Hartford Fire Outlook Neg.
Standard & Poor's said the outlook for Hartford Fire Insurance Co. and related property/casualty entities remains negative despite the trend toward improved earnings throughout the remainder of 2002. The negative outlook was established after the World Trade Center disaster. It reflects concern about the capital adequacy of the p/c operations, which is currently below expectations.
S&P's believes the company's near-term ability to improve the capital adequacy of the p/c operations will be limited by new business strain and the downturn in the equity markets. It was noted that the company has the capacity to improve the capital adequacy of Hartford Fire to a level commensurate with the rating. Accordingly, management has committed to improving capital adequacy to 160 percent, as measured by S&P's capital adequacy model. The p/c operations remain susceptible to unexpected risks that include but are not limited to asbestos litigation, further deterioration in the global credit markets, and potential catastrophe losses.
Hartford Fire has a financial strength rating of "AA" and is a wholly-owned subsidiary of Hartford Financial Services Group Inc.
State Farm Cos. Under Review
A.M. Best Co. placed the "B+" (Very Good) financial strength rating on a subsidiary of State Farm Mutual Automobile Insurance Company—State Farm General Insurance Company (Bloomington, Ill.)—under review with negative implications. Weakened stand-alone capitalization of the company, expectations that near term operating results will be unfavorable and uncertainty regarding adequate financial support from the parent drove the action.
State Farm General provides property coverage in California and currently has marginal capitalization and lackluster operating performance. Although State Farm General has increased rates and issued a moratorium on new business, the immediate benefit will be modest given the annual term of the homeowner policy and the challenging California regulatory environment.
A.M. Best projects that the stand-alone capitalization of State Farm General is below the standards of the current rating. A formal capital commitment from the parent is required in light of the continued deterioration in results and increases in State Farm General's premium leverage position.
Willis Group Raised
S&P's raised its counterparty credit rating on Willis Group Holdings Ltd. (Willis) to "BB+" from "BB" due to the company's continued debt reduction and improved operating fundamentals. It also said it raised related ratings and revised the outlook to stable from negative.
A S&P's analyst noted positively Willis' willingness to pay down debt ahead of schedule, its maintenance of good interest coverage, and its leveraging of a well- established global market presence. Cited as a negative was "the company's increasing concentration in insurance brokerage operations, which increases the company's exposure to the vagaries of the insurance underwriting cycle."
The company has met and exceeded S&P's expectations to date and is expected to continue to further decrease leverage given record net income of $68 million in the first quarter of 2002 versus $39 million as of first quarter 2001.
