A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa” of the property/casualty subsidiaries of The Travelers Companies, Inc. (TRV) also known as Travelers Group, its affiliate, Travelers Casualty and Surety Company of America (TCSA) and TCSA’s affiliate, UK-based Travelers Casualty and Surety Company of Europe Limited (TCSCE). Best also affirmed TRV’s senior debt ratings of “a.”
In addition Best has affirmed the FSR of ‘A’ (Excellent) and ICR of “a+” of The Premier Insurance Company of Massachusetts (Premier) and the FSR of ‘A ‘(Excellent) and ICR of “a” of First Trenton Indemnity Company, as well as the FSR of ‘A-’ (Excellent) and ICR of “a-” of First Floridian Auto and Home Insurance Company.
The outlook for the all of the above ratings is stable.
Best has also upgraded the ICR to “aa” from “aa-” and affirmed the FSR of ‘A+’ (Superior) of Travelers Insurance Company of Canada, and ahs revised the outlook for the ICR to stable from positive, while the outlook for the FSR is stable.
The ratings of Travelers reflect its “strong risk-adjusted capitalization, favorable operating and underwriting results, proactive and comprehensive risk management, dominant market profile in commercial and personal lines (largely distributed through independent agents) and quality management team,” said Best.
“The ratings also acknowledge Travelers’ proactive and comprehensive risk management, underwriting and financial discipline, relatively conservative investment portfolio, geographic and product diversification and enhanced technology and internal information systems, which have improved its underwriting effectiveness and ability to service agents and customers in both commercial and personal lines.”
Best also noted that Travelers’ ratings “consider the financial flexibility and liquidity provided by TRV. Despite significant share repurchases since 2006, TRV maintained $2.2 billion of cash and marketable securities, and its adjusted debt-to-capital ratio remained moderate at 22.4 percent at March 31, 2012.
“However, TRV does maintain a sizable 12.8 percent of shareholders’ equity in intangible assets. Adjusting for tangible capital, the adjusted debt-to-tangible capital ratio was 25.7 percent, well within Best’s expectations at current rating levels. Interest coverage also remained strong through the first quarter of 2012 at 12.2 times.”
As offsetting factors, Best cited the “ongoing competitive environment within the property/casualty markets and Travelers’ exposure to natural and man-made catastrophes and emerging asbestos and environmental (A&E) claims. Being among the largest commercial and personal insurers and national property writers, the group has significant exposure to natural catastrophes, which was evident in 2011, and potential terrorist-related losses.
Best did note however, that Travelers has “comprehensive reinsurance and risk management programs in place to manage its spread of risk and limit its overall exposure. Despite reporting a reduced level of earnings in 2011 due to a significant increase in catastrophe loss activity, Travelers managed to report adequate returns while maintaining strong liquidity and risk-adjusted capitalization that is a testament to the group’s conservative operating philosophy, strong business profile and strong risk management program.”
One of the main exposures Travelers shares with other leading carriers within the U.S. property/casualty industry, is the “potential development of A&E liabilities,” said Best. However, it also noted that “more recent years have seen less adverse A&E reserve development emerge. Over the past several years, the group’s overall commercial lines reserves appear to have stabilized, as evidenced by favorable prior year loss reserve development, while redundancies have consistently occurred in personal lines reserves.
“The ratings of TCSA and TCSCE primarily recognize TCSA’s strong risk-adjusted capitalization, superior underwriting and operating performance and leadership position in the surety, fidelity and management liability segments.” As partial offsetting factors Best cite “TCSA’s limited product diversification, areas of adverse loss reserve development on more recent accident years, as well as the negative impact that continued competitive property/casualty markets and weak macroeconomic conditions may have on premium and profitability levels.
“The ratings of Travelers Canada acknowledge its superior risk-adjusted capitalization, favorable underwriting and operating profitability, excellent brand recognition and major profile as a specialty lines writer in the surety and corporate management liability segments.” Best said the ICR upgrade further reflects its expectation that “Travelers Canada will continue to produce favorable operating trends while maintaining a solid level of risk-adjusted capitalization. However the “increased competition and continued soft market conditions in certain commercial lines,” should be taken into account as offsetting factors, even though Best said it “believes the company is well positioned to withstand” them.
The ratings of Premier “recognize its strong risk-adjusted capitalization, historically favorable operating profitability and the additional operational support and financial flexibility afforded by Travelers and TRV.” As offsetting factors Best cited “Premier’s deterioration in underwriting results in recent years, geographic concentration of business in Massachusetts and limited product scope (focused on private passenger automobile coverage), as well as the uncertainties associated with the recent automobile insurance reform in Massachusetts, which has resulted in increased competitive pressures.
“The ratings of First Trenton acknowledge its adequate risk-adjusted capitalization, historically strong overall operating performance and benefits derived from its local market presence, as well as the additional operational support and financial flexibility afforded by Travelers and TRV.” However, Best also indicated that these positive rating factors “are partly offset by First Trenton’s exposure to catastrophe losses, which have led to earnings volatility, single state geographic concentration, as well as an increased volatility in underwriting and operating results in recent years due to challenging market dynamics in New Jersey’s private passenger auto segment.
“The ratings of First Floridian recognize its strong risk-adjusted capitalization, highly profitable operating results in recent years, operating efficiencies and local market focus that enables it to respond effectively to issues associated with Florida’s personal lines market, as well as the additional operational support and financial flexibility afforded by Travelers and TRV. Partially offsetting these strengths are First Floridian’s exposure to catastrophe losses and single state geographic concentration in Florida.”
Best concluded that, while it “believes TRV and its operating companies’ ratings and outlook are well positioned at their current rating levels, factors that may lead to positive rating actions include continued strong underwriting and operating performance that outperforms peers over time.
“However, factors that could lead to negative rating actions include deterioration in underwriting and operating performance to a level below peers or an erosion of surplus that causes a decline in risk-adjusted capital to a level no longer supporting current ratings.
For a complete listing of The Travelers Companies, Inc. and its subsidiaries’ FSRs, ICRs and debt ratings, go to: www.ambest.com/press/051004travelers.pdf.
Source: A.M. Best