On the back of lower investment losses and strong performance in the fourth quarter, the rating agency A.M. Best Co. has revised the ratings outlook of The Hartford Financial Services Group, Inc. (HIG) as the company diverts to safer risk profiles in its investment portfolio.
A.M. Best Co. has raised the outlook to “stable” from “negative”, while it resumed Hartford’s issuer credit rating (ICR) of “bbb+”.
Additionally, A.M. Best has affirmed the financial strength rating (FSR) of A (Excellent) and ICRs of “a+” of Hartford’s health and life insurance subsidiaries. The outlook for the ICRs has been revised to stable from negative, while the outlook for the FSRs is stable.
Further, A.M. Best has maintained the FSR of A (Excellent) and ICRs of “a+” of the property and casualty insurance subsidiaries of Hartford Insurance Pool. The outlook for these ratings is stable.
A.M. Best has also upgraded FSR to A (Excellent) from A- (Excellent) and the ICR to “a+” from “a-” for Hartford International Life Reassurance Corporation (HILRE).
The ratings and outlook of Hartford reflect the strong financial performance of the company and the creditworthiness of its main property-casualty and life operating companies.
Additionally, Hartford’s step to improve capital and liquidity in recent years, including the repayment of $3.4 billion of fixed rate cumulative perpetual preferred stock to the U.S. Department of the Treasury on March 31, 2010 has contributed to improving Hartford’s performance.
Recently on February 3, Hartford also posted a solid net income of $619 million or $1.24 per share in the fourth quarter of 2010 as opposed to a net income of $557 million or $1.19 per share. In fiscal 2010, net income was $1.68 billion or $2.49 per share as against a net loss of $887 million or $2.93 per share in fiscal 2009.
Better investment results, strong growth in assets under management, reduced levels of net realized capital losses and Hartford’s impressive book value during the quarter led to strong net income, which has in turn improved the ratings of Hartford.
Hartford also maintains a sizeable amount of cash and short-term securities totaling $2.1 billion at year-end 2010. Hartford has an excellent liquidity position, and has thus doubled its dividend during the fourth quarter since the recession. Hartford paid a quarterly dividend of 10 cents per share on April 1 to shareholders of record as of March 1.
Hartford has also maintained its adjusted financial leverage (including accumulated other comprehensive income) at 20.1% at the end of 2010, according to the expectations of the rating agency A.M. Best at current rating levels.
Hartford also reached A.M. Best’s guidelines for interest coverage of roughly 4.75 times in 2010 at its current rating level. Moreover, the rating agency believes that it is m uch improved from the prior two years, reflecting positive pre-tax earnings for the consolidated enterprise.
In 2010, Hartford Life’s operating results improved across most of its segments; the group continues to maintain a strong position in several U.S. life and retirement savings businesses. While absolute exposure to real estate related assets were significant, A.M. Best believes Hartford Life’s overall credit risk is manageable given higher capitalization levels and the gradually improving economic outlook.
On the other hand, Hartford Life’s earnings remain strongly correlated to the global equity markets given its large block of retail variable annuity business, which remains exposed to potential equity market volatility and rising interest rates. However, Hartford has been able to mitigate its capital volatility due to its various risk management strategies, including reinsurance and hedging.
The outlook also reflects A.M. Best’s positive view on the Hartford Insurance Pool. The rating agency believes that it is well positioned to manage challenging property and casualty market dynamics such as pricing pressures and increased competition.
A.M. Best also opines that HILRE is strategically important to Hartford as it exclusively engages in assumed reinsurance of private placement life insurance from its parent, Hartford Life Insurance Company.
Besides A.M. Best, the rating agency Fitch Ratings also upgraded its outlook on Hartford in February to “stable” from “negative”, resuming Hartford’s ratings of “BBB” issuer default ratings (“IDR”).
The rating agency Standard & Poor’s (S&P) Ratings Services also upgraded its outlook on Hartford in March, as the company leans on safer risk profiles in its investment portfolio. S&P has raised the outlook to “stable” from “negative,” while it resumed Hartford’s counterparty credit rating stands at “BBB”.
S&P has raised the outlook to “stable” from “negative,” while it resumed Hartford’s counterparty credit rating stands at “BBB”.
We believe that with the repayment of the government bailout amount last year, Hartford is focused on lowering the risk exposure of its capital, a positive that could increase operational efficiencies by enabling allocation of capital for share repurchases and dividend payments.
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