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Rating Action:

MOODY'S CONFIRMS ST. PAUL COMPANIES' RATINGS, OUTLOOK STABLE; RATES NEW SENIOR HYBRID SECURITIES A2

01 Aug 2002
MOODY'S CONFIRMS ST. PAUL COMPANIES' RATINGS, OUTLOOK STABLE; RATES NEW SENIOR HYBRID SECURITIES A2

Rating confirmation follows company's recently completed recapitalization.

New York, August 01, 2002 -- Moody's Investors Service has confirmed the ratings of The St. Paul Companies, Inc. Insurance financial strength ratings for members of the St. Paul Fire & Marine intercompany pool have been confirmed at Aa3 and the senior unsecured debt rating and rating for commercial paper of The St. Paul Companies, Inc. have been confirmed at A2 and Prime-1, respectively. Concurrently, Moody's rated the senior unsecured notes - which are part of a hybrid structure - recently issued as part of the company's recapitalization at A2. All ratings now carry a stable outlook.

Moody's explained that the rating confirmations mark the conclusion of a review initiated on May 20, 2002 when St. Paul disclosed that it intended to more aggressively seek early resolutions of certain asbestos and environmental related litigation. Shortly thereafter, St. Paul entered into a definitive agreement to settle ongoing litigation with Western MacArthur that led to an after-tax charge to earnings of approximately $380 million, net of expected reinsurance recoveries. Moody's noted that this charge, together with the subsequent downward revisions in Platinum Re's valuation, fell outside the bounds of the rating agency's near-term expectations for SPC's earnings, capitalization and financial leverage.

According to Moody's, SPC's successful recapitalization through the recently completed issuance of a combination of common stock and mandatory conversion debt securities - which resulted in approximately $842 million in net proceeds - was a key consideration in the confirmation of St. Paul's ratings. Approximately $750 million of the proceeds from the recently completed offerings are expected to be contributed to St. Paul Fire & Marine in order to strengthen the insurance subsidiaries' capitalization, with the remainder staying at the holding company level. The rating agency noted that the recapitalization has offset the combined capital impact of the Western MacArthur claim and Moody's reduced expectations on gains from the Platinum Re divestiture, which had been significant concerns weighing on St. Paul's ratings.

In addition to the recapitalization, Moody's noted that its rating confirmation was supported by the rating agency's expectation that St. Paul's core earnings performance will continue to strengthen and that its financial leverage will moderate and debt service coverage measures will improve over the near-to-intermediate term. Moody's added that the stable outlook reflect the expectation that St. Paul will continue to pursue its exit strategy for the reinsurance business consistent with its stated intentions, and without material adverse consequences for the company. Moody's continues to view the reinsurance divestiture as a mildly favorable credit event and as one that should help to mitigate prospective earnings volatility. Moody's noted, however, that a significant deviation from these expectations would lead the rating agency to reconsider its rating opinions on St. Paul.

The rating agency also explained that it continues to maintain a two-notch spread between St. Paul Fire and Marine's insurance financial strength rating and St. Paul Companies' senior debt rating, rather than a more typical three-notch spread. The basis for this notching, according to Moody's, is the additional financial flexibility afforded the holding company by its substantial ownership position in The John Nuveen Company (NYSE: JNC), a publicly-traded investment management services firm. Moody's noted that JNC provides St. Paul with diversification and liquidity alternatives beyond its core insurance operations.

The following ratings have been confirmed with a stable outlook.

St. Paul Companies, Inc. - senior unsecured debt at A2, rating for commercial paper at Prime-1, prospective senior unsecured debt at (P)A2, prospective subordinated debt at (P)A3, prospective preferred stock at (P)Baa1;

St. Paul Capital Trust I - capital securities at A3;

St. Paul Capital Trust II - prospective capital securities at (P)A3;

USF&G Corporation - guaranteed senior unsecured debt at A2, guaranteed subordinated debt at A3;

USF&G Capital Trusts I, II and III - guaranteed capital securities at A3;

MMI Companies, Inc. - guaranteed subordinated debt at A3;

MMI Capital Trust I - guaranteed capital preferred securities at A3;

American Continental Insurance Company - insurance financial strength at A1;

Athena Assurance Company - insurance financial strength at Aa3;

St. Paul Fire and Marine Insurance Company - insurance financial strength at Aa3;

St. Paul Medical Liability Insurance Company - insurance financial strength at Aa3;

St. Paul Reinsurance Company Limited - insurance financial strength at Aa3;

St. Paul Surplus Lines Insurance Company - insurance financial strength at Aa3;

United States Fidelity & Guaranty Company - insurance financial strength at A1;

The St. Paul Companies, Inc (NYSE: SPC) is a Minnesota-base, publicly traded holding company for several P&C insurance, reinsurance and asset management subsidiaries. At June 30, 2002, SPC reported shareholders' equity of just under $5 billion, total revenues for the first six months of 2002 of $4.6 billion and a year-to-date net loss of $89.7 million

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

New York
Alan Murray
VP - Senior Credit Officer
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Ted Collins
Managing Director
Property & Casualty Insurance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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