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.
As the sixth largest US P&C insurer, Travelers' size and scale, product breadth, and national presence are key competitive advantages. The company's broad product diversification, including its leading presence in surety coverages, as well as disciplined underwriting have produced healthy operating and underwriting returns over many years, with a combined ratio averaging in the mid-90s. Moody's 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.
For the first quarter of 2022, Travelers reported net income of $1.0 billion, up from $733 million in the prior year period driven by lower catastrophe losses and improved combined ratios in the business and bond and specialty segments, partially offset by lower underwriting margins in personal insurance, particularly personal auto. Pretax net catastrophe losses were $160 million for the first quarter, significantly lower than the $835 million in the prior year period. Travelers continues to increase premium rates in both personal auto and homeowners in response to rising claim severity trends.
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 AN UPGRADE OR DOWNGRADE OF THE RATINGS
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 ratings have been affirmed:
The Travelers Companies, Inc.: senior unsecured debt at A2; commercial paper at P-1; senior unsecured MTN program at (P)A2; senior unsecured shelf at (P)A2; subordinated shelf at (P)A3; junior subordinated shelf at (P)A3; cumulative preferred stock shelf at (P)Baa1; non-cumulative preferred stock shelf at (P)Baa1;
Travelers Property Casualty Corp. – backed senior unsecured debt at A2;
Travelers Insurance Group Holdings, Inc. – backed senior unsecured debt at A2;
USF&G Capital I -- backed preferred stock at A3 (hyb);
USF&G Capital 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
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 is stable.
Moody's has withdrawn the Aa2 insurance financial strength rating and stable outlook of Travelers Casualty and Surety Company of Europe, Ltd, which was dissolved in January 2020.
Please refer to the Moody's Investors Service Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com
The principal methodology used in these ratings was Property and Casualty Insurers Methodology published in September 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1254163 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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 quarter of 2022, Travelers reported net written premiums of $8.0 billion and net income of $1.0 billion. Shareholders' equity as of March 31, 2022 was $25.5 billion.