Hartford to Raise Equity Towards Sept. 11 Losses; S&P Removes from Watch, Affirms Hartford Financial

October 8, 2001

The Hartford Financial Services Group Inc. plans to raise equity capital to replace its estimated $450 million reduction in shareholders’ equity from the World Trade Center disaster of Sept. 11. The company plans to raise roughly half the required funds in the form of non-convertible trust preferred securities and the remainder in common equity or comparable securities. The program will be finished by the first part of next year.

The dilutive impact of the capital raising is presently estimated to be approximately 10 cents to 2002 earnings per share, offset by any returns earned on the funds raised.

According to David Johnson, CFO, the funds are being raised solely to maintain the company’s strong capital protection levels as reflected in its “AA” financial strength ratings.

Johnson said the company doesn’t anticipate needing external funds to pay claims.

In a separate announced, Standard & Poor’s, affirmed and removed from CreditWatch its ratings on Hartford Financial Services Group Inc. (HIG) and the members of the Hartford Intercompany Pool (Hartford). These ratings had been placed on CreditWatch on Sept. 20, 2001, following a preliminary review of the company’s exposure to losses related to the World Trade Center (WTC) catastrophe and the subsequent impact that exposure could have on the organization’s capitalization. The outlook on HIG is stable, and the outlook on Hartford is negative.

Major Rating Factors:

— WTC losses. These rating actions reflect Standard & Poor’s belief that the company’s loss pertaining to the WTC catastrophe will not exceed the $420 million estimate reported by management for the property/casualty organization. Standard & Poor’s recently met with management to review its methodology and assumptions for estimating potential losses associated with the WTC disaster and discuss prospective capital management. Based on that review, Standard & Poor’s believes the methodology management employed to derive its underlying loss estimate is reasonable and conservative. The methodology identified all potential polices that could be affected by the WTC disaster; coverage issues surrounding property damage, business interruption, workers’ compensation, and general liability claims; and reinsurance recoverables. Standard & Poor’s review with the company involved discussion of potential losses and methodologies related to coverage issues surrounding a number of potential loss scenarios.

— Strong albeit weaker capital. Since the WTC catastrophe, Hartford’s capitalization–as measured by Standard & Poor’s capital adequacy model–is below expectations. Over the near term, Standard & Poor’s expects the company to take steps to restore the capitalization of the property/casualty organization to a capital adequacy level above 160 percent. Although Hartford’s capital adequacy is still considered strong, current capitalization–notwithstanding other rating factors–does not support the current rating.

— Excellent market position. Hartford is the ninth largest property/casualty group in the U.S., with approximately $6.7 billion in net premiums written. Standard & Poor’s believes Hartford is among the top performers in this industry, benefiting from a strong brand name, above-average underwriting performance, and its ownership of Hartford Life Inc. (HLI). These favorable attributes have allowed the company to take full advantage of the improving underwriting cycle in the U.S. commercial lines sector and avoid the distractions other carriers in the industry are facing in the areas of loss reserves and underwriting. The association with HLI also provides Hartford with a valuable source of diversification, which Standard & Poor’s believes allows the group to exercise greater discipline than competitors completely dependent on the property/casualty cycle.

— Strong profitability. Notwithstanding the losses associated with the WTC disaster, Standard & Poor’s expected Hartford to achieve a combined ratio close to 103 percent for year-end 2001, which translates into an ROR of 8 percent-9 percent. Driving the strong underwriting results is the improvement in the company’s largest segment, business insurance, which continues to benefit from favorable price increases and higher retention levels. Standard & Poor’s expects further price firming in the company’s commercial insurance and reinsurance segments will allow earnings to gradually improve in 2002.

Outlook

The stable outlook on HIG reflects the diversification benefits HIG enjoys from indirectly owning HLI. Standard & Poor’s believes HLI, which accounts for almost 60 percent of the organization’s core earnings, provides the holding company with another source of funds to service holding-company obligations. The negative outlook on Hartford reflects Standard & Poor’s concern about the capitalization of the property/casualty operations, which is currently below expectations as a result of WTC related losses.

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