S&P Revises Outlook on Hartford PC to Negative; Cites Spitzer Probe

November 24, 2004

Standard & Poor’s Ratings Services announced that it has revised its outlook on Hartford Financial Services Group (HIG) Inc.’s P/C subsidiaries in the Hartford Fire Intercompany Pool (collectively referred to as Hartford PC) to negative from stable.

S&P also said it has affirmed its “A-” counterparty credit and senior debt ratings on HIG and on Hartford Life Inc. and its “AA-” counterparty credit and financial strength ratings on all of Hartford’s rated operating subsidiaries.

“The outlook on HIG, Hartford Life Inc., and HIG’s life insurance subsidiaries remains stable,” S&P said. However the rating agency noted that “legal and regulatory clouds have overhung Hartford PC since allegations of illegal bid-rigging came to light in a complaint filed by New York Attorney General Eliot Spitzer against Marsh Inc.”

S&P pointed out that, although it was not “named as a defendant, Hartford PC was one of four insurers specifically identified in the complaint. These allegations have already led to several class-action lawsuits against Hartford and additional investigations by numerous state regulators.”

S&P credit analyst Robert A. Hafner explained that the “outlook on Hartford PC was revised to negative because of the increased uncertainties regarding these still-developing legal matters. These could include significant pecuniary costs and reputation damage sufficient to erode its very strong competitive advantages.”

He added that “during the coming months, Standard & Poor’s will closely monitor the emerging developments and continue to evaluate whether the implications rise to a level that necessitates lowering the ratings on Hartford PC by a notch or whether the overhanging cloud dissipates benignly.”

S&P said it had affirmed the overall ratings “because of the companies’ leading and diversified market positions, conservative capitalization, strong profitability and expense discipline, leading risk-management practices, and reduced financial leverage, which improves coverage and financing capacity.”

However, the rating agency also noted that “these strengths are offset to a degree by the potential for adverse development in the group’s property/casualty subsidiaries’ reserves for runoff businesses and the legal and regulatory clouds that now overhang Hartford PC.

“The stable outlook on HIG reflects the diversification benefits it enjoys from owning both HLI and Hartford PC. The stable outlook on Hartford Life Inc., a subsidiary holding company, and its life insurance operating subsidiaries (collectively referred to as HLI) reflects the companies’ consistently very strong performance, diverse and leading business positions, and the less-significant overhang of legal matters compared with those affecting Hartford PC.”

S&P concluded: “Hartford PC is among the top writers in the small and middle-market commercial markets, where it is an acknowledged leader. It has a specialized niche in personal lines through its long-term relationship with AARP, which provides earnings diversification for this predominantly commercial lines writer.

“The company’s exit from the assumed reinsurance market reduced the diversification of Hartford PC’s business platform somewhat but should make operating performance less volatile.”

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