S&P Downgrades The Hartford's Life Subsidiaries

HLAI, a subsidiary of HLIC, contains most of the legacy U.S. variable-annuity block that is to be placed into run-off. HLAI also writes individual life business, which S&P expects Hartford to divest. The downgrade to 'BBB+' from 'A' and negative outlook reflects our opinion that HLAI's capitalization will fluctuate as a result of the equity markets' effect on the variable-annuity liabilities, and its reliance on the effectiveness of a large variable-annuity hedging program.

HILRE, a subsidiary of HLIC, reinsures Hartford's institutional private placement business. The downgrade to 'A-' from 'A' reflects management's reduced focus on the life insurance business.

AML contains the legacy block of life insurance business written to AARP members. We affirmed the 'A-' rating on AML. S&P acknowledges that Hartford remains committed to AARP members for P/C operations.

The stable outlook on HIG and the Hartford P/C business reflects S&P's opinion that the group will sustain its strong competitive position and business profile in the consumer and commercial segments. S&P could raise the ratings on the holding company and the P/C operations if the group successfully executes its new strategic plan, thus reducing its leverage and market risk throughout the organization, and if HIG maintains its favorable P/C business profile and manages the overall enterprise's risk effectively.

S&P could take negative rating action on HIG if the P/C operation's competitive position weakens, equity markets decline sharply, and ongoing operating results (excluding catastrophe losses) deteriorate, taking HIG's fixed-charge coverage below 4x.

S&P could take further negative rating action on the life subsidiaries if other economic pressures force capitalization below the strong levels expected for the rating. The rating agency sees little prospect of positive rating action, given that the businesses in the life subsidiaries are likely to be sold or restructured.