A.M. Best Reports Ratings for Travelers Group Unaffected

A.M. Best Co. said the A++ (Superior) financial strength rating of the Travelers Property Casualty Pool (Hartford, Conn.), the financial strength ratings of the other Travelers Property Casualty Group members, the debt ratings of Travelers Property Casualty Corp. (Travelers P&C) and the trust preferred securities ratings of Travelers P&C Capital I and II are unaffected by the announcement that the group took a $49 million pretax charge to increase reserves for asbestos liabilities in the third quarter of 2002, net of the benefit received under the indemnification agreement with Citigroup (the company’s former parent).

This increase in reserves is based on Travelers’ analysis of trends in reported losses, higher levels of claim payments, the current litigation environment and settlement activities, as well as the group’s regular periodic ground-up study of asbestos reserves, which is in process. Management is continuing to study the implications of these significant developments for the group’s asbestos reserves, paying special attention to major asbestos defendants and non-products claims. The analysis is expected to be completed during the fourth quarter.

The current ratings already consider A.M. Best’s estimate of the potential A&E reserve shortfall in the evaluation of capitalization. The third quarter charge and any potential reserve increase resulting from the study is likely to fall within that estimate. In addition, the strength of the group’s earnings, combined with the indemnification agreement provided by Citigroup at the time of the spin-off, has enabled Travelers to absorb this charge with modest impact to earnings. The Citigroup indemnification agreement provides for a cumulative aggregate recovery of $800.0 million reduced by related federal income tax benefits. After the current quarter charge, $555.0 million of future recoveries (including tax benefits) remains available under this agreement.

If the study to be completed in the fourth quarter results in an additional increase in asbestos reserves, earnings will be protected by the remaining benefit under this cover. A.M. Best views the recognition of such liabilities as positive in that it strengthens existing A&E reserves and Travelers’ conservative balance sheet.

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