Credit rating giant Moody’s Investors Service has upgraded The Hartford Financial Services Group, Inc.’s (HIG - Free Report) long-term debt ratings from senior to Baa 1 from Baa2. This followed the company’s announcement of its completion of Talcott Resolution’s sale to an investor group.
The agency has also affirmed that its Prime-2 short term debt rating, A1 insurance financial strength ratings (IFS) of its principal US property/casualty insurance subsidiaries along with the A2 insurance financial strength rating of Hartford Life & Accident Insurance Company are unaffected. The outlook of the ratings remains stable.
The upgrade of the property and casualty insurance leader’s long-term debt ratings by the credit rating agency shows its enhanced credit profile after the Talcott sale. The transaction has been able to ease organizational complications as well as decrease exposure to stress-case scenarios, which should fortify the company’s capital and earnings in the future.
With increasing financial leverage due to the loss incurred from the sale of Talcott, the company’s management announced its intension to use $400 million of sale proceedings for additional debt repayment along with $500 million in previously announced debt clearances.
The Hartford's Baa1 senior debt rating is a notch lower from the IFS ratings of the main operating units, which is largely driven by the A1 IFS rating of the P&C group.
The factors that could probably lead to the company’s rating upgrade are the enhanced IFS ratings of lead operating P&C and/or life companies, a long-term decrease in gross underwriting leverage and the financial leverage in mid to low 20% range with restricted cash flow leverage of interest of 6x and above. Also, consistent returns on capital with reduced concentration on worker’s compensation might also influence this upside.
On the flip side, factors leading to a downgrade include decline in the IFS ratings of the company’s leading operating P&C and/or life companies, restricted gross underwriting leverage more than 4.5x, decrease in shareholders’ equity, which is greater than 10% over a year’s time period, as well as the financial leverage, sustained above 30% with a cash flow coverage of 4x or lower level of interest.
Sale of Talcott Resolution
The company recently closed its Talcott Resolution sale, its run-off life and annuity business, for $2.05 billion to an investors’ group. The transaction was executed on May 31, 2018. It has also retained around $700 million in tax benefits. The new entity will operate under the name of Talcott Resolution.
The sale enhanced the company’s flexibility as well as its business mix. However, the investment management team still maintains a five-year pact for managing a significant portion of its investment portfolio.
The transaction was wrapped up through cash, pre-closing cash dividend, debt and a 9.7% ownership interest in the new company by the Hartford.
In the past year, shares of this Zacks Rank #3 (Hold) company have gained 6.15%, outperforming the industry’s decline of 2.36%.
Stocks to Consider
A few better-ranked stocks from the multiline insurance sector are Cigna Corporation (CI - Free Report) , MetLife, Inc. (MET - Free Report) and Kemper Corporation (KMPR - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.
Cigna is a health services organization, providing insurance and related products and services in the United States and around the globe. It carries a Zacks Rank #2 (Buy). In the trailing four quarters, it pulled off a positive earnings surprise of 15.74%.
MetLife provides insurance, annuities, employee benefits and asset management businesses. With a Zacks Rank of 2, the company came up with an average positive earnings surprise of 9.96% over the last four quarters.
Kemper is a diversified insurance holding company, which provides property and casualty, life and health insurance in the United States. This Zacks Rank #1 (Strong Buy) player managed to deliver an average trailing four-quarter beat of a whopping 121.61%.
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