S&P Lowers Travelers Ratings to ‘A+’

April 2, 2004

Standard & Poor’s Ratings Services announced that it has lowered its counterparty credit and financial strength ratings on the members of the Travelers Property Intercompany pool -Travelers Casualty and Surety Co. of America, and Travelers Casualty and Surety Co. of Europe Ltd. (collectively referred to as Travelers) – to ‘A+’ from ‘AA-‘ and removed them from CreditWatch.

S&P also indicated it had lowered its counterparty credit rating on Travelers Property Casualty Corp. to ‘BBB+’ from ‘A-‘ and removed it from CreditWatch.

Concerning Travelers merger partner, the St Paul, S&P has removed its ratings from CreditWatch and affirmed its ‘BBB+’ counterparty credit rating and its ‘A+’ counterparty credit and financial strength ratings on the members of The St Paul Intercompany Pool.

S&P also said “The ‘A+’ counterparty credit and financial strength ratings on Gulf Insurance Co. and its intercompany pool members, a majority-owned specialty lines writer of Travelers, remain on CreditWatch with negative implications pending receipt of explicit support from Travelers. Standard & Poor’s expects that Travelers Indemnity Co. will guarantee all past and future liabilities associated with Gulf’s book of business.”

The outlook on all St. Paul and Travelers operating units (except for the Gulf Insurance Co. companies) is stable. S&P’s announcement noted that “all these ratings were initially placed on CreditWatch on Nov. 17, 2003, when Travelers announced that it intended to merge with St. Paul Cos. Inc. On Jan. 29, 2004, Standard & Poor’s detailed its intent to lower the ratings on Travelers upon the close of the merger, thus aligning the Travelers ratings with those on St Paul.”

“The St Paul/Travelers organization will be one of the largest property/casualty providers in the U.S., generating about $20 billion-$25 billion in net written premium for full-year 2004,” commented S&P credit analyst Michael Gross. “The company is expected to maintain a strong distribution presence nationally and a depth of product offerings in the personal and commercial lines of business.”

S&P said it expects St Paul/Travelers “to generate strong operating earnings in 2004, driven largely by strong rate gains over the past three years. The combined company, however, needs to demonstrate integration efficiency through expense reductions and is still susceptible to the somewhat greater earnings variance in the St Paul pool. Standard & Poor’s believes that the combined insurer is susceptible to further reserve strengthening needs for its asbestos and specialty commercial lines if unfavorable loss trends continue.”

The bulletin noted that “Year-end 2003 estimated statutory capital strength on a consolidated basis for the intercompany pools is viewed as somewhat below average for the rating. Nevertheless, Standard & Poor’s believes that statutory capital strength will improve significantly in 2004 through strong earnings retention.”

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