The Hartford Cutting Jobs; Releases Asbestos Study

May 12, 2003

The Hartford Financial Services Group, Inc. announced a series of actions and plans to strengthen its capital base, enhance earnings and advance its competitive position. The company also announced the completion of its ground-up study of asbestos-related exposures and a significant strengthening of its asbestos reserves.

The Hartford’s actions include:
*Strengthening its net asbestos reserves by $2.6 billion;
*Recording a $1.7 billion (after-tax) charge to first-quarter earnings;
*Raising $1.85 billion in capital;
*Exiting the property-casualty assumed reinsurance market;
*Voluntarily funding $300 million to its employee pension plan; and
*Reducing the cost of operations to increase after-tax earnings by
approximately $130 million in 2004.

“The approach we are announcing today is comprehensive. Our actions on asbestos, capital and cost will strengthen our business and put us in a very strong position for continued growth and profitability,” Ramani Ayer, The Hartford’s chairman and CEO, said.

Capital and Cost Plan
“We will promptly replace lost surplus consumed by our asbestos reserve increase,” Ayer added, “but we are doing more than addressing the asbestos issue today. We are changing our capital management strategy, refining our business mix and improving our cost structure.”

As part of a comprehensive plan to maintain and enhance its capital strength, The Hartford plans to issue $1.6 billion of equity and equity-linked securities and $250 million of debt securities. To enhance capital further, the plan also includes the sale of certain higher-risk investment asset classes (equities and certain limited partnerships) and the realization of a small percentage of the company’s unrealized capital gains.

The Hartford also announced its plan to exit the assumed property-casualty reinsurance business. “While the HartRe team has done a tremendous job of restoring the returns in our current reinsurance book, we are a small player in this business and our scale does not justify the capital investment required to compete effectively,” Ayer commented. “We are in advanced negotiations with an interested party for the possible sale of most of this business. Regardless of whether a transaction is completed, we will be exiting this market and concentrating on our core businesses.”

The company expects to complete the majority of the steps in its capital plan, including raising the external capital, by the end of the second quarter.

In addition, the company announced that it will reduce costs. The cost reduction program is expected to increase after-tax earnings by approximately $50 million in 2003 and $130 million in 2004. One thousand five hundred positions will be immediately affected. Eight hundred and fifty employees will lose their jobs by the end of the quarter. Six hundred and fifty vacant positions have also been eliminated. These actions are targeted at overhead, not field operations. The cuts will come primarily from the property-casualty businesses and, to a lesser extent, from the consolidation of some corporate services. In addition to severance, employees affected by the job cuts will receive assistance with career transition. The Hartford currently has 29,000 employees.

“These reductions are painful, but necessary,” Ayer said. “We recognize the impact of these steps on many who have contributed to our company. We will make every effort to help them with their career transition.

“The actions we have announced today put us on a path to grow consistently and profitably in the coming years. Our core businesses in property-casualty and life will maintain and increase their scale and leading market positions, enhancing value for shareholders and providing a strong future for The Hartford,” Ayer concluded.

Asbestos Reserve Study
“Our study was very thorough,” Ayer said. “It covered the full range of issues concerning the impact of asbestos coverage on our company. We believe the resulting reserve increase will put this issue behind us.”

The Hartford’s asbestos reserve study, the methodology of which was reviewed by an internationally recognized actuarial consulting firm, examined all 990 of The Hartford’s open direct U.S. accounts. In addition, the study reviewed both open and closed accounts, including settlement agreements, for potential non-products exposure. Every account identified as having potential non-products exposure was given a full, ground-up exposure analysis.

The Hartford’s study analyzed the insured’s total, ultimate exposure to asbestos liability independently from its insurance coverage. Ayer noted that this independent analysis is a distinctive feature of The Hartford’s method. The company’s evaluations were independent of any past payment and reserving approaches to the insured, resulting in an unbiased projection of the insured’s ultimate asbestos exposure and its impact on The Hartford’s coverage.

The company also used its knowledge of its direct book to analyze its assumed reinsurance based on the underlying insured’s ultimate exposure. “This allowed us to reserve our asbestos exposure on this book more accurately, without relying on our reinsureds’ notification of claims to us,” Ayer explained.

“Our ground-up study was conducted against the backdrop of a rapidly deteriorating asbestos legal environment,” Ayer said. “The industry has seen a surge in bankruptcies in the past year, especially aggressive pre-packaged bankruptcies, which have increased exposure to bankrupt insureds and put extraordinary pressure on solvent asbestos defendants. The result is increased insurance industry exposure to asbestos insureds both in bankruptcy and in the tort system. In particular, exposures extend to higher layers of excess insurance than we would have anticipated even a few months ago.” These recent developments were considered in The Hartford’s study, Ayer noted. For purposes of the study, however, the company did not assume the current legislative and judicial environment would improve. The study team used consistently conservative assumptions.

The Hartford increased its gross reserves by $3.91 billion, resulting in total gross reserves of $5.90 billion as of March 31, 2003. Net of reinsurance, asbestos reserves increased by $2.57 billion, resulting in a net reserve of $3.69 billion as of March 31, 2003.

“We believe our strengthened asbestos reserves are very conservative,” Ayer noted. “Our three-year net survival ratio has increased substantially – from 12.4 to 37.2.”

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