S&P’s Says Hartford Fire Outlook Remains Negative

July 31, 2002

Standard & Poor’s Ratings Services, commenting on Hartford Fire Insurance Co.’s (Hartford Fire) second-quarter earnings, said that the outlook for the company and related property/casualty entities remains negative despite the prospects for improved earnings throughout the remainder of 2002.

The negative outlook, which was established shortly following the World Trade Center disaster, reflects S&P’s concern about the capital adequacy of the property/casualty operations, which is currently below expectations. In addition, S&P’s believes the company’s near-term ability to improve the capital adequacy of the property/casualty operations will be limited by new business strain and the downturn in the equity markets.

Notwithstanding, the company does have 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. Until such time, however, the ratings on the property/casualty operations remain susceptible to unexpected risks not already captured in the analysis. These risks include but are not limited to asbestos litigation, further deterioration in the global credit markets, and potential catastrophe losses.

Other factors that continue to support the ratings are its strong brand name and market position in domestic property/casualty, better-than-average profitability as compared with the industry, and the diversification it enjoys from its relationship with Hartford Life Inc., a wholly-owned subsidiary.

Separately but related, the company’s announcement that it has reclassified about $600 million of reserves from its other operations to its asbestos and environmental category is not a material concern unto itself. S&P’s is concerned about the potential increased liability that asbestos litigation could have on the financials of Hartford Fire and the industry at large.

Hartford Fire, which has a financial strength rating of double-‘A’, is a wholly owned subsidiary of Hartford Financial Services Group Inc.

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