Hartford Asks Its Regulator to Ease Rules

--NAIC voted against broader relief on capital and reserve on 01/29/2009 By LESLIE SCISM As investors battered shares of Hartford Financial Services Group Inc. on Friday after its disappointing earnings and a credit-rating downgrade, the company said it has asked its state regulator for relief from capital requirements totaling about $1 billion. The request is a high-profile example of insurers' seeking an easing of rules that a national organization of insurance regulators last month refused to bless as a broad policy. The rules generally concern how much capital insurers have to set aside to assure regulators that they can honor policyholders' claims. The market downdraft has ratcheted up the liability, in particular, of big sellers of guaranteed-minimum retirement-income products known as variable annuities. Hartford, one of the nation's biggest property-casualty and life insurers in terms of assets, disclosed the regulatory request in an analyst call Friday. To give it more financial flexibility, the company said it has asked Connecticut's insurance department for permission to deviate from two rules, one pertaining to variable annuities and the other to deferred-tax assets. Regulators haven't signed off on either of the changes, a company spokeswoman said. The development comes as the company, hurt by higher-than-expected fourth-quarter investment losses, said priorities for 2009 are capital preservation and risk mitigation, including plans to cut the quarterly dividend 84% to five cents a share. Citing the risk of continued weakness in earnings, further investment losses and the stress of capital requirements, Moody's Investors Service Friday lowered the ratings of Hartford's insurance units one notch to A1. The move strips the units of coveted double-A-category status, which signals "excellent" financial strength and is used as a competitive weapon. A single-A rating represents "good" health, under Moody's methodology. The company's shares fell 16% to close at $12.68 on Friday in composite trading on the New York Stock Exchange. Since the National Association of Insurance Commissioners voted against broad relief on capital and reserve requirements for life insurers on Jan. 29, Iowa and Ohio regulators have said they would consider case-by-case easing of certain of the rules. As of Friday, no Iowa insurer has asked for relief, while "a couple" have in Ohio, officials in those states said. In a letter on Friday to state officials and the NAIC, two consumer-advocacy groups decried such responses. "It is totally incorrect for regulators to justify doling out 'capital and reserve relief' like lollipops at a barbershop," wrote the Center for Economic Justice and the Consumer Federation of America. The American Council of Life Insurers proposed the measures in November, as the financial crisis worsened. Two credit-ratings firms have said some changes would make economic sense because existing rules are overly conservative. In rejecting the proposals, opposed by consumer groups, the NAIC said insurers hadn't convinced them circumstances justified rushed action. Under state-based insurance regulation, states can adjust their own rules, though many aim to stay in line with NAIC standards. Connecticut Insurance Commissioner Thomas Sullivan said on Friday he would "be guided by balancing what is in the best interest of the consumer and the companies while also maintaining a sound and competitive marketplace." He cited confidentiality laws in declining to comment on anything specific to Hartford. Numerous state regulators joined in a conference call on Friday to discuss ways the NAIC might "reach some methodology" so that there is consistency in the way states grant any exceptions to the NAIC standards, said Steven Goldman, New Jersey's banking and insurance commissioner. Regulators are bracing for a larger-than-usual number of requests because of the market meltdown and worsening economy and would prefer exceptions to be dealt with "in a relatively consistent way around the country," he said. In its conference call, Hartford executives said the Moody's downgrade will make landing some business tougher but noted that some rivals have been similarly downgraded. Those include life-insurance units of Allstate Corp., which disclosed in its fourth-quarter earnings that it had sought relief from its regulator on two items. Write to Leslie Scism at leslie.scism@wsj.com