Phoenix ratings lowered by Moody's

Moody's Investors Service lowered the senior debt rating of financial planner and life insurer Phoenix Cos. on Tuesday and placed a "Negative" outlook on the ratings.

The debt rating was placed at "Ba2" from "Ba1" and the insurance financial strength rating for the Phoenix Life Insurance Co. subsidiary was lowered to "Baa2" from "Baa1."

The downgrade was based primarily on the suspension of sales of Phoenix products by the company's primary distribution partner, a major property and casualty writer, and the concern that other distributors may follow suit, Moody's said in statement. Phoenix has said a second major distributor is suspending sales of its annuity products.

The primary distributor accounted for 27 percent of the company's life insurance sales, and more than half of annuity sales, Moody's said.

In a regulatory filing, Phoenix said State Farm Mutual Automobile Insurance Co. announced March 3 it would suspend the sale of Phoenix products.

A company spokeswoman said in a statement that Phoenix, like many other companies, has seen its financial strength rating decline in recent months as ratings agencies maintain a negative outlook on the life insurance industry.

"Ratings represent only one way to judge a company's financial condition," spokeswoman Alice Ericson said. "Consumers should always also look at a company's regulatory standing as well as key financial metrics, including capitalization, debt, liquidity, and financial flexibility. For Phoenix, these metrics remain solid."

The Moody's analysts said Phoenix is restrained in its financial flexibility because its only source of funds is its life insurance company, which will see capital pressured by continued investment losses. Management will need to carefully control expenses as future sales drop and will be forced to implement business strategies "for which it may have relatively limited expertise, and for which there are few successful examples."

The rating agency cited as positives the Hartford, Conn.-based company's significant existing block of permanent life insurance to affluent individuals and businesses, the very long term maturities of its debt obligations and modest cash needs at the holding company.

The negative outlook could improve if the company's capital levels are stabilized, the life insurance division generates enough money from operations this year to support holding company obligations and gross investment losses in 2009 are less than $125 million.

The last rating action on Phoenix was on Feb. 19 when Moody's downgraded Phoenix's ratings and left then on review for possible further downgrade.

Also on Tuesday, A.M. Best Co. downgraded the financial strength rating to good from excellent and issuer credit ratings to "bbb+" from "a" for Phoenix. It also downgraded debt ratings of outstanding debt securities for Phoenix and its life insurance company.

Similar downgrades were noted for the Phoenix Life and Annuity Co. and American Phoenix Life and Reassurance Co.

Outlook for all ratings was placed at negative.

Phoenix shares rose 5 cents, or 22 percent, to 26 cents in Tuesday afternoon trading as the financial services sector is surging after Citigroup Inc. said the bank operated at a profit in January and February.