S&P’s Puts Hartford Financial Services Rtgs. on WatchNeg

May 12, 2003

Standard & Poor’s has placed its ratings on Hartford Financial Services Group Inc. (HIG) and related entities on CreditWatch with negative implications following the company’s first-quarter announcement of a $2.6 billion (net of reinsurance and before tax) asbestos charge.

“These ratings will remain on CreditWatch until management is successful in raising close to $2 billion of external capital, which should be concluded before the close of the second quarter,” said Standard & Poor’s credit analyst Matthew Coyle. “Upon successful completion and all else being equal, Standard & Poor’s will remove all of the Hartford ratings from CreditWatch, affirm them, and assign a stable outlook.”

The rationale for the rating action is that Standard & Poor’s
believes that asbestos is a capital issue and not an earnings-quality issue.

To the extent companies can adequately absorb or fund that exposure through internal or external means, ratings will not be affected. HIG has put together a comprehensive plan that will adequately address its exposure in this area. However, the organization’s capitalization and financial flexibility will be
adversely affected, at least in the short-term.

Prior to the announcement, Standard & Poor’s met with management to review the assumptions and methodology that were used to estimate HIG’s asbestos exposure and concluded that the study was both conservative and exhaustive. Concurrent with that review, management provided Standard & Poor’s with a plan on how it intends to finance the charge and restore the capitalization of the property/casualty operations to a level consistent with the rating.

Major components of that plan include raising the previously
mentioned external capital (predominantly in the form of equity and
equity-like securities), an exposure reduction to select asset classes, the realization of capital gains, the decision to exit reinsurance assumed business and de-emphasize certain specialty commercial businesses, and an expected improvement in retained earnings.

Other noteworthy factors that led to the rating action were the
strength and diversification of the Hartford franchise and its excellent
earnings capacity.

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