At the same time, S&P affirmed its 'BBB/A-2' ratings on HIG itself and those on its holding company debt, and its property/casualty (P/C) insurance operating subsidiaries. It also affirmed the 'A-' rating on American Maturity Life Insurance Co. (AML). The outlook on HLAI is negative, and the outlook on all other Hartford entities is stable.
The rating actions reflect a change in S&P’s view of Hartford Life's group status, given that its ultimate parent, HIG, today announced that it intends to withdraw sales of individual annuities while seeking to sell its individual life and retirement plan businesses. The revised ratings are based on each subsidiaries' stand-alone credit characteristics and the reduced implied support from the parent.
S&P expects HIG to remain highly committed to its consumer and commercial segments, where it enjoys leading market shares in the small commercial market segment and a long-term affinity relationship with AARP. The group benefits business (group life and disability insurance) remains a component of the commercial market, for which Hartford has indicated continued focus and commitment.
Hartford will discontinue new sales of domestic individual annuities on April 27, 2012, putting that business into run-off. The company will also initiate sales processes for its individual life and retirement plans businesses, as well as for Woodbury Financial Services, Hartford's independent broker-dealer. For now, these businesses remain part of the consolidated group and retain their access to the strong consolidated capital resources and liquidity of the consolidated company.
HLA is HIG's organizational lead life insurance operating company, and predominantly underwrites the group benefits book of business. The downgrade to 'A-' from 'A' reflects its stand-alone credit characteristics of higher incidence levels relative to peers and depressed earnings recently experienced in group benefits, offset by the business' strong competitive position.
HLIC, a subsidiary of HLA, is the predominant writer of HIG's individual retirement plans, fixed annuities, and institutional investment products. The downgrade to 'A-' from 'A' reflects the uncertainty of earnings under current market conditions, offset by HLIC's strong competitive position and good capitalization.
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.