S&P cuts rating on Phoenix and its subsidiaries following hefty 2Q loss

Standard & Poor’s Rating Services today downgraded The Phoenix Cos. Inc., a day after the insurer reported a huge second-quarter loss. New York-based S&P cut its counterparty credit rating on Hartford, Conn.-based Phoenix to B-, from B+. S&P also cut its ratings on Phoenix operating subsidiaries Phoenix Life Insurance Co., PHL Variable Insurance Co., both of Hartford, and AGL Life Assurance Co. in Plymouth Meeting, Pa., to BB, from BBB-. All the entities also have a negative outlook from the ratings agency. The downgrade arrives on the heels of Phoenix’s second-quarter earnings report, issued yesterday, in which it recorded a loss of $111.2 million, or 96 cents a share, compared with a profit of $6.2 million, or 5 cents a share, a year earlier. Statutory surplus and asset valuation reserve fell to $619.5 million at the end of June, down 13% from March 31. Rising reserves for discontinued group accident and health business, as well as larger-than-expected death claims for universal-life products and credit losses, ate away at the insurer’s surplus levels, according to a research note from S&P credit analyst Adrian Pask. He also wrote that S&P thinks that Phoenix’s capital deficiency is greater than two years’ worth of operating company earnings. Nevertheless, the company’s old block of insurance business policies has consistent profitability, and the insurer’s ratings reflect a strong investment portfolio and operating company liquidity, Mr. Pask wrote. Still, more ratings cuts could be in the offing if the insurer is unable to manage the competing difficulties of rebuilding its statutory capital levels and providing its holding company with cash. “If the company is unable to improve its profitability or resolve the capital deficiency, we could lower the ratings again, most likely by one notch,” Mr. Pask wrote. “We could also lower the ratings by one notch if surrender activity increases.” Michele Farley, Phoenix's spokeswoman, did not immediately return a phone call seeking comment.