OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has affirmed the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” and the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of The Hartford Financial Services Group, Inc. (The Hartford) [NYSE: HIG], which is the ultimate parent of the companies hereinafter mentioned. AM Best also has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICRs of “aa-” of Hartford Fire Insurance Company and its pooling subsidiaries and affiliates, collectively known as the Hartford Insurance Pool. Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of Hartford Life and Accident Insurance Company (HLA). The outlook of these Credit Ratings (ratings) is stable. All of the above companies are headquartered in Hartford, CT.
At the same time, AM Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICRs to “aa-” from “a+” of Navigators Insurance Company and its wholly owned and 100% reinsured subsidiary, Navigators Specialty Insurance Company, collectively referred to as Navigators. Both companies are domiciled in New York, NY. Concurrently, AM Best has upgraded the Long-Term ICR to “a-” from “bbb+” and all existing Long-Term IRs of The Navigators Group, Inc. (Delaware), a wholly owned downstream holding of The Hartford. The outlook of these ratings has been revised to stable from positive.
The ratings of the Hartford Insurance Pool reflect its balance sheet strength, which AM Best categorizes as strongest, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management (ERM).
The balance sheet strength assessment is derived from risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), which benefits from a high credit quality investment portfolio and a comprehensive reinsurance program with highly rated insurers. The pool’s balance sheet also benefits from the financial flexibility afforded by the parent company, which has access to the public debt and equity markets. Partially offsetting these benefits are the adverse calendar-year loss reserve development trends observed over the most recent 10-year period primarily related to asbestos and environmental liabilities. However, at the end of 2016, the group entered into a reinsurance agreement with National Indemnity Company to cover up to $1.5 billion in future adverse loss reserve development in its asbestos and environmental liabilities in order to mitigate further uncertainty regarding these reserves.
The pool’s operating returns are in line with the averages for the commercial casualty composite; however, returns have trended less favorably in recent years. While the five-year average combined ratio of 98.7% outperforms the commercial composite average by 1.2 percentage points, underwriting results were impacted negatively by catastrophe events in 2017 and 2018. Investment income has been consistent, as growth in the long-term bond portfolio was offset mostly by declining investment yields.
The favorable business profile reflects the pool’s excellent market position within the property/casualty industry, geographic and product line diversity, experienced management team, generally conservative operating fundamentals and diversified underwriting initiatives, which provide balanced growth opportunities. Management has executed various operating initiatives to focus operations on small to middle commercial markets and personal lines business that AM Best views as less volatile and provide opportunities for profitable growth. The pool’s use of technology platforms throughout the organization, localized support and excellent service further strengthen its business profile.
ERM is viewed appropriate for the pool’s size and complexity of its underwriting, investment and other risks based on its ERM framework and controls.
The ratings of HLA reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate ERM. The ratings also reflect the increased importance of HLA to the overall Hartford organization, as well as the considerable scale and capabilities that the Group Benefits segment has provided since the acquisition of Aetna Inc.’s Group Benefits business.
HLA’s very strong balance sheet reflects its very strong risk-adjusted capitalization, as measured by BCAR, as well as its generally conservative invested assets and a modest amount of operating leverage. AM Best notes that the business profile and the overall profitability of the Group Benefits segment reflect the increased scale since the acquisition of Aetna Inc.’s Group Benefits business, which is now fully integrated into HLA’s operations. As a result, AM Best believes that the company will continue to report a favorable trend of revenue and earnings, reflecting its favorable market position, as well as further invest in technological capabilities and customer service enhancements.
The ratings of Navigators reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate ERM. Navigators’ ratings also reflect the implicit and explicit support provided by The Harford, as well as the importance it will play within the overall Hartford organization, following its acquisition in May 2019.
The balance sheet strength assessment of Navigators is derived from risk-adjusted capitalization at the very strong level, which benefits from a high quality investment portfolio and strong reinsurance protection. Navigators also maintains solid liquidity measures, which compare favorably with the averages for the commercial casualty composite.
Navigators historically reported profitable operating performance, as evidenced by metrics over the recent five and 10-year periods. Average pre-tax operating returns during these periods are generally in line with the averages for the commercial casualty industry composite. Net investment income is solid and has improved steadily over the past five years, supported by a high quality investment portfolio. However, operating performance has deteriorated recently, particularly other liability and ocean marine business. This was driven largely by reserve strengthening and costs related to an adverse development cover that was purchased following the previously mentioned acquisition.
The favorable business profile reflects Navigators’ leading position as a global provider of insurance to the marine sector, the group’s well-diversified Specialty book of business, the multi-channel distribution platform that utilizes global, national and regional brokers, as well as wholesalers, and management’s conservative approach to risk management, underwriting and claims handling.
AM Best views Navigators’ ERM as appropriate for the group’s size and complexity of its underwriting, investment and other risks based on its ERM framework and controls.
The Hartford’s debt-to-total capital ratio (excluding accumulated other comprehensive income) and interest coverage ratios are generally within AM Best’s guidelines for its current ratings. AM Best anticipates The Hartford will maintain solid liquidity at the holding company to support any potential capital needs of its operating subsidiaries.
A complete listing of The Hartford Financial Services Group, Inc.’s FSRs, Long-Term ICRs and Short- and Long-Term IRs also is available.
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