Fitch Affirms Hartford Financial’s Ratings
Fitch Ratings has affirmed all ratings on the Hartford Financial Services Group, Inc. (HFSG). This includes HFSG’s fixed income ratings and the insurer financial strength rating of the Hartford Fire Intercompany Pool. Further, these ratings have been removed from Rating Watch Negative and now have a Stable Rating Outlook.
The rating action follows the successful completion of the company’s planned capital raising announced on May 14. Fitch placed the ratings on Rating Watch in Jan. 2003 following HFSG’s announcement that it had initiated a comprehensive review of its asbestos liabilities. Resolution of the Rating Watch was related to two uncertainties – the size of the asbestos charge and related capital raising activities. Today, Fitch is satisfied that the asbestos study is thorough and capitalization remains sound, thus the Rating Watch Negative has been removed.
HFSG raised almost $2 billion of common equity, senior debt and equity units. Fitch considers the equity unit securities to maintain a high level of equity credit. The immediate impact on financial leverage is modest and on Fitch’s equity-credit adjusted basis, debt to capital moved from a reported 24 percent at year-end 2002 to a pro forma 26 percent.
The capital raising follows HFSG’s announcement that it will incur an after-tax charge in the first quarter of 2003 that totals $1.7 billion, driven by the increase in asbestos reserves. While the size of the charge is material, following the capital raising activities, HFSG is now more strongly reserved for asbestos exposure and has maintained stable capitalization at both the holding company and in the insurance operating entities.
HFSG’s ratings reflect a diverse market and product profile, solid underwriting discipline and solid operating performance in difficult market conditions. The property/casualty operation has favorably demonstrated stable underwriting results while the industry has been experiencing a weakening trend in recent years.
The ratings also reflect HFSG’s current capitalization objectives, which include transitioning to a stronger level of capitalization over the next several quarters.
These activities include strengthening asbestos reserves and externally raising the recently issued new capital, exiting business lines, reducing some riskier investment classes and improving expense management that should improve earnings and capital development. Fitch believes this transition will help solidify the ratings in the current categories.