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02 Apr 2003
MOODY'S LOWERS RATINGS OF THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES (SENIOR DEBT TO A3); OUTLOOK IS STABLE
Approximately $3.4 Billion of Securities Affected
New York, April 02, 2003 -- Moody's Investors Service has lowered the long-term and short-term
ratings of The St. Paul Companies, Inc. and subsidiaries
(St. Paul) (insurance financial strength of St. Paul Fire
& Marine and its rated pooled affiliates to A1 from Aa3, senior
unsecured debt to A3 from A2, and rating for commercial paper to
Prime-2 from Prime-1). This rating action concludes
a rating review initiated on February 14, 2003. With the
current rating action, Moody's outlook for St. Paul's
ratings has been revised to stable.
According to Moody's, the rating downgrades were based on its concerns
regarding the pace of de-leveraging at the holding company and
the potential for future earnings drag from St. Paul's runoff
and surety business lines. Moody's has discussed both of
these concerns in previous press releases.
Due in part to St. Paul's recapitalizations following its
September 11th losses and strategic repositioning in 2001 and the settlement
of its Western MacArthur asbestos claims in 2002, high fixed charges
combined with a substantial level of common dividends have strained holding
company cash sources in 2003. Although Moody's expects St.
Paul's financial leverage ratios will improve through organic capital
growth, the rating action anticipates that St. Paul's
financial leverage ratios will remain at the high end of its peer group
Commenting on the prospect of future earnings drag from St. Paul's
runoff and surety business lines, Moody's explained that it
views the runoff risk as emanating from medical malpractice, reinsurance,
Lloyd's and asbestos exposures, in descending order of risk.
With respect to medical malpractice reserves, Moody's believes
there is a risk that case reserve redundancies will be insufficient to
cover the emergence of expected IBNR claims. Also, given
current economic conditions in the U.S., Moody's
believes that the achievement of a break-even underwriting result
in surety is unlikely.
Moody's noted that St. Paul's ratings continue to reflect
the company's strong position in several commercial property-casualty
market segments and its earnings diversification through its substantial
ownership position in The John Nuveen Company (NYSE: JNC),
a publicly-traded investment management services firm. In
addition, underwriting initiatives, combined with improving
market conditions in the insurance sector are expected to continue to
support earnings improvement and organic capital generation.
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 The 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 John Nuveen. Moody's noted that JNC provides St.
Paul with diversification and liquidity alternatives beyond its core insurance
The following ratings have been lowered:
St. Paul Companies, Inc. - senior unsecured
debt to A3 from A2, rating for commercial paper to Prime-2
from Prime-1, prospective senior unsecured debt to (P)A3
from (P)A2, prospective subordinated debt to (P)Baa1 from (P)A3,
prospective preferred stock to (P)Baa2 from (P)Baa1;
St. Paul Capital Trust I - capital securities to Baa1 from
St. Paul Capital Trust II - prospective capital securities
to (P)Baa1 from (P)A3;
Athena Assurance Company - insurance financial strength to A1 from
St. Paul Fire and Marine Insurance Company - insurance financial
strength to A1 from Aa3;
St. Paul Medical Liability Insurance Company - insurance
financial strength to A1 from Aa3;
St. Paul Reinsurance Company Limited - insurance financial
strength to A1 from Aa3;
St. Paul Surplus Lines Insurance Company - insurance financial
strength to A1 from Aa3;
United States Fidelity & Guaranty Company - insurance financial
strength to A2 from A1.
The A1 insurance financial strength rating of American Continental Insurance
Company was withdrawn due to its merger with and into St. Paul
Fire and Marine Insurance Company, effective July 1, 2002.
The St. Paul Companies, Inc (NYSE: SPC) is a Minnesota-based,
publicly traded holding company for several property-casualty insurance
and asset management subsidiaries. At December 31, 2002,
St. Paul reported GAAP shareholders' equity of $5.7
billion, and 2002 total revenues and net income of $8.9
billion and $218 million, respectively.
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
Financial Institutions Group
Moody's Investors Service
James M. Bartie
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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