Standard Poors Ratings Services said today that it raised its financial strength and counterparty credit ratings on the core operating subsidiaries of Hartford Financial Services Group Inc. (NYSE: HIG) to A+ from A and its long-term counterparty credit rating on HIG to BBB+ from BBB. We also raised our short-term commercial paper rating on HIG to A-1 from A-2. The outlook is stable.
The upgrade is based on our view that the group has successfully executed a number of strategic initiatives to improve its risk profile from a number of well-executed strategic dispositions of its legacy run-off businesses, said Standard Poors credit analyst Sid Ghosh. These actions materially reduced the groups tail risks associated with its large legacy variable annuity businesses, especially those from its Japanese exposures. Moreover, the passage of the federal terrorism reinsurance program earlier this year has dissipated our concerns around workers compensation (WC) business. The upgrade also considers the continued strong operating performance of HIGs property/casualty (P/C) operations.
The stable outlook reflects our opinion that the group will be able to sustain very strong capital and earnings while maintaining disciplined underwriting and risk selection during the next 24 months. We expect the P/C segment to produce strong underwriting profitability and be a major contributor to the groups overall operating earnings. We expect the group benefits and mutual fund segments to be other sources of earnings diversification.
We may lower our ratings if, contrary to our expectations, the groups consolidated (life and P/C) capital adequacy falls below the AA level or earnings and financial flexibility deteriorate below current levels.
We are unlikely to raise the ratings in the next 24 months because Hartfords business profile, although very strong, is somewhat limited by its product lines compared with its higher rated peers.