Best Affirms Travelers and Subsidiaries Ratings

May 27, 2011

A.M. Best Co. has affirmed the financial strength ratings (FSR) of ‘A+’ (Superior) and issuer credit ratings (ICR) of “aa” of Travelers Group and its property/casualty members, and affiliates, 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 ICR and senior debt ratings of “a” of The Travelers Companies, Inc. (TRV).

The outlook for the ratings listed above is stable.

In addition Best revised the outlook to positive from stable and affirmed the ICR of “aa-” and the FSR of ‘A+’ (Superior) of Travelers Guarantee Company of Canada. The outlook for the FSR is stable.

Best also has affirmed the FSR of ‘A’ (Excellent) and ICR of “a+” of The Premier Insurance Company of Massachusetts 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 these ratings 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 (largely distributed through independent agents) lines and quality management team,” Best explained.

The ratings also “acknowledge Travelers’ 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 singled out the Travelers’ comprehensive enterprise risk management (ERM) program, noting that the “effectiveness of this program has been demonstrated over the past several years, as Travelers continued to report strong underwriting and operating results despite a confluence of challenging events, including soft insurance market conditions, increased catastrophe and weather-related losses, an economic slowdown and volatile investment and capital market conditions. Furthermore, this stability has resulted in a competitive advantage for Travelers as opposed to most of its competitors, which were more negatively impacted by the aforementioned events.

“Travelers’ ratings also consider the financial flexibility and liquidity provided by TRV. Despite significant share repurchases since 2006, TRV maintained $2.9 billion of liquid funds, and its adjusted debt-to-capital ratio remained moderate at 20.6 percent at March 31, 2011. However, TRV does maintain a sizable 15.2 percent of equity in intangible assets. Adjusting for tangible capital, the adjusted debt-to-capital ratio was 23.4 percent, well within A.M. Best’s expectations at current rating levels. Interest coverage also remained strong through the first quarter of 2011 at 11.1 times.”

As partial offsetting factors Best cited Travelers’ “exposure to emerging asbestos and environmental (A&E) claims and natural and man-made catastrophes, as well as the ongoing competitive environment within the property/casualty markets.”

The rating agency explained that, while Travelers “experienced volatility in A&E reserve development in years 2005 and prior, more recent years have seen less adverse A&E reserve development emerge. Furthermore, overall commercial lines reserves appear to have stabilized over the past several years, as evidenced by substantial favorable prior year loss reserve development. Being among the largest commercial and personal insurers and national property writers, Travelers has significant exposure to natural catastrophes and potential terrorist-related losses. However, risk management and reinsurance programs are in place to manage the company’s spread and aggregations of risk and limit overall exposure.”

Best said the ratings of TCSA and TCSCE “primarily recognize TCSA’s strong risk-adjusted capitalization, superior underwriting and operating performance, relatively conservative investment portfolio and leadership position, namely, in the surety and fidelity segments. These strengths are partially offset by TCSA’s somewhat limited product diversification and areas of 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 of Canada acknowledge its excellent risk-adjusted capitalization, sustained underwriting and operating profitability, excellent brand recognition and strong business profile as a specialty lines writer in the surety and corporate management liability segments. Travelers of Canada continues to capitalize on solid brand recognition and its beneficial affiliation and synergies shared with its U.S. parent and the global Travelers organization.

As offsetting factors pertaining to these ratings, Best noted the “increased competition and continued soft market conditions in certain surety lines, which Travelers of Canada is well positioned to weather.”

Best said the “positive outlook reflects the expectation that Travelers of Canada will continue to produce favorable operating trends while maintaining an excellent level of risk-adjusted capitalization.

“The ratings of The Premier Insurance Company of Massachusetts recognize its strong risk-adjusted capitalization, historically favorable operating profitability and the benefits afforded by being an affiliate of Travelers.

Offsetting factors include “the company’s 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 and significant deterioration in underwriting and operating results.

“The ratings of First Trenton Indemnity Company acknowledge its adequate risk-adjusted capitalization, historically strong overall operating performance and benefits derived from its local market presence, as well as the benefits afforded by being an affiliate of Travelers.”

Offsetting factors in regard to the company include its “exposure to catastrophe losses and single state geographic concentration, as well as the 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 Auto and Home Insurance Company reflect its strong risk-adjusted capitalization, profitable operating results in recent years and local market focus that enables it to respond effectively to issues associated with Florida’s personal lines market, as well as the benefits afforded by being an affiliate of Travelers. Partially offsetting these strengths are the company’s exposure to catastrophe losses and single state geographic concentration in Florida.”

A complete listing of The Travelers Companies, Inc. and its key life/health and property/casualty subsidiaries’ FSRs, ICRs and debt ratings may be obtained on Best’s web site.

Source: A.M. Best

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