Tuesday, March 3, 2009

Hartford Downgraded For Third Time In Month, Has "Limited Financial Flexibility"

Hartford Financial was downgraded by S&P for the third time in a month, this time from BBB+ to BBB, a mere two notches above being considered full blown junk. In its statement, S&P said:

The downgrade reflects our opinion that Hartford's earnings, capitalization, and financial flexibility have been weakened considerably byt he deepening equity market decline, continuing volatility, and significant asset impairments in the past two quarters," explained Standard & Poor's credit analyst Shellie Stoddard. "We believe the uncertainty of this financial stress could erode Hartford's brand and diverse competitive advantages, particularly in certain lines of business."
It is not immediately clear what changed so quickly from February 26th, when the company got whacked from A- to BBB+ but lots of things must have happened to warrant as wordy as report as S&P put out today. The rating agency concludes with this ominous warning, de facto saying HIG could be considered insolvent.

Using assumptions based on the market levels of the past week, we estimate that the additional capital required to fund Hartford's potential increase in variable-annuity reserves and the additional capital charge under the asset stress assumptions could meaningfully exceed the undeployed capital resources Hartford has on its balance sheet, including funds currently at the holding company. If these market declines were to persist or worsen, HIG will need to increase financial leverage materially to cover the funding shortfall at Hartford Life. The cost of existing leverage resources--a bank line of credit and its contingent capital facility--is relatively low. But in a worsening environment, if Hartford needs to access the capital markets, its cost of capital would be dramatically higher, which adversely affects our opinion of its financial flexibility.
To top it off, S&P gave HIG a negative outlook... One can not help but almost feel sorry for all the insurance companies which are all likely to follow in AIG's footsteps very soon. Sphere: Related Content
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