EXHIBIT 99.1
[THE HARTFORD LOGO] NEWS RELEASE
Hartford Plaza - Hartford, CT 06115
Date: May 12, 2003
For Release: Upon Receipt
Contact: Media Investors
Joyce Willis Hans Miller
860/547-4951 860/547-2751
jwillis@thehartford.com hmiller@thehartford.com
Cynthia Michener Mike Lesperance
860/547-5624 860/547-6781
cynthia.michener@thehartford.com michael.lesperance@thehartford.com
THE HARTFORD ANNOUNCES ASBESTOS RESULTS AND CAPITAL PLAN
HARTFORD, CONN. - The Hartford Financial Services Group, Inc. (NYSE: HIG)
today announced the completion of its ground-up study of asbestos-related
exposures and a significant strengthening of its asbestos reserves. The
company also announced a series of actions and plans to strengthen its
capital base, enhance earnings and advance its competitive position.
The Hartford's actions include:
- Strengthening its asbestos reserves by net $2.6 billion;
- Recording a $1.7 billion (after-tax) charge to first-quarter
earnings;
- Raising $1.85 billion in capital;
- Exiting the property-casualty assumed reinsurance market;
- Voluntarily funding $300 million to its employee pension plan; and
- Reducing the cost of operations to increase after-tax earnings by
approximately $130 million in 2004.
"The approach we are announcing today is comprehensive. Our actions on asbestos,
capital and cost will strengthen our business and put us in a very strong
position for continued growth and profitability," said Ramani Ayer, The
Hartford's chairman and CEO.
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ASBESTOS RESERVE STUDY
"Our study was very thorough," said Ayer. "It covered the full range of
issues concerning the impact of asbestos coverage on our company. We believe the
resulting reserve increase will put this issue behind us."
The Hartford's asbestos reserve study, the methodology of which was
reviewed by an internationally recognized actuarial consulting firm, examined
all 990 of The Hartford's open direct U.S. accounts. In addition, the study
reviewed both open and closed accounts, including settlement agreements, for
potential non-products exposure. Every account identified as having potential
non-products exposure was given a full, ground-up exposure analysis.
The Hartford's study analyzed the insured's total, ultimate exposure to
asbestos liability independently from its insurance coverage. Ayer noted that
this independent analysis is a distinctive feature of The Hartford's method. The
company's evaluations were independent of any past payment and reserving
approaches to the insured, resulting in an unbiased projection of the insured's
ultimate asbestos exposure and its impact on The Hartford's coverage.
The company also used its knowledge of its direct book to analyze its
assumed reinsurance based on the underlying insured's ultimate exposure. "This
allowed us to reserve our asbestos exposure on this book more accurately,
without relying on our reinsureds' notification of claims to us," Ayer
explained.
"Our ground-up study was conducted against the backdrop of a rapidly
deteriorating asbestos legal environment," Ayer said. "The industry has seen a
surge in bankruptcies in the past year, especially aggressive pre-packaged
bankruptcies, which have increased exposure to bankrupt insureds and put
extraordinary pressure on solvent asbestos defendants. The result is increased
insurance industry exposure to asbestos insureds both in bankruptcy and in the
tort system. In particular, exposures extend to higher layers of excess
insurance than we would have anticipated even a few months ago." These recent
developments were considered in The Hartford's study, Ayer noted. For purposes
of the study, however, the company did not assume the current legislative and
judicial environment would improve. The study team used consistently
conservative assumptions.
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The Hartford increased its gross reserves by $3.91 billion, resulting in
total gross reserves of $5.90 billion as of March 31, 2003. Net of reinsurance,
asbestos reserves increased by $2.57 billion, resulting in a net reserve of
$3.69 billion as of March 31, 2003.
"We believe our strengthened asbestos reserves are very conservative,"
Ayer noted. "Our three-year net survival ratio has increased substantially --
from 12.4 to 37.2."
CAPITAL AND COST PLAN
"We will promptly replace lost surplus consumed by our asbestos reserve
increase," Ayer added, "but we are doing more than addressing the asbestos issue
today. We are changing our capital management strategy, refining our business
mix and improving our cost structure."
As part of a comprehensive plan to maintain and enhance its capital
strength, The Hartford plans to issue $1.6 billion of equity and equity-linked
securities and $250 million of debt securities. To enhance capital further, the
plan also includes the sale of certain higher-risk investment asset classes
(equities and certain limited partnerships) and the realization of a small
percentage of the company's unrealized capital gains.
The Hartford also today announced its plan to exit the assumed
property-casualty reinsurance business. "While the HartRe team has done a
tremendous job of restoring the returns in our current reinsurance book, we are
a small player in this business and our scale does not justify the capital
investment required to compete effectively," said Ayer. "We are in advanced
negotiations with an interested party for the possible sale of most of this
business. Regardless of whether a transaction is completed, we will be exiting
this market and concentrating on our core businesses."
The company expects to complete the majority of the steps in its capital
plan, including raising the external capital, by the end of the second quarter.
