A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating of A (Excellent) and issuer credit ratings (ICR) of “a+” of Hartford Fire Insurance Company and its pooling subsidiaries and affiliates, collectively referred to as the Hartford Insurance Pool. At the same time, A.M. Best has affirmed the ICR of “bbb+” and all debt ratings of The Hartford Financial Services Group, Inc. (The Hartford) [NYSE:HIG], which is the ultimate parent of the aforementioned operating insurance companies. All companies are headquartered in Hartford, CT. (Please see link below for a detailed listing of the companies and ratings.)
The ratings of the Hartford Insurance Pool reflect its solid risk-adjusted capitalization, improving underwriting and operating profitability and excellent market position within the property/casualty industry. The pool’s results remain better than the average of its peers in recent years, although they have deteriorated relative to historical levels. The Hartford Insurance Pool benefits from its geographic and product line diversity, experienced management team, generally conservative operating fundamentals and diversified underwriting initiatives, which provide balanced growth opportunities. Management remains focused primarily on small to middle commercial markets and personal lines that are viewed as less volatile. While results in recent years have been impacted by catastrophes and non-catastrophe weather losses, the pool's core results remain within A.M. Best's expectations.
These positive factors are somewhat offset by variable operating performance, given the impact of weather-related losses that weakened operating results in recent years relative to their historical levels. In addition, the pool maintains above-average exposure to affiliated investments and commercial real estate assets compared to the overall property/casualty peer group. In addition, the pool’s ratings reflect the potential strain on capital and resources from the run-off of variable annuity (VA) business written by the pool’s life affiliates.
The change in outlook for both The Hartford and the Hartford Insurance Pool reflects a substantial reduction in the risk associated with the VA business. Two key components of that risk reduction are the significantly increased surrender activity that has lowered the enterprise’s overall exposure to the VA business, and an expansion of The Hartford’s hedging program to include its Japanese VA business. The Hartford has historically employed a hedging program on U.S. VA risks to address equity, interest rate and market volatility risks. The expanded hedging program addresses those risks for the Japan VA block, as well as associated foreign exchange risk.