May 13, 2003 by Canadian Underwriter
Connecticut-based The Hartford Financial Services Group says it is exiting p&c assumed reinsurance, written through HartRe, and taking a US$1.7 billion charge to first quarter results for asbestos reserving.
In total, the company is putting US$2.6 billion, net of reinsurance, toward asbestos reserves.
The moves are part of an overall restructuring that includes cost cutting, the elimination of 1,500 jobs and a US$1.85 billion capital-raising plan.
The company says it is in negotiations to sell most of its HartRe business, however if a sale does not happen, the company still plans to exit the p&c 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,” says The Hartford chairman and CEO Ramani Ayer.
On the asbestos front, the company says a thorough reserve study resulted in the reserve charge. The Hartford did not assume any improvement in the current legal environment, which has seen several U.S. corporations pushed in bankruptcy by asbestos claims. “The [insurance] 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,” says Ayer.
The company plans to replace surplus lost as a result of reserving, and to issue US$1.6 billion of equity and equity-linked securities, plus US$250 million of debt securities. The company expects to complete its capital-raising moves by the end of second quarter.
“The approach we are announcing today is comprehensive,” Ayer comments. “Our actions on asbestos, capital and cost will strengthen our business and put us in a very strong position for continued growth and profitability.”