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Connecticut's fiscal woes could impact insurers with bond exposure

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Connecticut's fiscal woes could impact insurers with bond exposure

Significant financial difficulties in Hartford, Conn., and across the entire Nutmeg State, may end up hitting insurance companies that own municipal bonds in the state.

S&P Global Ratings on Sept. 26 downgraded the ratings Hartford general obligation bonds and the Hartford Stadium Authority's lease revenue bonds to CC from B- after determining that a default, distressed exchange or redemption is a "virtual certainty."

A review of insurers' exposure to Hartford's municipal bonds, based on U.S. statutory filings, by S&P Global Market Intelligence may provide details of what companies may be impacted the most by any future developments.

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Among insurers that file as either property and casualty, health or life insurers with the National Association of Insurance Commissioners, Allstate Corp.'s property and casualty subsidiaries had the largest exposure to Hartford municipal bonds with holdings of $21.6 million as of year-end 2016. UnitedHealth Group Inc., with its $7.3 million in carrying value, had the second-largest exposure. As an industry, U.S. insurers held $68.0 million in Hartford municipal bonds as of Dec. 31, 2016.

The entire state of Connecticut is dealing with financial troubles. It entered fiscal year 2017, which started July 1, without a budget for 2018 and 2019. S&P Global Ratings on Oct. 13 revised its outlook to negative from stable on the state's general obligation, appropriation-secured and state moral obligations debt. It cited revenue weakness due to slow economic growth, population declines, and decreased budgetary flexibility due to high unfunded liabilities among the reasons for the change in its view.

In the absence of a budget, the state has been operating under an executive order issued by Gov. Dannel Malloy which includes a provision to pay debt services subject to state appropriations. S&P Global Ratings does not expect the state to default on such debt when the next service payment is due Dec. 15.

In total, U.S. insurers held $4.20 billion in Connecticut state bonds at year-end 2016, with State Farm Mutual Automobile Insurance Co. and American International Group Inc. having more than $200 million each in carrying value.

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Click here for a template featuring insurance companies' investment exposure by imputing full or partial CUSIPs.