Update: Fitch Anticipates Possible Split of The Hartford
The ratings agency lays out the possible ratings implications of the split demanded by John Paulson yesterday.
Insurance Networking Ratings Corner, February 16, 2012
In the wake of yesterday’s demand from John Paulson that The Hartford Financial Services Group split into two companies, Fitch is anticipating the possible ratings implications of such a move.
After the financial crisis in early 2009, the ratings agency already split the ratings of The Hartford’s life and property/casualty segments to reflect diverging operating performances. Currently, the insurer’s life insurance subsidiaries maintain a financial strength ratings of ‘A-,‘ while the property/casualty segment maintains an ‘A+’ rating.
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In the case of a split, Fitch would focus on “any new entities' debt service capabilities and financial flexibility, as cash to service debt is dependent on dividends from the operating company subsidiaries.” In the recent past, property/casualty companies have served as a source of capital to life companies, which have suffered lower margins and increased hedging costs since the 2009 financial crisis.
Fitch does not expect that type of funding to be needed by the life companies, it would still be an option, maintaining a “particularly valuable source of financial flexibility.”
Fitch also noted that while market perception to a split is still a significant unknown, some investors are pushing for a split, indicating the potential profitability of such a move.
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