S&P lowers rating on The Phoenix

Standard and Poor’s today downgraded The Phoenix Cos Inc.’s counterparty credit rating to triple-C+ from B-.
The downgrade came a day after Phoenix released its fourth quarter and full-year results for 2009, in which it reported a $106.4 million fourth-quarter loss, or 91 cents per share. For the full year, the company had a net loss of $319 million or $2.74 per share.
Statutory surplus and asset valuation reserves fell by $26.2 million in the fourth quarter, down 4% from the previous quarter and $279.1 million for the full year, down 33% from 2008, noted Adrian Pask, a credit analyst at Standard & Poor’s.
A combination of reserve strengthening, investment losses and unusually high mortality claims in Phoenix’s universal life and variable universal life products hurt statutory earnings for 2009, bringing them below expectations, according to a note from Mr. Pask.
The analyst also gave Phoenix and two of its operating subsidiaries, Phoenix Life Insurance Co. and PHL Variable Insurance Co., a negative outlook. A third subsidiary, AGL Life Assurance Co., is on CreditWatch with developing implications.
Phoenix Life, PHL Variable and AGL Life all had their counterparty credit and financial strength ratings lowered to BB- from BB.
Phoenix Life’s estimated risk-based capital ratio slipped to 225 at the end of 2009, down from 338 in 2008, the result of lower statutory capital and downward ratings migration in Phoenix’s bond portfolio.
“The operating company ratings reflect a capital deficiency relative to our expectation for the ratings,” said Mr. Pask noted. “We believe that the deficiency is greater than two years of operating company earnings.”
Phoenix management took issue with the downgrade. “We disagree with S&P’s decision,” Phoenix spokeswoman Alice Ericson wrote in an e-mail. “As it has done in the past, S&P acted quickly and through its own lens. We cannot control what they think or do, so we remain focused on what we need to do to make 2010 a productive year.”
But 2009 was a tough one for Phoenix, as the company suffered from a combination of falling ratings and sliding earnings.
Still, the loss was smaller than the $726 million deficit the company recorded in 2008. That performance followed a profitable year in 2007, when Phoenix generated $117.6 in earnings.
The red ink has led to ratings downgrades, which in turn, have hurt the carrier’s relationship with a number of broker-dealers and major distributors, including State Farm Mutual Automobile Insurance Co.
Last year, the company sought different growth channels and brought in James D. Wehr to replace chief executive Dona D. Young, who retired in April. To cut costs, the company trimmed $110 million in annual expenses. It also sought new distribution relationships with about 20 independent marketing organizations, and it formed Saybrus Partners Inc. to provide consulting services to Edward Jones.
“The steps we took in 2009 to strengthen and reposition Phoenix are beginning to have an impact, and we expect them to emerge more fully in 2010,” Mr. Wehr said in a statement.