Fitch Ratings has affirmed all current ratings of the Hartford Financial Services Group Inc. (HFSG).
This includes HFSG’s fixed income ratings and the insurer financial strength rating of the primary life and property/casualty insurance subsidiaries. The Rating Outlook remains Stable.
This rating action follow Fitch’s annual review. HFSG maintains approximately $4.8 billion in outstanding fixed income securities.
HFSG’s ratings favorably consider strong absolute operating performance, good asset quality and business diversification, as the company maintains large market positions in several business segments. The ratings reflect a strong property/casualty underwriting track record and profitable growth. Fitch believes the capital quality of the insurance subsidiaries has favorably strengthened at a steady pace in recent years.
The rating analysis also considers the company’s liability mix that includes tight-margined investment products, longer-tail liability insurance risks and lingering asbestos claims. Fitch believes that the company does a good job managing these matters, though over the past 10 years HFSG has, from time to time, incurred charges that are either directly or indirectly related to these issues.
Further, current issues surrounding run-off reinsurance and environmental liabilities create some concern. The 2003 reserve strengthening is believed to have placed the company in a strong position relative to peers to address asbestos claims, though the situation remains ambiguous for the industry.
Fitch views the risk of earnings volatility associated with the company’s market-leading variable annuity business to be meaningful, though manageable for a diverse operation such as HFSG. Fitch expects that overall operating performance will continue to be strong with favorable trends relative to the industry. Fitch anticipates better than average underwriting performance in the property/casualty operations and continued strong earning trends in the life/annuity operation.
The balance sheet is expected to remain solid, supported by stable property/casualty reserves, including recent accident years, and steadily improving subsidiary capitalization. The ratings reflect HFSG’s ongoing initiatives to improve overall capitalization, which Fitch believes has solidified the ratings at the current levels.
Adjusted financial leverage is expected to remain comfortably lower than 30% for the current rating and has been substantially lower in recent periods, with year-end 2004 equity-credit adjusted financial leverage at approximately 18-19%.
Evolving regulatory capital requirements are also a potential near-term risk for variable annuity writers as more capital could be required. Changes in the regulatory capital ratio are expected for year-end 2005 in the United States and during the current year in Japan. Fitch does not expect these developments to have a meaningful impact on the company’s overall capital position.
Fitch makes adjustments to the NAIC risk-based capital ratio to account for variable annuity risks. When the consolidated HFSG life operations, including Japan, are considered in the NAIC risk-based capital framework (with consideration given for reinsurance and hedging and Fitch’s variable annuity adjustment), Fitch believes the company’s capital position remains aligned with current rating expectations.
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