Best Affirms Travelers Ratings; Changes Outlook to Positive

May 19, 2009

A.M. Best Co. has revised the outlook to positive from stable for the issuer credit ratings (ICR) of Travelers Group, its P/C members and affiliate, Travelers Casualty and Surety Company of America (TCSA) and TCSA’s affiliate, the UK-based Travelers Casualty and Surety Company of Europe Limited (TCSCE).

Best also affirmed the financial strength ratings (FSR) of ‘A+’ (Superior) and ICRs of “aa-“of Travelers, TCSA and TCSCE. The outlook for the FSR’s is stable. In addition best has revised the outlook to positive from stable and affirmed the ICR of “a-“ and debt ratings of The Travelers Companies, Inc. (TRV) of St. Paul, Minn., and has upgraded the FSR to ‘A+’ (Superior) from ‘A’ (Excellent) and the ICR to “aa-” from “a+” of Travelers Guarantee Company of Canada.. The outlook for both ratings is stable.

Best has also affirmed the FSR of ‘A’ (Excellent) and ICR of “a+” of The Premier Insurance Company of Massachusetts and the FSR of ‘A’ (Excellent) and ICRs of “a” of Travelers of New Jersey Group and its P/C members, as well as the FSR of ‘A- ‘(Excellent) and ICR of “a-” of First Floridian Auto and Home Insurance Company. The outlook for these ratings is stable.

“The rating actions on Travelers reflect its strong risk-adjusted capitalization, superior earnings power, proactive and comprehensive risk management, dominant market profile in commercial and personal lines and quality management team,” Best explained. “The rating actions also acknowledge Travelers’ underwriting and financial discipline, new product development, geographic and product diversification and enhanced technology and internal information systems, which has improved its underwriting effectiveness and ability to service its agents and customers.

“Particularly noteworthy has been Travelers’ strong equity accumulation from robust earnings ‘including reserve redundancies’ over the past several years, declining trend in underwriting leverage, solid retention rates, relatively conservative investment portfolio and business mix that has served the group well in the soft pricing environment.”

Best’s report stressed that the “rating actions recognize management’s substantial operating improvements and the future benefits to be gained from these improvements as they pertain to competitive advantages, operating performance and capital formation.”

In addition Best said: “The group’s ratings also consider the financial flexibility provided by TRV. TRV’s liquidity is significant, with $2.6 billion of liquid funds at March 31, 2009. A.M. Best believes TRV will maintain liquid funds in excess of $1.0 billion throughout 2009. Its debt-to-total capital, which stood at 18.9 percent at March 31, 2009, is well within A.M. Best’s guidelines for the current ratings.”

However, best noted that “the volatility of Travelers’ asbestos and environmental (A&E) reserve development in years 2005 and prior, and continued lesser development in more recent years,” should be taken into account as offsetting factors. Nonetheless, Best acknowledged that “over the past several years, the group’s overall commercial lines reserves appear to have stabilized, as evidenced by increasingly favorable prior year loss reserve development, particularly in 2008, while redundancies have consistently occurred in personal lines reserves.

“Being among the largest commercial insurers and national property writers, Travelers has significant exposure to natural catastrophes and potential terrorist-related losses, although it has comprehensive and active programs in place to manage its spread of risk and limit its overall exposure. Despite these factors, A.M. Best considers the group favorably positioned and sufficiently well capitalized to face the above challenges and those posed by the current highly competitive environment in its property/casualty markets.”

Concerning its ratings on TCSA and TCSCE, best said they “primarily reflect TCSA’s strong capitalization, superior underwriting and operating performance, relatively conservative investment portfolio and leadership position in the surety, fidelity and management liability segments. TCSA’s superior performance is driven by its specialized underwriting expertise, selective and distinct market segmentation approach and the benefits afforded by being an affiliate of Travelers, which include brand recognition, cross-marketing support and added financial flexibility.

“The rating upgrades of Travelers Guarantee acknowledge its strong capitalization, sustained underwriting and operating profitability, relatively conservative investment portfolio, excellent brand recognition and solid business profile as a specialty lines writer in the surety and management liability segments. The company has sustained operating profitability driven by favorable underwriting results and a steady stream of net investment income. Underwriting performance has benefited from a well executed plan by management, which includes the discontinuation of poor performing lines of business, enhanced technology capabilities and prudent account management. Travelers Guarantee continues to capitalize on synergies shared with TRV’s U.S. operations, and Travelers Guarantee’s ratings acknowledge both the implicit and explicit support it receives from them.”

For a complete list of the Travelers Group and The Travelers Companies, Inc.’s FSRs, ICRs and debt ratings, go to: www.ambest.com/press/051505travelers.pdf .

Source: A.M. Best

Topics Trends Underwriting Property Casualty AM Best

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