S&P cut the counterparty credit rating to BBB from BBB+ and said capital needed to fund Hartford’s variable-annuity business could “meaningfully exceed” the amount that’s not committed to other parts of the company, according to a statement made on Tuesday.
“Hartford's earnings, capitalization, and financial flexibility have been weakened considerably by the deepening equity market decline, continuing volatility, and significant asset impairments in the past two quarters,” the statement said. “The uncertainty of this financial stress could erode Hartford's brand.”
Life insurers are setting aside more funds to cover potential payouts to customers who were given minimum-return guarantees on variable annuities linked to the performance of stock markets. With the S&P 500 below 700, those guarantees absorb almost all the excess capital at Hartford and rival Prudential Financial Inc., according to Randy Binner, an analyst at Friedman, Billings, Ramsey Group Inc.
“At this point, most of the companies are at least at risk of having to raise capital,” Binner said. “Investors are increasingly uncomfortable with the space.”
Chief Executive Officer Ramani Ayer is cutting jobs and seeking government aid to replace capital depleted by investment declines. Hartford, with a stag logo and a Web site that says “trusted since 1810,” slashed its dividend 84 percent last week after posting an $806 million fourth-quarter loss and missing its own capital target.