S&P’s Takes off Watch, Lowers Hartford Financial Services Ratings

November 28, 2002

Standard & Poor’s has removed from CreditWatch its counterparty credit rating on The Hartford Financial Services Group Inc. and lowered it to ‘A-‘ from ‘A’ because of concerns about trends in the retirement and savings sector as well as the consolidated capitalization of The Hartford’s insurance operations.

Standard & Poor’s also said that it removed from CreditWatch and lowered its ratings on the entities related to The Hartford, including The Hartford’s life and property/casualty operations.

The outlook on all these companies is stable.

“The increasingly competitive environment for spread-based and
equity-linked retirement and savings products will make it increasingly
difficult for Hartford Life Inc. and other prominent industry competitors to maintain historical profit margins and growth rates,” noted Standard & Poor’s credit analyst Matthew Coyle. As The Hartford is a leader in this business (it accounted for more than 65 percent of Hartford Life’s operating income as of Sept. 30, 2002), its potential exposure to adverse changes in market conditions was seen as a risk to capital and the rating. Historically, the ratings on Hartford’s property/casualty operations have benefited from the
strength and diversification of the life operations.

Other considerations incorporated in the rating action include
concerns about the consolidated capitalization of The Hartford’s insurance operations as a result of equity market volatility, credit losses, pension liabilities, and potential asbestos exposure. Historically, Standard & Poor’s has considered The Hartford’s capital management to be slightly aggressive for the rating, as capital has historically been managed at the margin. (Although the company raised $675 million of capital securities in Sept. 2002,
Standard & Poor’s did not consider the improvement sufficient to maintain a ‘AA’ level of capitalization given its latest view of the potential risks surrounding the organization.)

These concerns notwithstanding, Standard & Poor’s believes that Hartford Life will continue to rank among the best-positioned companies in the savings and retirement industry and that The Hartford’s property/casualty operations are in an excellent position to take advantage of the improving property/casualty cycle.

Standard & Poor’s considers each of these businesses to be an integral part of the organization in addition to providing a valuable source of earnings diversification.

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