Hartford P/C to Negative

S&P revised its outlook on Hartford Financial Services Group Inc.’s property and casualty subsidiaries in the Hartford Fire Intercompany Pool to negative from stable.

The rating agency noted that legal and regulatory clouds have overhung Hartford P/C since allegations of illegal bid rigging came to light in a complaint filed by New York Attorney General Eliot Spitzer against Marsh Inc. Although Hartford P/C was not named as a defendant, it was one of four insurers specifically identified in the complaint. The allegations have already led to several class-action lawsuits against Hartford and additional investigations by numerous state regulators.

The outlook on Hartford P/C 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. S&P had affirmed the overall ratings for the group 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 P/C subsidiaries’ reserves for runoff businesses and the legal and regulatory clouds that now overhang Hartford P/C.

S&P concluded Hartford P/C 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 P/C’s business platform somewhat but should make operating performance less volatile.

Topics Property Casualty