A.M. Best has revised the outlook to positive from stable and
affirmed the financial strength rating of A (Excellent) and issuer
credit ratings (ICR) of “a+” of Hartford Fire Insurance Company
and its pooling subsidiaries and affiliates, collectively referred to as
the Hartford Insurance Pool. At the same time, A.M. Best has
affirmed the ICR of “bbb+” and all debt ratings of The Hartford
Financial Services Group, Inc. (The Hartford) [NYSE:HIG], which is
the ultimate parent of the aforementioned operating insurance companies.
All companies are headquartered in Hartford, CT. (Please see link below
for a detailed listing of the companies and ratings.)
The ratings of the Hartford Insurance Pool reflect its solid
risk-adjusted capitalization, improving underwriting and operating
profitability and excellent market position within the property/casualty
industry. The pool’s results remain better than the average of its peers
in recent years, although they have deteriorated relative to historical
levels. The Hartford Insurance Pool benefits from its geographic and
product line diversity, experienced management team, generally
conservative operating fundamentals and diversified underwriting
initiatives, which provide balanced growth opportunities. Management
remains focused primarily on small to middle commercial markets and
personal lines that are viewed as less volatile. While results in recent
years have been impacted by catastrophes and non-catastrophe weather
losses, the pool's core results remain within A.M. Best's expectations.
These positive factors are somewhat offset by variable operating
performance, given the impact of weather-related losses that weakened
operating results in recent years relative to their historical levels.
In addition, the pool maintains above-average exposure to affiliated
investments and commercial real estate assets compared to the overall
property/casualty peer group. In addition, the pool’s ratings reflect
the potential strain on capital and resources from the run-off of
variable annuity (VA) business written by the pool’s life affiliates.
The change in outlook for both The Hartford and the Hartford Insurance
Pool reflects a substantial reduction in the risk associated with the VA
business. Two key components of that risk reduction are the
significantly increased surrender activity that has lowered the
enterprise’s overall exposure to the VA business, and an expansion of
The Hartford’s hedging program to include its Japanese VA business. The
Hartford has historically employed a hedging program on U.S. VA risks to
address equity, interest rate and market volatility risks. The expanded
hedging program addresses those risks for the Japan VA block, as well as
associated foreign exchange risk.
The change in the outlook for the ratings reflects A.M. Best's
expectation that given the depth and scope of operations, generally
conservative underwriting practices and effective utilization of
multiple distribution channels, The Hartford will generate solid
earnings over the near term while maintaining the group's strong
risk-adjusted capital position and continuing to pay dividends to
support its parent's obligations. Given the strength of the hedging
programs, The Hartford maintains the ability to withstand severe equity,
interest rate and FX shocks under stress scenarios.
Positive rating actions could be taken on the ratings of the Hartford
Insurance Pool if the risk associated with the VA block of business is
significantly reduced from current levels or eliminated entirely.
Additionally, positive rating actions could occur if The Hartford's
underwriting and operating results improve to levels that outperform
other similarly rated peers while maintaining a strong level of
risk-adjusted capitalization. Key factors that could trigger negative
rating actions on the group's ratings include a weakening in operating
performance, particularly if the resulting performance is below A.M.
Best expectations, which results in a deterioration of risk-adjusted
capitalization.
The Hartford’s debt-to-total capital ratio (excluding accumulated other
comprehensive income) and interest coverage ratios are within A.M.
Best’s guidelines for its current ratings. A.M. Best anticipates The
Hartford will maintain solid liquidity at the holding company to support
potential capital needs of its operating subsidiaries should the need
arise.
For a complete listing of The Hartford Financial Services Group, Inc.’s
FSRs, ICRs and debt ratings, please visit www.ambest.com/press/040308hartford.pdf.
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world’s oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
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