Best Upgrades Travelers and Most Subs Ratings; Outlooks Stable

May 27, 2014

A.M. Best has upgraded the financial strength rating (FSR) to ‘A++’ (Superior) from ‘A+’ (Superior) and the issuer credit ratings (ICR) to “aa+” from “aa” of the property/casualty subsidiaries of The Travelers Companies, Inc. (TRV), also known as Travelers Group, and its affiliate, Travelers Casualty and Surety Company of America (TCSA), based in Hartford, as well as TCSA’s affiliates, UK-based Travelers Casualty and Surety Company of Europe Limited (TCSCE) and Travelers Insurance Company of Canada (TICC).

Best has also upgraded the ICR and senior debt ratings to “a +” from “a” of TRV and its two wholly owned downstream holding companies, Travelers Property Casualty Corp. and Travelers Insurance Group Holdings, both domiciled in Hartford. All outstanding debt securities issued by the two downstream holding companies are guaranteed by TRV.

Best has also revised its outlook on all of the rating s to stable from positive.

In addition Best 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 Floridian Auto and Home Insurance Company, both with stable outlooks.

The rating actions “reflect Travelers’ solid risk-adjusted capitalization, trend of favorable operating and underwriting results, excellent market profile in commercial and personal lines (largely distributed through independent agents) and effective management team,” Best said.

“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.

“In addition, Travelers’ superior product breadth, industry leading data and analytics and leading position within its distribution network have enabled it to report a trend of strong earnings that have outperformed the majority of its peers over time, despite an increase in weather-related losses and the current low interest rate environment.”

Best also said that the ratings for Travelers consider the financial flexibility and liquidity provided by TRV. Despite significant share repurchases since 2006, TRV maintained $1.7 billion of cash and marketable securities, and its adjusted debt-to-capital ratio, excluding accumulated other comprehensive income (AOCI), remained moderate at 20.7 percent at March 31, 2014. Adjusting for tangible capital, the adjusted debt-to-tangible capital (excluding AOCI) ratio was 23.8 percent, well within A.M. Best’s expectations at the current rating level. Interest coverage also remained strong through the first quarter of 2014 at 17.0 times, Best said.

As partial offsetting factors Best cited the ongoing competitive environment within the property/casualty markets and Travelers’ exposure to catastrophes. “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 2012, and potential terrorist-related losses,” the rating agency said.

However, Best also indicated that Travelers has comprehensive reinsurance and risk management programs in place to manage its spread of risk and limit its overall exposure. Despite reporting an increased level of catastrophe loss activity in 2011 and 2012, Travelers “managed to report solid returns while maintaining strong liquidity and risk-adjusted capitalization, which is a testament to the group’s conservative operating philosophy, strong business profile and comprehensive risk management program,” Best said.

Like other leading carriers within the U.S. property/casualty industry, Travelers remains exposed to the potential development of asbestos and environmental (A&E) liabilities; however, in more recent years, it has seen less adverse A&E reserve development emerge, accroding to Best. 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.

Best said the ratings of TCSA and TCSCE “primarily recognize TCSA’s strong risk-adjusted capitalization, specialized underwriting expertise, highly favorable underwriting and operating performance and leadership position in the surety, fidelity and management liability segments.”

The rating agency said these strengths are partially offset by TCSA’s “limited product diversification” as well as the negative impact that continued competitive property/casualty markets and challenging macroeconomic conditions may have on premium and profitability levels.

The ratings of Premier acknowledge its strong risk-adjusted capitalization, historically favorable operating profitability and the additional operational support and financial flexibility afforded by Travelers and TRV, Best said. These positive rating factors are partly offset by the deterioration in Premier’s underwriting results in recent years, geographic concentration of business in Massachusetts as well as its limited product scope (focused on private passenger automobile coverage).

As for the ratings of First Floridian, Best said they recognize its “strong risk-adjusted capitalization, trend of highly profitable operating results in recent years, operating efficiencies and local market focus,” which Best said 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, according to the ratings agency.

A complete listing of The Travelers Companies, Inc. and its subsidiaries’ FSRs, ICRs and debt ratings is available.

Source: A.M. Best

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