St. Paul Travelers Subs Affirmed

Standard & Poor’s Ratings Services affirmed its “A+” counterparty credit and financial strength ratings on the members of the St. Paul Intercompany Pool, the members of the Travelers Intercompany Pool, Travelers Casualty and Surety Co. of America, and Travelers Casualty and Surety Co. of Europe Ltd.

S&P also affirmed its “BBB+/A-2” counterparty credit rating on St. Paul Travelers Cos. The outlook on all companies remains stable.

The affirmations follows St. Paul Travelers’ announcement that it strengthened net reserves by $868 million on a pretax basis ($581 million after taxes) in fourth quarter 2004. The reserve strengthening follows the completion of a previously announced review of asbestos and environmental claims reserves. The pretax charge for asbestos and environment reserves was $1 billion, but this was partly offset by the release of $140 million of reserves in personal lines.

The latest charge means the company will report disappointing earnings for the third straight quarter. The company reported a second-quarter operating loss of $310 million after taking a $1.1 billion after-tax charge for reserves and other post-closing adjustments. Third-quarter operating income of $372 million was affected by hurricane losses of $402 million. Notwithstanding the current charge, St. Paul Travelers will report after-tax operating income of $307 million for the fourth quarter and about $1 billion for the full year. Capital adequacy as of year-end 2004 is projected to be modestly stronger than one-year prior, but remains somewhat low on a consolidated basis for the intercompany pools relative to the “A+” ratings.

The company also announced it was exploring strategic alternatives to divest 79 percent ownership of Nuveen Investments Inc., a third-party asset-management firm. Asset management is not one of St. Paul Travelers core business segments and consequently has been viewed by S&P as a nonstrategic investment. A sale of Nuveen would generate a significant amount of capital that could be used to strengthen the capital adequacy of the insurance operations.

The outlook is stable because S&P does not expect any significant reserve strengthening or other merger-related charges in 2005. S&P believes that the considerable earnings capacity of the organization will be more evident in 2005 and that the capital generated will lead to meaningful improvement in capital adequacy by year-end 2005.