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In addition, the company announced that it will reduce costs. The cost
reduction program is expected to increase after-tax earnings by approximately
$50 million in 2003 and $130 million in 2004. One thousand five hundred
positions will be immediately affected. Eight hundred and fifty employees will
lose their jobs by the end of the quarter. Six hundred and fifty vacant
positions have also been eliminated. These actions are targeted at overhead, not
field operations. The cuts will come primarily from the property-casualty
businesses and, to a lesser extent, from the consolidation of some corporate
services. In addition to severance, employees affected by the job cuts will
receive assistance with career transition. The Hartford currently has 29,000
employees.
"These reductions are painful, but necessary," said Ayer. "We recognize
the impact of these steps on many who have contributed to our company. We will
make every effort to help them with their career transition.
"The actions we have announced today put us on a path to grow consistently
and profitably in the coming years. Our core businesses in property-casualty and
life will maintain and increase their scale and leading market positions,
enhancing value for shareholders and providing a strong future for The
Hartford," Ayer concluded.
The Hartford's asbestos reserve study and capital plan presentation can be
found on the company's Web site, www.thehartford.com/ir/index.html. A conference
call will take place today at 8:30 a.m. The conference call will be
simultaneously webcast at www.thehartford.com/ir/index.html.
The Hartford (NYSE: HIG) is one of the nation's largest investment and
insurance companies. As of March 31, 2003, The Hartford had assets of $188.7
billion and stockholders' equity of $9.4 billion. The company is a leading
provider of investment products, life insurance and group benefits; automobile
and homeowners products; and business property and casualty insurance.
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THE HARTFORD/5
Some of the statements in this release should be considered forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
These include statements about the adequacy of our asbestos reserves, our
capital raising plans and our future results of operations. We caution investors
that these forward-looking statements are not guarantees of future performance,
and actual results may differ materially. Investors should consider the
important risks and uncertainties that may cause actual results to differ. In
particular, the adequacy of our asbestos reserves is subject to a number of
potential adverse developments including, among others, the development of novel
legal claims by asbestos plaintiffs and the effect of bankruptcies of asbestos
defendants on claim development and severity. Our capital raising plans are
subject to volatile capital markets.
Other important risks and uncertainties include the difficulty in predicting our
potential exposure for asbestos and environmental claims and related litigation,
in particular, significant uncertainty with regard to the outcome of our current
dispute with Mac Arthur Company and its subsidiary, Western MacArthur Company;
the uncertain nature of damage theories and loss amounts and the development of
additional facts related to the September 11, 2001 terrorist attack; the
uncertain impact on us of various tax reduction proposals being considered by
Congress that relate to the lowering of the capital gains rate and the
application of that rate to dividend distributions; the response of reinsurance
companies under reinsurance contracts, the impact of increasing reinsurance
rates, and the availability and adequacy of reinsurance to protect us against
losses; the possibility of more unfavorable loss experience than anticipated;
the possibility of general economic and business conditions that are less
favorable than anticipated; the incidence and severity of catastrophes, both
natural and man-made; the effect of changes in interest rates, the stock markets
or other financial markets; stronger than anticipated competitive activity;
unfavorable legislative, regulatory or judicial developments; our ability to
distribute our products through distribution channels, both current and future;
the uncertain effects of emerging claim and coverage issues; the effect of
assessments and other surcharges for guaranty funds and second-injury funds and
other mandatory pooling arrangements; a downgrade in our claims-paying,
financial strength or credit ratings; the ability of our subsidiaries to pay
dividends to us; and others discussed in our 2002 Annual Report on Form 10-K and
the other filings we make with the Securities and Exchange Commission. We assume
no obligation to update this release, which speaks as of the date issued.
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[THE HARTFORD LOGO]
ASBESTOS STUDY
AT A GLANCE
BY THE NUMBERS:
- - The Hartford has strengthened its gross asbestos reserves by $3.91 billion
to $5.90 billion.
- - Net reserves after reinsurance were increased by $2.57 billion to $3.69
billion.
- - After tax, the charge to first quarter earnings is $1.7 billion.
- - The Hartford's three-year net survival ratio is now 37.2, up from 12.4
before the study.
WHAT WAS REVIEWED:
- - All 990 open direct U.S. accounts were reviewed.
- - Accounts with the potential for non-products exposure.
- - Assumed and ceded reinsurance.
UNIQUE DRIVERS OF THE HARTFORD'S RESULTS:
- - Evaluation of our insureds' ultimate asbestos exposure independently,
without bias as to whether The Hartford's policies would cover the
exposure. A second study team then determined The Hartford's portion of
that exposure.
- - Conservative review of open and closed accounts for potential non-products
exposure.
- - Ground-up methodology applied to assumed reinsurance utilizing our
extensive knowledge of the underlying direct accounts, which allowed us to
more accurately reserve our asbestos exposure without relying on our
reinsured's notification of claims to us. Plus, a thorough review of our
ceded reinsurance, which factored in commutations, settlement agreements
and current and future potential insolvencies.
- - Significantly reserving for excess coverage beyond the industry norm. Our
assessments reach materially higher into levels of excess coverages (both
sold directly and assumed through reinsurance) than any insurer would have
previously believed possible six to 12 months ago due to the substantial
acceleration in new asbestos claims, particularly those of unimpaired
claimants, and bankruptcy proceedings.
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