A.M. Best Affirms Financial Strength and Debt Ratings of Travelers.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Jan. 14, 2003 A.M. Best Co. has affirmed af·firm v. af·firmed, af·firm·ing, af·firms v.tr. 1. To declare positively or firmly; maintain to be true. 2. To support or uphold the validity of; confirm. v.intr. the financial strength rating of A++ (Superior) of Travelers Property Casualty Pool (Hartford, CT). The rating applies to the 20-member pool, led by Travelers Indemnity Company, and two reinsured affiliates. The rating also applies to Travelers Casualty and Surety An individual who undertakes an obligation to pay a sum of money or to perform some duty or promise for another in the event that person fails to act. surety n. Company of America and Travelers Casualty and Surety Company of Canada, which A.M. Best considers to be core and integral members of the Travelers Property Casualty Group. Concurrently, A.M. Best has affirmed the "aa-" senior debt and "a+" subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". ratings of Travelers Property Casualty Corp. (NYSE NYSE See: New York Stock Exchange :TAP.a) and the "a+" rating of the trust preferred securities issued by Travelers P&C Capital I and II. The outlook for the ratings is stable. These rating actions follow Travelers Property Casualty Corp.'s announcement that it has completed its asbestos reserve study and that it will strengthen reserves for asbestos liabilities in the fourth-quarter of 2002 by $2.55 billion after reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. . Net of tax benefits and payments to be received under its indemnification Indemnification Used in insurance policy agreements as to compensation for damage or loss. In the context of corporate governance, Director Indemnification uses the bylaws and/or charter to indemnify officers and directors from certain legal expenses and judgements resulting from agreement with its former parent, Citigroup, Travelers' after tax asbestos charge is $1.3 billion. The net asbestos reserve charge taken in the fourth quarter was based upon an internal ground-up study of Travelers' ongoing asbestos exposures. The study involved an extensive assessment of Travelers' asbestos liability exposures, taking into account a review of all active policyholders, changes in litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. and potential exposure arising from non-product exposure. Methodology used by Travelers was also opined upon by a prominent independent consultant. During the fourth quarter, Travelers also reallocated $100 million of non-asbestos and environmental (A&E) net reserves to environmental reserves. The current ratings take into consideration the impact from this significant reserve charge and A.M. Best's view of capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. , which had already contemplated an A&E reserve deficiency reserve deficiency A shortage in funds set aside as a reserve for a specific purpose. For example, during a recession a firm may find the reserve fund covering allowance for bad debts deficient when the amount of bad debts exceeds expectations. greater than the asbestos reserve strengthening in the fourth quarter. A.M. Best has met with management regarding Travelers' asbestos study and is significantly more comfortable with the adequacy of Travelers' A&E reserves. A.M. Best views this A&E reserve strengthening as positive in that it should lessen less·en v. less·ened, less·en·ing, less·ens v.tr. 1. To make less; reduce. 2. Archaic To make little of; belittle. v.intr. To become less; decrease. future A&E earnings drag as well as help to narrow the gap between the company's carried A&E reserves and A.M. Best's view of A&E reserves. While consolidated statutory policyholders' surplus of Travelers PC Pool was adversely impacted by this reserve charge, the actual decline in surplus was largely moderated by a $900 million capital contribution from the parent, operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before and realized capital gains in the fourth quarter. Despite this significant reserve charge, A.M. Best continues to view Travelers' consolidated statutory capitalization of the Pool as strong and supportive of its current rating. Prospectively, A.M. Best estimates Travelers PC Pool's earnings will be strong over the next several years and should continue to benefit from the current market conditions given its lead position in the property/casualty insurance marketplace, in both commercial and personal lines. Combined with an expectation of lower dividend payouts to the parent, A.M. Best anticipates the group's capitalization will continue to be enhanced. Travelers Property Casualty Corp's financial leverage--at 26%--is elevated for its rating due to the $750 million of short-term debt Short-term debt Debt obligations, recorded as current liabilities, requiring payment within the year. incurred to partially finance the company's $900 million capital contribution to the Travelers PC Pool. A.M. Best expects financial leverage to decline to around 20% by year-end 2003, a level more in line with its debt ratings. More important is the holding company's cash flow and liquidity, which is just adequate for 2003. The subsidiaries are expected to generate earnings this year that will more than allow for repayment of the $750 million as well as debt service; however, re-building holding company liquidity will take the company well into 2004. Management expects the dividends to the parent to be less than half of the insurance subsidiaries' projected earnings, leaving sufficient capital to support growth. Additionally, the capital structure has been well managed with almost two-thirds of debt obligations in the form of convertible notes and trust preferred securities. A.M. Best believes the insurance subsidiaries' earnings, cash generating ability and significant financial flexibility support the interim leverage and liquidity levels. The ratings also consider Travelers' prospective earnings power and balance sheet strength as well as the group's dominant market profile and conservative management approach, which focuses on profitability, emphasizing both underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and financial discipline. The success of this approach is exemplified by the group's exceptionally strong earnings performance in recent years with returns on both revenue and equity surpassing industry norms by a wide margin. These ratios underscore The underscore character (_) is often used to make file, field and variable names more readable when blank spaces are not allowed. For example, NOVEL_1A.DOC, FIRST_NAME and Start_Routine. (character) underscore - _, ASCII 95. Travelers' effective expense management, catastrophe mitigation strategies and adherence to strict underwriting and reserving discipline. Aiding Travelers' superior operating performance relative to its peers has been its higher level of investment income in comparison with premiums earned, which is largely derived from a strong capital base as well as long-tail reserves. These favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. considerations are tempered by the group's exposure to potential terrorist-related losses as a result of its large commercial lines book of business. For a complete listing of the Travelers Property/Casualty Pool's financial strength and debt ratings, visit http://www.ambest.com/press/Travelers3.pdf. For a list of A.M. Best's current debt ratings, please visit. www.ambest.com/ratings/debtrating/companies.html. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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