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Fitch Lowers St. Paul's Debt to 'BBB+'; Rating Outlook Stable.

Business Editors


Fitch Ratings Fitch Ratings

An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris.
 has lowered its long-term and senior debt ratings on 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
 Companies, Inc. (SPC 1. (business) SPC - Statistical Process Control. Something to do with quality management.

2. (body) SPC - Software Productivity Centre.
3. (company) SPC - Software Publishing Corporation.
) to 'BBB+' from 'A-'and its ratings on SPC's trust preferred securities to 'BBB' from 'BBB+'. Fitch has concurrently affirmed its 'F2' rating on SPC's commercial paper program. The Rating Outlook has been changed to Stable from Negative.

Fitch's rating actions follow SPC's recent third quarter earnings release in which the company reported $75 million of adverse reserve development in Lloyds' businesses that it had exited in late 2001.

Avoiding earnings disruptions from this and other business lines that SPC exited in 2001, particularly the medical malpractice Improper, unskilled, or negligent treatment of a patient by a physician, dentist, nurse, pharmacist, or other health care professional.  line, were key factors in the Negative Rating Outlook that Fitch had previously maintained on SPC. Fitch believes that going forward, SPC's exited business lines may experience adverse reserve development similar in magnitude to that experienced in the third quarter 2002, but has reflected this exposure in its current ratings and outlook.

SPC's core book of business has benefited from favorable fa·vor·a·ble  
1. Advantageous; helpful: favorable winds.

2. Encouraging; propitious: a favorable diagnosis.

 market conditions and has performed well. Excluding the impact of a $585 million net of 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.  pretax pre·tax  
Existing before tax deductions: pretax income.

pretax adj [profit] → vor (Abzug der) Steuern 
 charge related to a second-quarter claim settlement, the company's core lines' GAAP GAAP

See: Generally Accepted Accounting Principles


See generally accepted accounting principles (GAAP).
 basis combined ratio through the first nine months of 2002 was 93.3% and its core lines net premiums written increased 24%.

Going forward, Fitch estimates SPC's near-term operating earnings-based interest and preferred dividend coverage Preferred dividend coverage

Net income after interest and taxes (before common stock dividends) divided by preferred stock dividends.

preferred dividend coverage 
 in a range of 3-6 times (x). Fitch's low end of this range includes earnings disruptions three-to-four times the magnitude of that SPC experienced in the third quarter 2002. As a result, although Fitch feels coverage could approximate the low end of the range, Fitch believes that coverage in the middle to high-end of the range is more likely.

Fitch estimates SPC's equity-credit adjusted debt plus preferred capital securities to capital ratio at approximately 30%. Although this is at the high end of Fitch's rating tolerance for the current rating category, Fitch anticipates that SPC's financial leverage will moderate going forward.

Fitch continues to believe that SPC's ratings reflect the company's more narrowly focused and strong competitive position in the commercial lines market. In addition, Fitch believes that successful completion of SPC's pending initial public offering of its reinsurance operation will remove a significant source of 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.
 volatility from its operations.

Fitch also believes that SPC benefits from its approximate 78% ownership interest in The John Nuveen Company, a publicly traded investment management company that in recent years has consistently generated net earnings in the $75-$125 million range.

These ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings are based primarily on publicly available information.

Entity/Type                        Action    Rating/Outlook
The St. Paul Companies, Inc.
--Long-term rating                 Downgrade 'BBB+'/Stable;
--7.13% senior notes Due 2005      Downgrade 'BBB+'/Stable;
--7.88% senior notes Due 2005      Downgrade 'BBB+'/Stable;
--5.75% Senior Notes Due 2007      Downgrade 'BBB+'/Stable;
--8.13% Senior Notes Due 2010      Downgrade 'BBB+'/Stable;
--$800MM Commercial paper          Affirm    'F2'.

St. Paul Capital Trust I
--7.6% Trust preferred securities  Downgrade 'BBB'/Stable.

MMI Capital Trust I
--7.625% Trust preferred sec.      Downgrade 'BBB'/Stable.

USF&G Capital Trust I
--8.5% Trust preferred securities  Downgrade 'BBB'/Stable.

USF&G Capital Trust II
--8.47% Trust preferred securities Downgrade 'BBB'/Stable.

USF&G Capital Trust III
--8.312% Trust preferred sec.      Downgrade 'BBB'/Stable.
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Publication:Business Wire
Geographic Code:1USA
Date:Oct 28, 2002
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