A.M. Best Places Financial Strength Rating of Travelers PC Pool and Debt Ratings of St. Paul Travelers Under Review with Negative Implications; Affirms Financial Strength Rating of St. Paul Companies.OLDWICK, N.J. -- A.M. Best Co. has placed the financial strength rating of A+ (Superior) of Travelers Property Casualty Pool (Travelers PC Pool) (Hartford, CT) under review with negative implications. Additionally, A.M. Best has placed the debt ratings of "a-" on senior debt, "bbb+" on 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". , "bbb" on trust preferred securities, "bbb" on preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. and AMB-1 on commercial paper of The St. Paul St. Paul as a missionary he fearlessly confronts the “perils of waters, of robbers, in the city, in the wilderness.” [N.T.: II Cor. 11:26] See : Bravery Travelers Companies The Travelers Companies (NYSE: TRV) is the second largest underwriter of commercial property casualty and personal insurance in the United States. The company is headquartered in St. Paul, Minnesota and has major operations in Hartford, Connecticut. , Inc. (St. Paul Travelers) (NYSE NYSE See: New York Stock Exchange :STA) (St. Paul, MN) and its subsidiaries under review with negative implications. Concurrently, A.M. Best has affirmed the financial strength rating of A (Excellent) of the St. Paul Companies (St. Paul, MN). The rating outlook is stable. These rating actions follow the fourth quarter earnings announcement by St. Paul Travelers, which includes an increase in prior year loss reserves totaling $868 million (pretax) resulting in weaker than expected earnings for the year, as well as less than anticipated holding company liquidity. St. Paul Travelers reported after-tax operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. after the effects of these charges of $307 million for the fourth quarter and $983 million for the full year. The reserve increase reported by St. Paul Travelers largely stems from the completion of an internal annual asbestos reserve review that resulted in a reserve charge of $922 million, along with an $84 million charge for environmental reserves (collectively A&E). The St. Paul Companies' A&E reserve increase was $576 million, while Travelers PC Pool's was $430 million. The A&E charges were partly offset by $140 million of favorable prior year reserve development in personal lines. In the fourth quarter, St. Paul Travelers also reported $180 million of favorable development in current year reserves resulting from favorable claim activity in commercial and personal lines business, offset by $113 million additional net reserves for catastrophe losses related to the third quarter hurricanes. As part of its strategic review of its businesses, management also disclosed that it is exploring strategic alternatives for divesting its 79% equity ownership of Nuveen Investments Nuveen Investments is a public company in the asset management industry. References http://www.nuveen.com Nuveen's Corporate Website , Inc. (Nuveen), a publicly traded company publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. that has a total market capitalization Total Market Capitalization The total market value of all of a firm's outstanding securities. of approximately $3.5 billion. The potential divestiture The breakup of AT&T. By federal court order, AT&T divested itself on January 1, 1984 of its 23 operating companies, which became known as the Regional Bell Operating Companies (RBOCs). of its investment in Nuveen would result in a significant increase in St. Paul Travelers' holding company liquidity, operating company operating company A business that engages in transactions with outsiders. capital and tangible net worth Tangible Net Worth Total assets less intangible assets and total liabilities. Notes: In terms of a consumer, tangible net worth is the sum of all your tangible assets (cash, home, cars, etc). and a significant reduction in goodwill and intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. . This transaction would provide the St. Paul Companies with a sizable capital cushion to diffuse the impact of further adverse loss reserve development on capitalization, should it occur, reduce the potential need for further capital support from Travelers PC Pool and enable dividends from the Travelers PC Pool to build holding company liquidity. Travelers PC Pool's and St. Paul Travelers' ratings have been placed under review with negative implications, pending the close of this transaction. Despite the substantial reserve charge, the affirmation of the St. Paul Companies' rating considers the explicit support provided in the form of additional capital to the St. Paul Companies by the Travelers PC Pool since the merger, as well as the expectation of continued support in the future. The $576 million pretax A&E reserve increase required by the St. Paul Companies in the fourth quarter of 2004, combined with its $1.625 billion second quarter charge, substantially exceeded A.M. Best's expectations as did the degree and need for Travelers PC Pool to financially support the St. Paul Companies since the consummation of the merger. A.M. Best believes that based on the reserve development that has occurred in recent periods, there is potential for further adverse reserve development. While currently rated separately, considerable enhancement is afforded to the St. Paul Companies' rating given Travelers PC Pool's continued financial support, its strategic role and its importance to the overall organization. Conversely, charges at the St. Paul Companies have weakened the rating of its affiliate, Travelers PC Pool, which has been called upon to fund the reserve charges at the St. Paul Companies. Consequently, Travelers PC Pool dividended approximately 75% of its net earnings in 2004 to recapitalize re·cap·i·tal·ize tr.v. re·cap·i·tal·ized, re·cap·i·tal·iz·ing, re·cap·i·tal·iz·es To change the capital structure of (a corporation). re·cap the St. Paul Companies and service the greater combined holding company's cash needs. Furthermore, St. Paul Travelers has been unable to reduce its outstanding borrowings and build holding company liquidity as it had prudently planned to do following the consummation of the merger. Although Travelers PC Pool's earnings prospects remain strong in 2005, substantial dividends are anticipated to be paid in order to enhance holding company liquidity. Travelers PC Pool's dividend capacity, while sizable, is not sufficient to meet these objectives and fund future recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. needs at the St. Paul Companies, should they emerge. This view will be substantially mitigated by the successful completion of the Nuveen divestiture. Overall risk-adjusted capitalization of Travelers PC Pool remains supportive of its current rating despite the financial support provided to the St. Paul Companies in 2004. However, the capital drag has placed downward pressure on Travelers PC Pool's rating. St. Paul Travelers ranks second in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. in commercial lines, as well as in personal lines agency companies. St. Paul Travelers' ability to cross-sell complementary products should enhance its position within the commercial lines market at a time when pricing in the industry is leveling off and growth is expected to soften. Expense savings are also expected to be realized through 2005. For a complete list of The St. Paul Travelers Companies, Inc.'s financial strength and debt ratings, please visit http://www.ambest.com/press/013110stpaultravelers.pdf. For Best's Debt Ratings, all other Best's Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings. For current Best's Ratings, independent data and analysis on more than 3,000 individual property/casualty companies, groups and industry composites, please visit http://www.ambest.com/pc. 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 http://www.ambest.com. |
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