The Hartford, already reeling from soured investments and a $2.6 billion net loss, got another disappointment Friday — one rating agency's downgrade — and it might be followed by more.
Analysts, meanwhile, weighed the bleak odds on how The Hartford Financial Services Group might be able to raise more capital if necessary.
Fitch Ratings dropped its ratings a notch on The Hartford's senior debt, insurance financial strength, and other ratings late Friday. The agency said volatile credit and investment market conditions are "negatively impacting its asset portfolio as well as earnings and capital needs in its variable annuity business."
Other rating agencies have a negative watch or outlook on some of The Hartford's ratings. Even with relatively high ratings like The Hartford's, downgrades are dreaded because they can affect the cost of borrowing and sales — especially in the current panicky environment.
Fitch lowered financial strength ratings on The Hartford's main life and property-casualty insurance subsidiaries to AA- from AA, still in the "very strong" range. Senior debt was dropped to A- from A, still in the high credit quality range.
The Hartford responded Friday that it is "financially strong and well capitalized, and our liquidity position is outstanding. Despite our recent challenges, we are very confident in our capital position and ability to meet all our policyholder obligations. The Hartford does not have a solvency issue."
Also Friday, Bank of America analyst Alain Karaoglan downgraded The Hartford's stock to neutral from buy because of uncertainty surrounding the company's capital position. The downgrade came the day after the company's stock plunged 52 percent on capital concerns. The stock closed up 70 cents at $10.32 a share Friday in a rising market.
"While we still see value in the stock from a fundamental standpoint and a good franchise," Karaoglan wrote to investors, "for financial stocks, a perception of fear and risk often unfortunately becomes a reality."
The Hartford has already raised $2.5 billion of capital in a deal last month to sell a minority stake of the company to German insurer Allianz.
In a note to investors Friday before the Fitch downgrade, Barclays Capital analyst Eric Berg told clients "there are precious few options" for The Hartford to raise more capital to avoid downgrades.
"While it is certainly possible that the company is acquired, that it gets more capital from its new partner [Allianz], or that it receives U.S. government-provided capital, we think it is even more likely that none of these scenarios plays out — and that Hartford continues to suffer strains on its capital from credit losses and from the sharp drop in equity markets," Berg wrote.
Reprinted with permission of the Hartford Courant.
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