Moody's upgrades Travelers; outlook is stable
Approximately $4.7 billion of rated debt affected.
New York, June 06, 2008 -- Moody's Investors Service has upgraded the ratings of The Travelers Companies,
Inc. (NYSE: TRV) (senior unsecured debt to A2 from A3,
commercial paper to Prime-1 from Prime-2) and its subsidiaries
(including Travelers Indemnity Company and its pooled or otherwise supported
affiliates -- insurance financial strength to Aa2 from Aa3).
The outlook for the ratings is stable.
According to Moody's, the upgrades reflect Travelers' robust franchise
in US personal, commercial and specialty property-liability
lines of business, and its commanding presence in the independent
agency distribution system, as well as its strong and sustained
core operating performance and commensurate improvement over the past
several years in the group's operational leverage and risk-adjusted
capitalization measures. The rating agency added that Travelers'
stable holding company financial leverage profile, as well as its
particularly strong earnings and cash flow coverage measures are also
supportive of the rating upgrade. Moody's had previously noted
that a continuation of Travelers' strengthened credit fundamentals and
internal capital generation, together with incremental reductions
in certain credit risk factors -- such as reduced volatility
from catastrophe-related exposures and a decline in exposure to
further adverse development on latent (e.g. asbestos and
environmental) liabilities -- could lead to an upgrade of
the company's ratings over the near-to-medium term.
Moody's noted that the upgrade is based on conclusions from a review of
three key financial and operational areas: 1) the likelihood that
Travelers will sustain its strong consolidated and holding company financial
and liquidity position over the coming years; 2) management's strategy
and execution plans for operations in the ongoing softening property/casualty
insurance marketplace; and 3) the likelihood that Travelers will
sustain its very strong risk-adjusted capital and operational leverage
profile. In particular, Moody's views Travelers'
capital strength as being among the best of its peers on a risk-adjusted
basis, including consideration of the group's underwriting
and investment portfolios and its strong core reserve position,
and considering its exposures to catastrophe losses, counterparty
credit, and ceded reinsurance balances.
Furthermore, Moody's views Travelers as having modest investment
exposures to stresses currently affecting the mortgage and municipal investment
portfolios, based on the underlying credit quality of its holdings.
Although Travelers does have some underwriting exposure to the currently
stressed economic and investment conditions in the US through its management
liability and surety underwriting portfolios, Moody's believes
that the group's loss-control capabilities and a focus on
generally less-exposed segments should position it well relative
to peers. Finally, Moody's believes that exposures
to asbestos and environmental liabilities, although still a general
concern, have receded significantly for Travelers and its peers
in recent years.
Moody's current ratings reflect the expectation that financial leverage,
adjusted for lease and under-funded pension obligations and uncollateralized
letters of credit at Lloyd's, will remain below 25% and 30%,
respectively, of total and tangible capital, that GAAP pre-tax
earnings coverage of interest expense will exceed 10x, and that
unencumbered dividend capacity -- exclusive of cash held
at the holding company -- will cover annual interest expense
and preferred dividends at a level of 5x or greater. Moody's noted
that it expects that the company's share repurchase program will continue
to be executed over time in an orderly fashion, and commensurate
with prospective operating performance, so as not to result in sharp
changes in the group's overall financial profile.
Moody's most recent rating action on TRV was on November 20, 2007,
when the rating agency placed the ratings of TRV and it's subsidiaries
on review for possible upgrade.
The following debt ratings have been upgraded:
The Travelers Companies Inc. -- senior unsecured
debt to A2 from A3, provisional senior unsecured debt to (P)A2 from
(P)A3, provisional subordinated debt to (P)A3 from (P)Baa1,
provisional preferred stock to (P)Baa1 from (P)Baa2; rating for commercial
paper to Prime-1 from Prime-2;
Travelers Capital II, III, IV and V -- backed
provisional capital securities to (P)A3 from (P)Baa1;
Travelers Property Casualty Corporation -- senior unsecured
debt to A2 from A3;
Travelers Insurance Group Holdings, Inc. --
senior unsecured debt to A2 from A3;
USF&G Corporation -- senior unsecured debt to A2 from
A3, backed subordinated debt to A3 from Baa1;
USF&G Capital I, III -- backed preferred securities
to A3 from Baa1;
MMI Companies, Inc. -- junior subordinated
debt to A3 from Baa1;
MMI Capital Trust I -- backed preferred securities to A3
The following insurance financial strength ratings on U.S.-based
members of the Travelers group of insurance companies have been upgraded
to Aa2 from Aa3:
Athena Assurance Company;
Atlantic Insurance Company;
Automobile Insurance Company of Hartford;
Charter Oak Fire Insurance Company;
Farmington Casualty Company;
Gulf Underwriters Insurance Company;
Phoenix Insurance Company;
Select Insurance Company;
St. Paul Fire and Marine Insurance Company;
St. Paul Medical Liability Insurance Company;
St. Paul Surplus Lines Insurance Company;
Standard Fire Insurance Company;
Travelers Casualty and Surety Company;
Travelers Casualty and Surety Company of Illinois;
Travelers Casualty and Surety of America;
Travelers Casualty Company of CT;
Travelers Commercial Insurance Company;
Travelers Indemnity Company;
Travelers Indemnity Company of America;
Travelers Indemnity Company of CT;
Travelers Indemnity Company of Illinois;
Travelers Personal Security Insurance Company;
Travelers Property Casualty Company of IL;
Travelers Property Casualty Insurance Company;
United States Fidelity and Guaranty Company.
Additionally, the ratings of both Travelers Casualty and Surety
Company of Europe, Limited and St. Paul Reinsurance Company
Limited have been upgraded to Aa2 from Aa3, reflecting the expectation
of continuing support from rated affiliates.
The Travelers Companies, Inc. (NYSE: TRV) 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 and casualty insurance. For the first quarter of 2008,
Travelers reported net premiums earned of $5.3 billion and
net income of $967 million. Shareholders' equity as of March
31, 2008 was $26.4 billion.
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to repay senior policyholder claims and obligations.
For more information, visit our website at www.moodys.com/insurance.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
Financial Institutions Group
Moody's Investors Service