Negativity continues to pervade US insurer The Phoenix Companies
(TPC), with the latest blow coming from rating agency Fitch which
has downgraded TPH’s insurer financial strength rating to BBB from
BBB+. Fitch has also assigned the 158-year old Hartford,
Connecticut-based insurer a negative outlook, indicating a further
negative rating action ahead.
In Fitch’s rating hierarchy a BBB rating indicates a low
expectation of ceased or interrupted payments and that capacity to
meet policyholder and contract obligations on a timely basis is
considered adequate. However, adverse changes in circumstances and
economic conditions are more likely to impact this capacity.
Fitch explained that its negative rating action reflects
deterioration in TPC’s statutory capital and risk-based capital
relative to previous levels and Fitch’s expectations. Fitch
continued that its negative outlook is primarily based on concern
over TPC’s weak operating earnings profile, very limited financial
flexibility and expected further near-term deterioration in its
capital position, driven by credit losses.
Highlighting Fitch’s downbeat view, TPC’s results in the first half
of 2009 made sorry reading with its net loss jumping to $186
million from $8.2 million in the first half of 2008 and total
assets declining by $638 million to $25.13 billion. Phoenix
incurred a net loss of $726 million in 2008.
TPC’s financial flexibility was dealt a blow earlier this year when
it withdrew its application for assistance under the Treasury’s
Troubled Asset Relief Program (TARP) after federal regulators took
control of the life insurer’s recently acquired savings and loan
company. In order to comply with TARP requirements TPC would have
used the bank to convert its status from that of insurer to bank
TPC’s new business also came under significant pressure with
annualised life insurance sales slumping from $68.9 million in the
second quarter of 2008 to $9.2 million in the second quarter of
2009. Total private life and annuity placement deposits fell from
$108.8 million to $10.6 million while net annuity flows moved from
a positive $41.8 million to a negative $102.6 million.
Distribution of TPC’s products were dealt a severe blow in
early-March 2009 when composite insurer State Farm announced that
it had suspended distribution of TPC’s products indefinitely,
citing downgrades by rating agencies as its primary reason for
doing so. A distributor of TPC’s products since 2001, State Farm
was responsible for 68 percent of TPC’s annuity sales and 27
percent of its life insurance sales in 2008.
Another insurer to sever its distribution ties with TPC in March
was National Life Group (NLG) which in 2008 accounted about 14
percent of TPC’s annuity deposits in 2008.
Fitch noted that it believes that TPC’s “franchise value” has
diminished significantly with the loss of its State Farm and NLG
TPC’s share price fell almost 16 percent following the announcement
of its downgrade by Fitch.