A.M. Best Upgrades Ratings of The Hartford Financial Services Group, Inc. and Its Property/Casualty Subsidiaries

A.M. Best has upgraded the issuer credit ratings (ICR) to “a-” from “bbb+” and upgraded all debt ratings of The Hartford Financial Services Group, Inc. (The Hartford) [NYSE: HIG], which is the ultimate parent of the following companies. A.M. Best has also upgraded the financial strength rating (FSR) to A+ (Superior) from A (Excellent) and ICR to “aa-” from “a+” of Hartford Fire Insurance Company and its pooling subsidiaries and affiliates, collectively referred to as the Hartford Insurance Pool. The outlooks for The Hartford and the members of the Hartford Insurance Pool have been revised to stable from positive.

Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of Hartford Life and Accident Insurance Company (HLA) and affirmed the FSR of A- (Excellent) and the ICRs of “a-” of Hartford Life Insurance Company (HLIC) and Hartford Life and Annuity Insurance Company (collectively referred to as Hartford Life). Additionally, A.M. Best has affirmed all debt ratings for Hartford Life. The outlooks for HLA and Hartford Life are stable.

A.M. Best has also upgraded the ICR to “bbb” from “bbb-” and revised the outlook to stable from positive for Hartford Life, Inc. (HLI), the immediate parent of HLA and Hartford Life, and upgraded various debt ratings for HLI. A.M. Best has also withdrawn the FSR of A- (Excellent) and the ICR of “a-” of Hartford International Life Reassurance Corporation (HILRe) as its reinsurance contract with HLIC was recently terminated resulting in the assumption of all remaining HILRe’s liabilities by HLIC.

All companies are headquartered in Hartford, CT.

The ratings of the Hartford Insurance Pool reflect its solid risk-adjusted capitalization, improved underwriting and operating profitability, and excellent market positions within the property/casualty industry. Underwriting and operating results have been strong over the long term as evidenced by combined ratios and pre-tax return on revenue measures that outperform the commercial casualty composite over the recent 10-year period. The positive rating factors reflect the pool’s geographic and product line diversity, experienced management team, generally conservative operating fundamentals and diversified underwriting initiatives, which provide balanced growth opportunities. Management has executed various operating initiatives to focus operations on small to middle commercial markets and personal lines that are viewed as less volatile while providing opportunities for profitable growth. While results remain exposed to catastrophes and non-catastrophe weather losses, the pool’s core results have improved in recent years and remain within A.M. Best's expectations.

These positive factors are somewhat offset by the significant stockholder dividends paid during the recent five-year period which have constrained organic surplus growth, adverse loss reserve development occurring during recent calendar years, and variability in operating performance given the impact of weather-related losses during the recent five-year period, which weakened underwriting and operating results relative to historical levels. The pool also maintains an above-average exposure to affiliated investments and commercial real estate assets relative to the overall property/casualty peer group.

The upgrade of the ratings of The Hartford and the Hartford Insurance Pool reflects the significantly diminished potential for the remaining variable annuity (VA) business to negatively impact the financial position of those entities. This risk reduction was achieved through the sale of its Japanese life operations Hartford Life Insurance K.K. (HLIKK) and associated VA business, as well as the reduction in risk associated with its U.S. VA business driven by increased surrender activity, improved market conditions and reinsurance to minimize net amount at risk.

In revising the outlook to stable, A.M. Best anticipates that the depth and scope of operations, conservative underwriting practices and effective utilization of multiple distribution channels will enable Hartford to generate solid earnings over the near term while maintaining a strong risk-adjusted capital position, which permits the group to pay ongoing dividends to support its parent’s obligations.

Positive rating actions are unlikely in the near term for The Hartford or the Hartford Insurance Pool. Factors that could trigger negative rating actions include a weakening in operating performance, particularly if the resulting performance is below A.M. Best's expectations and results in a deterioration of risk-adjusted capitalization.

The affirmation of HLA's ratings reflects its overall competitive market position as a provider of group benefit products and improved earnings performance due to lower loss ratios in disability and group life. While HLA’s top line has moderated in recent years, total sales increased in the first quarter of 2015. However, the group benefit market is viewed as highly competitive and HLA’s contribution to The Hartford’s overall earnings remains relatively modest.

The affirmation of Hartford Life’s ratings reflects its adequate capitalization and a reduction in overall balance sheet risk in its legacy VA product lines. The ratings also reflect Hartford Life’s limited business profile, which remains in runoff (discontinued business lines primarily include fixed, variable and institutional annuities), and ongoing earnings and capital sensitivity related to equity market and low interest rates in this segment. A.M. Best notes that over time Hartford Life’s contribution to the consolidated group will diminish but expects that risk-adjusted stressed capitalization will remain sufficient to support the orderly runoff of its obligations.

The ICR upgrade for HLI reflects the diminished balance sheet risk and the sufficient earnings and dividend capacity of its subsidiaries, and the implicit support that is afforded by The Hartford.

Positive rating movement for Hartford Life is unlikely given its runoff status. While unlikely in the near to medium term, positive rating action may be taken on HLA if the company demonstrates greater strategic value and earnings contribution to The Hartford. Negative rating action could occur for Hartford Life if risk-adjusted capitalization falls below A.M. Best’s expectations. A negative rating action for HLA could occur if there were adverse declines in operating performance or risk-adjusted capital or the strategic value of the group benefits segment changes.

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. and its subsidiaries' FSRs, ICRs and debt ratings, please visit The Hartford Financial Services Group, Inc.

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.

Key insurance criteria reports utilized:

• A.M. Best’s Liquidity Model for U.S. Life Insurers
• A.M. Best’s Perspective on Operating Leverage
• Analyzing Insurance Holding Company Liquidity
• Analyzing Contingent Capital Facilities
• Catastrophe Analysis in A.M. Best Ratings
• Equity Credit for Hybrid Securities
• Gauging the Basis Risk of Catastrophe Bonds
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Risk Management and the Rating Process for Insurance Companies
• The Treatment of Terrorism Risk in the Rating Evaluation
• Understanding BCAR for Property/Casualty Insurers
• Understanding Universal BCAR
• Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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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