OLDWICK, N.J.--(BUSINESS WIRE)--May 12, 2003--A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) of The Hartford Insurance Pool (Pool) and the main operating life insurance subsidiaries of Hartford Life Inc. (HLI).
Concurrently, A.M. Best has downgraded to "a-" from "a+" the senior debt ratings of Hartford Financial Services Group, Inc. (The Hartford) (NYSE:HIG) and Hartford Life Inc. (all of Hartford, CT) and removed the ratings from under review. The trust preferred securities ratings of Hartford Capital I and III and Hartford Life Capital I and II have been downgraded to "bbb" from "a-"and also removed from under review. All ratings have been assigned stable outlooks.
These rating actions follow The Hartford's announcement that it has completed its asbestos reserve study and will strengthen reserves for asbestos liabilities in the first quarter of 2003 by $2.6 billion net of reinsurance. This charge is based upon an internal ground-up study of ongoing asbestos exposures. The study involved an extensive assessment of The Hartford's asbestos liability exposures, taking into account a comprehensive review of all policyholders, changes in litigation and potential exposure arising from non-product exposure. The Hartford's methodology was also reviewed by an internationally known actuarial consulting firm.
The Hartford has announced plans to recapitalize its balance sheet in the second quarter of 2003 by raising $1.9 billion of external capital coupled with numerous internal initiatives that collectively would generate substantial capital. The external capital raising will consist of $1.0 billion of common equity with the remaining $850 million a combination of equity units and long-term debt. This action reflects management's stated intent to more conservatively manage Hartford's balance sheet, financial profile and surplus position. This added conservatism will prepare the balance sheet to absorb potential additional charges over the near term, including, if necessary, deferred acquisition charges. Over the next two years, financial leverage is expected to decline -- and remain -- at lower levels. These rating actions are contingent upon The Hartford's successful capital market initiatives. If the company is unable to complete this financing, a review of all of the company's ratings will result.
Additionally, The Hartford announced numerous operating and investment initiatives, which are expected to result in an improvement in earnings consistency and an enhanced surplus position in both life and property/casualty operations. To achieve those objectives, The Hartford will exit assumed reinsurance and deemphasize certain specialty lines within the property/casualty operations, exit higher risk investment classes, and commence cost reductions. In addition, the company will voluntarily pre-fund its pension liabilities for approximately $300 million.
A.M. Best's current ratings take into consideration the impact of the significant asbestos reserve charge and other actions in A.M. Best's view of capitalization, which had already contemplated a sizable asbestos reserve deficiency. While the asbestos reserve strengthening was much greater than A.M. Best's estimate of The Hartford's liability, A.M. Best considered The Hartford to have a capital cushion sufficient to absorb such an adversity. This capital strength was derived from the company's conservative operating strategies, consistent operating earnings stream, diversity of operations, manageable catastrophe exposure and proven internal capital generation. The replacement of lost surplus will be enable The Hartford's property/casualty operations to maintain surplus well in excess of that which is required for its rating.
A