Best Affirms Hartford’s ‘A+’ Ratings

May 27, 2008

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa-” of the Hartford Insurance Pool and its P/C members. Best also affirmed the ICR of “a”, for the debt ratings and shelf registration of The Hartford Financial Services Group, Inc. The outlook for all the ratings is stable.

“The Pool’s ratings reflect its superior risk-adjusted capitalization, strong core operating results, disciplined risk management culture and excellent business position in the property/casualty insurance sector,” Best explained. “These positive rating factors are derived from The Pool’s adherence to conservative operating fundamentals and commitment to diversified underwriting and marketing strategies that provide balanced growth opportunities.”

Best also indicated that it “believes The Pool is well positioned to manage changing market dynamics such as reduced pricing and increased competition due to its significant depth and breadth of operations, well balanced risk selection, effective utilization of multiple distribution channels and superior capitalization, which is further bolstered by The Hartford’s strong financial flexibility and proven access to capital markets.

“These favorable considerations are somewhat tempered by expected margin compression driven by softening market conditions throughout the property/casualty industry.” In addition Best pointed out that the “Pool maintains exposure, albeit substantially reduced, to emerging asbestos and environmental claims and adverse loss reserve development on older accident years. However, management conducts annual ground-up loss reserve reviews for asbestos (second quarter) and environmental (third quarter) reserves, as well as an annual evaluation of reinsurance recoverables. Additional offsetting attributes are The Pool’s exposure to catastrophe events (natural and man-made), although it has a comprehensive reinsurance and catastrophe management program to limit its exposure to a single event.”

In calculating the ratings, Best noted that they “represent the use of extraordinary notching as the overall enterprise benefits from the diversification of its equally important and diverse property/casualty and life operations, which provide strong, sustainable earnings and cash flows. This has been evidenced by the even distribution of revenues and contributions to earnings from both operations in recent years, which tend to be largely uncorrelated. Also, the property/casualty and life operations maintain strong, market leading positions in their respective markets.”

” The ratings also recognize the improvement in The Hartford’s financial leverage and coverage measures through 2007, with an adjusted debt-to-total capital measure of 19 percent (including accumulated other comprehensive income) and interest coverage of approximately 16.2 times. However, leverage and coverage measures did deteriorate in first quarter 2008, primarily due to the negative impact of unrealized capital losses on stockholders’ equity and realized capital losses on earnings largely within the life business segments. Unrealized capital losses during first quarter 2008 primarily were due to the negative impact of credit spread widening on fixed income securities.

“Realized capital losses during the quarter were caused by the transition to a new accounting standard (SFAS 157), impairments and credit derivative losses. Despite this, A.M. Best believes The Hartford’s earnings power remains strong, in the absence of unusual items, and should lead to improvement in financial leverage and interest coverage measures through the remainder of 2008.”

For a complete list of The Hartford’s FSRs, ICRs and debt ratings, go to:

Source: A.M. Best

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