A.M. Best Upgrades Rating of The Hartford Steam Boiler Inspection and Insurance Company and Its Subsidiaries.

OLDWICK, N.J. -- A.M. Best Co. has upgraded the financial strength rating to A++ (Superior) from A+ (Superior) of The Hartford Steam Boiler Inspection and Insurance Company (HSB) (Hartford, CT) and its three group rated subsidiaries. The three subsidiaries include The Hartford Steam Boiler Inspection and Insurance Company of Connecticut (Hartford, CT), HSB Engineering Insurance Limited (London) and The Boiler Inspection and Insurance Company of Canada (Ontario). The rating outlook is stable.

The rating upgrade is based on a host of positive factors including HSB's unique franchise, level of capitalization, quality earnings, which have consistently outpaced the industry, and positive reserve position. Ownership by American International Group, Inc. (AIG) (New York, NY) is also a consideration; however, on a stand-alone basis, HSB meets the rating criteria for A++ (Superior)-rated companies. Specifically, the rating reflects surplus that surpasses the minimum that is required for the rating level, historically outstanding operating results and sustainable competitive advantages derived from the group's preeminent technical expertise, extensive loss control capabilities and database. HSB's reserves have proved redundant in recent years. Further, HSB's large sized, more volatile power generation risks are being ceded 100% to AIG.

In addition to being the leading provider of specialty engineering property and boiler and machinery insurance in the United States, HSB has also developed a solid worldwide reputation for its outstanding loss control and risk management services. These factors are further enhanced by the group's firmly entrenched position in the United States, its gradual expansion outside of North America and its large base of client insurance companies, which utilize its underwriting expertise, loss control and engineering services.

The rating also acknowledges HSB's favorable distribution strategy, high customer loyalty and persistency. Compared to the industry, HSB's expense ratio remains high; however, this expense burden stems from its heavy emphasis on loss prevention, failure analysis and other engineering services, which serve to contain losses and maintain HSB's exceptional loss ratio advantage.

With the acquisition of HSB by AIG in 2000, HSB was afforded additional financial flexibility and is presently viewed by A.M. Best to be a strategic affiliate within AIG's global network of companies. Moreover, AIG provides HSB with access to an extensive worldwide distribution network and existing customer base upon which HSB can selectively grow outside of the United States.

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