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Published on 5/12/2003 in the Prospect News Convertibles Daily.

Moody's puts Hartford on review for downgrade

Moody's Investors Service placed the A2 debt ratings of The Hartford Financial Services Group Inc. and Hartford Life Inc. under review for possible downgrade, including the 6% mandatory at A2, following its $1.7 billion net after-tax asbestos charge.

The Aa3 insurance financial strength ratings was confirmed, but the outlook was changed to negative from stable, reflecting lower profitability as a result of the down equity markets and credit losses on its investment portfolio.

However Moody's said it views the asbestos reserve strengthening as comprehensive and conservative.

Expanding on the possible downgrade, Moody's noted that Hartford's financial leverage is high for its rating category. Further, while Moody's views the proposed $1.85 billion capital-raising favorably given the substantial equity content, it will also increase the amount of on-going funding needed by the parent to meet increased fixed charges and common stock dividends over time, which will add incremental pressure to coverage ratios.

Hartford Life has good asset quality and ample liquidity, and is a well-managed with strong brand enhanced by a solid record in customer service.

Those positive credit factors are tempered by significant financial leverage, competition in core segments and exposure to catastrophes. Dividend capacity and coverage of fixed charges is peer averages, though.

The negative outlook on the life insurance subsidiaries recognizes that the statutory surplus as well as earnings have come under pressure over the past two years. While there are some initial signs of improvement, the credit profile has shifted with increased volatility around earnings capabilities.

S&P puts Hartford on watch

Standard & Poor's put The Hartford Financial Services Group Inc. on CreditWatch negative.

S&P said the action follows the the company's first-quarter announcement of a $2.6 billion (net of reinsurance and before tax) asbestos charge.

The ratings will remain on CreditWatch until management is successful in raising close to $2 billion of external capital, which should be concluded before the close of the second quarter, S&P said.

Upon successful completion and all else being equal, S&P said it will remove all of the Hartford ratings from CreditWatch, affirm them, and assign a stable outlook.

S&P said it believes that asbestos is a capital issue and not an earnings-quality issue. To the extent companies can adequately absorb or fund that exposure through internal or external means, ratings will not be affected.

The Hartford has put together a comprehensive plan that will adequately address its exposure in this area, S&P said. However, the organization's capitalization and financial flexibility will be adversely affected, at least in the short-term.


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