidiaries Downgraded By A.M. Best

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