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FOR IMMEDIATE RELEASE
OLDWICK - JANUARY 03, 2017 02:02 PM (EST)
A.M. Best has commented that the Credit Ratings (ratings) of The Hartford Financial Services Group, Inc. (The Hartford) [NYSE: HIG] and its subsidiaries remain unchanged following The Hartford’s recent announcement that its principal operating subsidiary, Hartford Fire Insurance Company and its pooling subsidiaries and affiliates, collectively referred to as the Hartford Insurance Pool, have entered into a reinsurance transaction with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. (Berkshire) [NYSE: BRK A and BRK B], that provides aggregate adverse development coverage for asbestos and environmental (A&E) losses.
Under the terms of the transaction, The Hartford will pay NICO a reinsurance premium of $650 million in exchange for an aggregate adverse development cover for A&E losses beyond Dec. 31, 2016, aggregate net carried reserves, up to a limit of $1.5 billion. The reinsurance will cover adverse development on substantially all of the company’s A&E reserves, excluding those held by the company’s U.K. property and casualty run-off subsidiaries (under contract to be sold with a closing projected for the first quarter 2017), as well as other non-U.S. operations with less than $3 million in A&E reserves. NICO will provide a collateral trust account as security for NICO’s claim payment obligations to the Hartford Insurance Pool. Berkshire will guarantee certain payment and performance obligations of NICO. The Hartford will retain responsibility for claims handling and other administrative services, subject to certain conditions. The Hartford expects to recognize an after-tax GAAP loss of $423 million in the fourth quarter of 2016 as a result of this transaction.
Over the longer term, A.M. Best believes the reinsurance transaction is credit positive for The Hartford and its subsidiaries as it significantly reduces the uncertainty of the group’s legacy A&E liabilities and will enhance the group’s risk-adjusted capitalization. Near term, however, The Hartford’s ratings will not be affected as risk-adjusted capitalization was comfortably supportive of its ratings and the variability in performance due to the adverse development of the A&E liabilities was not viewed as a substantial negative credit factor.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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