Prudential’s downgrade by Fitch Ratings was especially harmful, as the second-largest insurer lost eligibility for the U.S. commercial paper program, reducing the company’s access to short-term debt markets. Both Genworth and Hartford Financial Services have already lost access to the commercial paper program because of downgrades.
Prudential’s holding company will lose out on $1.3 billion in total Commercial Paper Funding Facility, but the company maintains it has sufficient resources to repay debt when it is due at the end of April. Prudential is selling its stake in Wachovia Securities after halving the quarterly dividend and suspending share buybacks to preserve capital amid investment declines, Bloomberg reported.
“We no longer have the ability to borrow funds from the Commercial Paper Funding Facility,” Bob DeFillippo, a spokesman for the Newark-based insurer, told Bloomberg in an interview. “The company’s liquidity requirements are not dependent on access to the commercial paper market or to debt capital markets.”
Fitch downgraded Prudential’s short-term debt rating to F2 from F1 after the insurer posted two straight quarterly losses. It posted an $878 fourth-quarter loss.
Meanwhile, A.M. Best Co. downgraded Genworth’s key life/health financial strength rating to “A” from “A+,” and issuer credit ratings from “a” from “aa-”. All ratings have been removed from under review with negative implications and assigned a negative outlook.
The rating actions reflect the impact that the current market has had on Genworth’s holding company liquidity and overall financial flexibility, the significant unrealized loss positions maintained within its fixed income investment portfolio and the narrowing of its business profile as a result of sales and earnings declines within its various product lines.
P&C insurers are not immune to the downgrades. After CNA Insurance Cos. announced fourth quarter 2008 results, which included a net operating loss for the fourth quarter of 2008 of $21 million, or $0.15 per share and net loss for the fourth quarter of 2008 of $336 million, or $1.31 per share, Fitch Ratings and A.M. Best announced downgrades of the insurer.
Fitch downgraded the insurer financial strength ratings of CNA's property/casualty insurance subsidiaries to “A-“ from “A.” The Rating Outlook is Negative. Fitch says its rating actions reflect its updated review of CNA's exposure to the volatile credit and investment market conditions, which are having a negative impact on its asset portfolio, earnings and capital position. Fitch believes that CNA's negative earnings demonstrate a higher level of financial volatility than what was anticipated at the prior rating level.
A.M. Best Co. revised CNA’s outlook to negative from stable. A.M. Best’s negative outlook reflects CNA’s fourth quarter 2008 results, which were strained by significant investment losses, both realized and unrealized, as well as declining net investment income due to losses from limited partnership investments. Given the magnitude of investment losses already reported, continued turmoil in capital markets and CNA’s sizeable investment in mortgage and asset-backed securities, uncertainties exist regarding the potential for continued investment losses and the further strain that may place on risk-adjusted capitalization, according to the rating agency.
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