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Rating Action:

MOODY'S AFFIRMS THE ST. PAUL TRAVELERS' DEBT RATINGS (SENIOR AT A3) AND CHANGES OUTLOOK TO NEGATIVE; REVIEWS LEGACY ST. PAUL COMPANIES' INSURANCE FINANCIAL STRENGTH RATINGS FOR POSSIBLE UPGRADE

01 Feb 2005
MOODY'S AFFIRMS THE ST. PAUL TRAVELERS' DEBT RATINGS (SENIOR AT A3) AND CHANGES OUTLOOK TO NEGATIVE; REVIEWS LEGACY ST. PAUL COMPANIES' INSURANCE FINANCIAL STRENGTH RATINGS FOR POSSIBLE UPGRADE

Approximately $6.5 Billion in Securities Affected.

New York, February 01, 2005 -- Moody's Investors Service announced today that it has affirmed the long-term debt ratings of The St. Paul Travelers Companies Inc. ("St. Paul Travelers" - senior unsecured debt at A3) and also affirmed the Aa3 insurance financial strength ratings ("IFSR") of the members of the legacy Travelers intercompany pool. The outlook for these ratings was changed to negative from stable following the company's announcement yesterday that it would record, among additional items, about $1.0 billion in adverse reserve development, specifically related to asbestos and environmental (A&E) exposures. The company also announced that it intends to explore strategic alternatives to divest its 79% equity stake in Nuveen Investments, Inc. (NYSE: JNC) and to combine its major insurance company pools. The majority of the proceeds from the divesture of Nuveen are expected to be used to capitalize the insurance operations. At the same time, Moody's placed the A1 IFSR of the legacy St. Paul intercompany pool and the A2 IFSR of United States Fidelity and Guaranty Company on review for possible upgrade. The outlook on the A2 IFSR of the Gulf intercompany pool subsidiaries was changed to positive from stable. The outlook of the A1 IFSR of Travelers Casualty and Surety Company of Europe, Limited was also changed to positive from developing

According to Moody's, the review for possible upgrade of the legacy St. Paul intercompany pool and United States Fidelity and Guaranty Company will focus on the structure of the anticipated combination with the legacy Travelers intercompany pool, which will be subject to regulatory approval, and the capitalization and earnings capacity of the combined pool when considering proceeds from the divesture of Nuveen. Moody's will also consider the impact of management's announcement in resolution of the positive outlooks assigned to both the Gulf intercompany pool and to Travelers Casualty and Surety Company of Europe, Limited.

The affirmation of the debt ratings and the insurance financial strength ratings of the legacy Travelers intercompany pool reflects the significant franchise created upon the merger of St. Paul and Travelers, its strong position in many commercial and personal property casualty market segments, high quality investment portfolio, and adequate liquidity. Tempering these strengths are concerns related to the risk of further adverse loss development, especially for runoff business and latent liabilities, integration and execution risks related to the merger, moderate financial leverage on a tangible basis, and meaningful exposure to catastrophe losses.

Moody's has changed the outlook on the debt ratings and legacy Travelers intercompany pool to negative from stable. The announced A&E charge is above our ratings expectations and Moody's believes that significant uncertainty remains around the ultimate liabilities for A&E reserves. The company also faces additional challenges stemming from its higher operating leverage and lower capitalization relative to similarly rated peers and the challenges associated with future operating performance given the moderation in the property and casualty market.

According to Moody's, resolution of the negative outlooks will focus on the capital adequacy of the operating companies and St. Paul Travelers' ability to generate materially improved after-tax operating earnings (in line with 2004 adjusted after-tax operating earning of over $3 billion). Moody's notes these expectations combined with moderating operating leverage and adverse reserve development (including A&E reserves) less than 2.5% of carried reserves would likely result in a stable outlook . Conversely, failure to meet some or all of these expectations could lead to a review for possible downgrade.

The following ratings have been affirmed with a negative outlook:

The St. Paul Travelers Companies Inc. -- senior unsecured debt at A3, prospective senior unsecured debt at (P)A3, prospective subordinated debt at (P)Baa1, prospective preferred stock at (P)Baa2;

Travelers Property Casualty Corporation -- senior unsecured debt at A3, subordinated debt at Baa1;

Travelers Insurance Group Holdings, Inc. -- senior unsecured debt at A3;

USF&G Corporation -- senior unsecured debt at A3, backed senior debt at A3, backed subordinated debt at Baa1;

MMI Companies, Inc. --Junior subordinated debt at Baa1;

St. Paul Capital Trust I -- backed preferred securities at Baa1;

St. Paul Capital Trust II -- backed preferred securities at Baa1;

USF&G Capital I -- backed preferred securities at Baa1;

USF&G Capital II -- backed preferred securities at Baa1;

USF&G Capital III -- backed preferred securities at Baa1;

MMI Capital Trust I -- preferred securities at Baa1;

Travelers Casualty and Surety of America - insurance financial strength at Aa3;

Automobile Insurance Company of Hartford -- insurance financial strength at Aa3;

Charter Oak Fire Insurance Company - insurance financial strength to at Aa3;

Farmington Casualty Company - insurance financial strength at Aa3;

Phoenix Insurance Company -- insurance financial strength at Aa3;

Standard Fire Insurance Company -- insurance financial strength at Aa3;

Travelers Casualty Company of CT -- insurance financial strength at Aa3;

Travelers Casualty and Surety Company of Illinois -- insurance financial strength at Aa3;

Travelers Casualty and Surety Company -- insurance financial strength at Aa3;

Travelers Commercial Insurance Company -- insurance financial strength to at Aa3;

Travelers Indemnity Company -- insurance financial strength at Aa3;

Travelers Indemnity Company of America -- insurance financial strength at Aa3;

Travelers Indemnity Company of CT -- insurance financial strength at Aa3;

Travelers Indemnity Company of Illinois -- insurance financial strength at Aa3;

Travelers Personal Security Insurance Company -- insurance financial strength at Aa3;

Travelers Property Casualty Company of Illinois -- insurance financial strength at Aa3;

Travelers Property Casualty Insurance Company - insurance financial strength at Aa3.

The following ratings have been affirmed with a positive outlook:

Gulf Insurance Company - insurance financial strength at A2;

Gulf Underwriters Insurance Company -- insurance financial strength at A2;

Atlantic Insurance Company -- insurance financial strength at A2;

Select Insurance Company - insurance financial strength at A2.

Travelers Casualty and Surety Company of Europe, Limited -- insurance financial strength at A1.

The following ratings have been placed on review for possible upgrade:

St. Paul Fire and Marine Insurance Company -- insurance financial strength at A1;

St. Paul Surplus Lines Insurance Company -- insurance financial strength at A1;

Athena Assurance Company -- insurance financial strength at A1;

St. Paul Medical Liability Insurance Company -- insurance financial strength at A1;

St. Paul Reinsurance Company Limited -- insurance financial strength at A1;

United States Fidelity and Guaranty Company -- insurance financial strength at A2.

The St. Paul Travelers Companies, Inc. (NYSE: STA) is one of the largest property casualty insurers in the U.S. and is engaged through its subsidiaries in both commercial and personal lines property casualty insurance. St. Paul Travelers wrote approximately $19 billion in net written premiums in 2004 and has approximately $21 billion of GAAP shareholders' equity as of December 31, 2004. St. Paul Travelers is comprised of the legacy The St. Paul Companies, Inc. and subsidiaries (St. Paul, MN) and the legacy Travelers Property Casualty Corp. and subsidiaries (Hartford, CT).

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

New York
Jeffrey S. Berg
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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