Fitch Ratings has affirmed all Issuer Default Ratings (IDRs), debt and Insurer Financial Strength (IFS) ratings for the Hartford Financial Services Group, Inc. (HFSG) and its primary life and property/casualty insurance subsidiaries. The Rating Outlook is Stable.
Fitch's rating action follows HFSG's announcement today that going forward the company will focus on property/casualty commercial and consumer markets, group benefits, and mutual funds businesses. As such, individual annuity will be placed into run off and HFSG will pursue divestiture options for individual life, Woodbury Financial Services and retirement plans.
Fitch already maintains separate IFS ratings on HFSG's life and property/casualty companies that reflect each businesses respective stand-alone financial profiles. HFSG's life insurance subsidiaries maintain 'A-' IFS ratings, which are two notches below the property/casualty IFS ratings of 'A+'. This approach was implemented in February 2009 during the financial crisis to reflect the divergence in operating performance and balance sheet strength between the life and p/c operations.
HFSG's strategic announcement today does not significantly change Fitch's assessment of the life and property/casualty operating companies' financial strength. Fitch expects that HFSG will continue to support its insurance subsidiaries and maintain insurance company capitalization that is consistent with the current ratings, with HFSG not expected to sell any insurance operating companies as part of any divestiture of businesses. While the plan creates execution risk and has the potential to impact HFSG's business position and franchise value of its ongoing businesses, Fitch considers these risks to be manageable.
Favorably, a successful execution of HFSG's strategy could improve the company's financial flexibility, particularly to the extent that sales proceeds increase holding company cash, fixed maturities, and short-term investments (approximately $1.6 billion at Dec. 31, 2011) that could potentially be used to reduce debt. As such, Fitch would most likely consider a positive rating action on HFSG's IDR and debt ratings before the company's IFS ratings, reflecting an improvement in notching between insurance company ratings and holding company ratings.
Fitch's rationale for the affirmation of HFSG's ratings reflects the company's overall profitable results, reasonable financial leverage and sizable levels of holding company cash and financial resources. The ratings also reflect HFSG's lower level of recent investment related impairments and exposure to credit and investment risks, particularly in its life asset portfolio where its above-average exposure to commercial real estate-related investments is declining.
HFSG's capital position improved in 2011, with GAAP shareholders' equity of $22.9 billion at Dec. 31, 2011, up 13% from $20.3 billion at Dec. 31, 2010. HFSG's equity credit-adjusted debt-to-total capital ratio (including accumulated other comprehensive income) remains reasonable at 21.3% at Dec. 31, 2011, down from 24.5% at Dec. 31, 2010.
