According to Moody's, the affirmation of Travelers' ratings is based on the group's leading market position in US commercial, personal and specialty insurance lines of business as well as its strong position in the independent agency distribution channel serving middle market and small commercial customers. Additional strengths include its long record of core profitability, its high quality investment portfolio and strong internal liquidity, and its solid risk-adjusted capitalization and financial flexibility. Tempering these strengths are Travelers' underwriting and reserving exposures to long-tail casualty lines such as workers' compensation and general liability with their attendant sensitivities to litigation and inflation, exposure to natural and man-made catastrophes, as well as ongoing competitive conditions in personal automobile insurance.
For the first nine months of 2019, Travelers reported net income of $1.7 billion, a decline from $1.9 billion in the prior year period driven by higher combined ratios in certain commercial lines, higher non-catastrophe weather losses, and the cost of the company's new catastrophe reinsurance treaty. After-tax catastrophe losses were $632 million for the first nine months of 2019, lower than the $873 million in the prior year period. The combined ratio, which includes catastrophe losses, increased to 97.9% for the first nine months of 2019 from 96.8% in the prior year period because of adverse reserve development and higher current year loss ratios in general liability, professional liability and commercial auto. In response to rising claim severity in these commercial lines, Travelers has increased premium rates. Moody's expects that Travelers' disciplined enterprise view of risk will help it effectively manage the underwriting cycle coupled with declining investment yields to support its strong credit profile.
The stable outlook reflects the group's diversified businesses and its disciplined operational and financial management. The rating agency expects that Travelers will maintain strong holding company liquidity and capital and will balance the interests of creditors and shareholders in executing its share repurchase program.
The three notch spread between Travelers' A2 senior debt rating and the Aa2 insurance financial strength ratings of its principal operating subsidiaries is consistent with Moody's typical notching practice for US insurance holding company structures.
Factors that could lead to a ratings' upgrade include: adjusted financial leverage in the mid-teens percentage range; earnings coverage of interest and preferred dividends consistently above 10x; substantial reduction in gross catastrophe exposures; and substantial, if not complete, reduction in risk of further adverse reserve development from asbestos and environmental liabilities.
Conversely, factors that could lead to a ratings' downgrade include: equity capital declining by more than 5% as a result of net operating losses (e.g. through catastrophe or other underwriting losses) and/or realized investment losses; adjusted financial leverage meaningfully exceeding 25% of total capital and 30% of tangible capital on a sustained basis; pretax operating earnings coverage of interest expense below 8x; unencumbered dividend capacity - exclusive of cash held at the holding company - coverage of annual interest expense and preferred dividends at or below 5x.
The following provisional shelf ratings have been assigned:
The Travelers Companies, Inc.:
- senior unsecured shelf at (P)A2;
- subordinated shelf at (P)A3;
- junior subordinated shelf at (P)A3;
- cumulative preferred stock at (P)Baa1;
- non-cumulative preferred stock at (P)Baa1.
The following ratings have been affirmed:
The Travelers Companies, Inc.:
- senior unsecured debt at A2;
- commercial paper at Prime-1;
- senior unsecured MTN program at (P)A2;
Travelers Property Casualty Corp. -- senior unsecured debt at A2;
Travelers Insurance Group Holdings, Inc. -- senior unsecured debt at A2;
USF&G Capital I, III -- backed preferred stock at A3 (hyb);
MMI Capital Trust I -- backed preferred stock at A3 (hyb);
The rating agency has affirmed the following Aa2 insurance financial strength ratings of Travelers' property & casualty insurance subsidiaries:
American Equity Specialty Insurance Company
The Automobile Insurance Co. of Hartford, CT
The Charter Oak Fire Insurance Co.
Discover Property & Casualty Insurance Company
Discover Specialty Insurance Company
Farmington Casualty Company
Fidelity and Guaranty Insurance Underwriters, Inc.
Gulf Underwriters Insurance Company
Northfield Insurance Company
Northland Casualty Company
Northland Insurance Company
The Phoenix Insurance Company
Select Insurance Company
St. Paul Fire and Marine Insurance Company
St. Paul Guardian Insurance Company
St. Paul Mercury Insurance Company
St. Paul Protective Insurance Company
St. Paul Surplus Lines Insurance Company
The Standard Fire Insurance Company
The Travelers Home and Marine Insurance Company
TravCo Insurance Company
Travelers Casualty and Surety Company
Travelers Casualty and Surety Company of America
Travelers Casualty and Surety Company of Europe, Ltd
The Travelers Casualty Company
Travelers Casualty Company of Connecticut
Travelers Casualty Insurance Company of America
Travelers Commercial Casualty Company
Travelers Commercial Insurance Company
Travelers Constitution State Insurance Company
Travelers Excess and Surplus Lines Company
The Travelers Indemnity Company
The Travelers Indemnity Company of America
The Travelers Indemnity Company of CT
Travelers Personal Insurance Company
Travelers Personal Security Ins Co
Travelers Property Casualty Co. of America
Travelers Property Casualty Insurance Company
United States Fidelity and Guaranty Company
The outlook for all rated entities remains stable.
Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.
The Travelers Companies, Inc. (NYSE: TRV) is the sixth largest US property & casualty insurer and through its subsidiaries, provides a wide range of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals, primarily through independent agents and brokers. The group operates throughout the United States, as well as in Canada, the United Kingdom, the Republic of Ireland, Brazil, and throughout other parts of the world as a corporate member of Lloyd's of London. For the first nine months of 2019, Travelers reported net written premiums of $22.1 billion and net income of $1.7 billion. Shareholders' equity as of September 30, 2019 was $25.6 billion.
The principal methodology used in these ratings was Property and Casualty Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.