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Moody's Cuts Ratings Of The Phoenix Cos. Life Insurance Units

KENNETH R. GOSSELIN

September 12, 2009

As one analyst recently put it, The Phoenix Companies Inc. is caught in a "Catch-22."

The ratings agencies won't upgrade Hartford-based Phoenix until its businesses improve — or at least show some signs of recovery.

"And Phoenix is finding it's extremely difficult to sell its products based on its current ratings," Eric N. Berg, an analyst at Barclays Capital in New York, wrote in a note to investors last month.

Phoenix took another blow this week when Moody's Investors Services cut the ratings on Phoenix's life insurance units to "speculative" grade, sometimes called "junk," noting a "significant erosion" of Phoenix Life's statutory capital and the company's continued losses and further weakening of its business franchise. Statutory capital is the amount of capital, surplus, or both, that is required for an insurance company to obtain and keep its license to do business.

Earlier this year, it was ratings downgrades that led the insurer's major distributors, including State Farm, the largest, to suspend sales of Phoenix products.

Moody's said it expects the decline in Phoenix Life's statutory capital to continue and hamper its financial options.

"Moody's expects that the company will be very challenged to restore its new business production to significant levels," the ratings agency said.

Phoenix's president and chief executive officer, James D. Wehr, disputed the ratings downgrades in a statement.

"We respectfully disagree with Moody's action," Wehr said. "However, given the environment in which ratings agencies are now operating, we are not surprised by it."

"Phoenix is a work in progress, and we are making progress," he said.

Last month, Phoenix announced another plunge in sales for the second quarter, but said that it was encouraged by recent talks with the partners that could begin selling Phoenix insurance and investment products.

Phoenix could not be reached for comment Friday on how the most recent downgrades might affect those talks.

The insurer, beset by deflated investments, volatile stock markets and the recession, has been focusing on strengthening its balance sheet and cutting costs. It reduced its workforce by 35 percent.

Moody's downgraded the insurance financial strength ratings of the Phoenix insurance units to Ba1 from Baa2, and the company's senior debt rating to B1 from Ba2.

On Friday, Phoenix shares closed at $2.73, up 1 cent. Phoenix shares went public at $17.50 in 2001.