Fitch Ratings has affirmed the fixed income ratings of the Hartford Financial Services Group, Inc. (HFSG), including the ‘A+’ senior debt rating, and the ‘AA’ insurer financial strength ratings of its primary property/casualty operation, the Hartford Fire Intercompany Pool (Hartford Fire). The rating outlook is stable.
HFSG’s operations include both property/casualty and life insurance operations, both of which maintain leading market positions, diverse operating profiles and solid financial positions.
The rating rationale is based on HFSG’s strong and consistent operating performance during difficult market conditions, good balance sheet and broad business diversification. Fitch believes that the recent resolution of the PPG asbestos litigation was favorable to Hartford Fire as the company did not need to set up additional reserves and a major claim is now closed. The company’s exposure to losses tied to events of Sept. 11 remain within the company’s original estimate of net exposure of $440 million, and losses have subsequently been replaced with capital raised during the fourth quarter of 2001.
Fitch considers Hartford Fire’s strengths to include its diverse market and product profile, solid underwriting discipline, strong balance sheet position and sound operating performance in difficult market conditions. Asset quality remains excellent with the portfolio heavily concentrated on investment grade public fixed income securities. Fitch’s primary concerns for Hartford Fire include challenges the company has been encountering in various business lines, with the main focus related to the performance in the assumed reinsurance operation. The ratings also reflect parent company financial leverage and ongoing risks associated with asbestos and environmental loss exposure. Hartford Fire’s operating leverage, as measured by net premiums written divided by statutory policyholders’ surplus, has remained relatively stable during the past several years on a de-stacked basis, which removes the investment in HFSG’s life operations. Fitch views HFSG’s de-stacked operating leverage to be consistent with the current ratings at approximately 2 times, though slightly higher than some peers.
Fitch anticipates that adjusted financial leverage, including debt and the “debt-credit” attributed to the company’s trust preferred securities, will remain near recent levels. Management targets debt-to-capital and trust preferred securities-to-capital at below 20 percent and 15 percent, respectively. Additionally, the fixed charge earnings coverage is expected to be above 5 times in 2002.
The company’s coverage ratios should benefit from improved market conditions in the commercial property/casualty sector. Given the improved conditions, Hartford Fire is likely to report a combined ratio for 2002 that represents solid improvement from recent years.