MOODY'S UPGRADES RATINGS OF CERTAIN SUBSIDIARIES OF ST PAUL TRAVELERS COMPANIES, INC. (INSURANCE FINANCIAL STRENGTH RATINGS TO Aa3) FOLLOWING RE-POOLING; PARENT COMPANY DEBT RATINGS' AFFIRMED (A3 SENIOR) AND OUTLOOK REMAINS NEGATIVE
Combination of Intercompany Pools Completed
New York, July 14, 2005 -- Moody's Investors Service announced today that it has upgraded the insurance
financial strength ratings of members of the legacy St. Paul,
United States Fidelity & Guaranty (USF&G) and Gulf Insurance pools
to Aa3 following the recent completion of the re-pooling of these
companies with the legacy Travelers Indemnity Company pool (whose pooled
companies are already rated Aa3 for insurance financial strength) and
the dissolution of the legacy pooling agreements. Under these pooling
agreements, all member companies now cede virtually all of their
premiums, claims and expenses to the lead company (Travelers Indemnity
Company) and then in turn recapture a percentage of the total combined
results. The re-pooling was effective for both in-force
and prospective business.
Expanding on its rationale, Moody's noted that the re-pooling
of the St. Paul, USF&G and Gulf entities has improved
their spread of risk and reduced their operating leverage profile,
better aligning these measures across the entire St. Paul Travelers
organization. Additionally, the rating of Gulf Insurance
Company will be withdrawn, following that company's recently completed
legal merger into Travelers Indemnity Company. The outlook for
all of the insurance financial strength ratings is now negative,
consistent with the existing outlook for members of the Travelers Indemnity
pool.
In the same action, Moody's also affirmed the long-term and
short-term debt ratings of St. Paul Travelers Companies
Inc. (senior unsecured debt at A3, commercial paper at Prime-2)
and those of its downstream debt-issuing subsidiaries.
The affirmation of these ratings reflects the significant franchise created
upon the merger of Travelers and St. Paul, 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 businesses and latent
liabilities, integration and execution risks related to the merger,
financial leverage on a tangible basis, and meaningful exposure
to catastrophe losses.
On February 1, 2005, Moody's changed the outlook for the debt
ratings and for the insurance financial strength ratings of members the
Travelers' Indemnity pool to negative from stable. The negative
outlook on the debt ratings and on the newly combined St. Paul
Travelers pool primarily reflects Moody's view that significant uncertainty
remains around the ultimate liabilities for A&E reserves as well as
the combined group's improved but still higher risk-adjusted operating
leverage and lower capitalization relative to similarly-rated peers.
According to Moody's, resolution of the negative outlook will focus
on the capital adequacy of the operating companies and St. Paul
Travelers' ability to generate materially improved after-tax operating
earnings in 2005 of over $3 billion. Moody's notes that
meeting these expectations, together with adverse reserve development
(including A&E reserves) of less than 2.5% of carried
reserves and completion of the ongoing disposition of the Nuveen shares
(with proceeds downstreamed to the insurance operations) would likely
result in a stable outlook. Conversely, failure to meet some
or all of these expectations could lead to a downgrade of St. Paul
Travelers' ratings.
The following ratings have been upgraded and now have a negative outlook:
Members of the legacy Gulf intercompany pool -
Gulf Insurance Company - insurance financial strength to Aa3 from
A2;
Gulf Underwriters Insurance Company -- insurance financial
strength to Aa3 from A2;
Atlantic Insurance Company -- insurance financial strength
to Aa3 from A2;
Select Insurance Company - insurance financial strength to Aa3
from A2;
Members of the legacy St. Paul intercompany pool -
St. Paul Fire and Marine Insurance Company -- insurance
financial strength to Aa3 from A1;
St. Paul Surplus Lines Insurance Company -- insurance
financial strength to Aa3 from A1;
Athena Assurance Company -- insurance financial strength
to Aa3 from A1;
St. Paul Medical Liability Insurance Company -- insurance
financial strength to Aa3 from A1;
Rated member of the USF&G intercompany pool:
United States Fidelity and Guaranty Company -- insurance
financial strength to Aa3 from A2;
as well as other supported subsidiaries:
Travelers Casualty and Surety Company of Europe, Limited --
insurance financial strength to Aa3 from A1.
St. Paul Reinsurance Company Limited -- insurance
financial strength to Aa3 from A1;
The rating of Gulf Insurance Company will be withdrawn, following
the completion of its legal merger with Travelers Indemnity Company.
The upgrades of both the Travelers Casualty and Surety Company of Europe,
Limited and St. Paul Reinsurance Company Limited reflect the continuing
reinsurance support from Aa3 affiliated companies.
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; rating for commercial paper at Prime-2;
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;
Members of the legacy Travelers Indemnity Company group intercompany pool:
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 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. For the first quarter of 2005,
St. Paul Travelers reported net premiums written of $5.2
billion and net income of $212 million ($877 million from
continuing operations). Shareholders' equity as of March 31,
2005 was $20.3 billion. 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
Alan Murray
VP - Senior Credit Officer
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