S&P downgrades Phoenix

Standard & Poor's said it lowered the counterparty credit rating on Phoenix Cos. Inc. to B+ from BB- and affirmed the BBB- counterparty credit rating on the operating subsidiaries Phoenix Life Insurance Co., PHL Variable Insurance Co. and AGL Life Assurance Co.

The outlook is negative.

"We lowered our ratings following Phoenix's release of results for the first quarter of 2009, which included an operating loss of $117.8 million, declining sales, and a $143.9 million, or 17%, decline in statutory surplus and asset valuation reserve," S&P analyst Adrian Pask said in a statement.

The operating company ratings reflect the consistent profitability of Phoenix's closed block and its ability to absorb investment losses through the policyholder dividend mechanism, as well as the potential to monetize the closed block embedded value, the agency said.

Ratings also reflect a strong investment portfolio and operating company liquidity, the agency noted.

These strengths are offset by a significantly weakened competitive position after the suspension of two key distribution partners as well as the potential for negative net flows in 2009 as a result of slowing sales and increased surrenders in both life insurance and annuities, S&P said.

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