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Fitch Affirms Travelers'; Ratings;; Outlook Stable

^{Published on 2011-09-08 20:21:31 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Fitch Ratings has affirmed its ratings on The Travelers Companies, Inc. (NYSE: TRV), as follows:

--Issuer Default Rating (IDR) at 'A+';
--Senior unsecured notes at 'A';
--Subordinated notes at 'BBB+';
--Insurer financial strength (IFS) on insurance company subsidiaries at 'AA'.

See the full list of rating actions below. The Rating Outlooks are Stable.

The affirmation of TRV's ratings reflects the company's strong competitive position, history of solid earnings and prudent capital management. Balanced against these positives are the heavy year-to-date catastrophe losses and the company's large investment allocation to municipal bonds.

TRV is the 6th largest, U.S. property/casualty insurer with a market share of nearly 5%. TRV has diversified product offerings and frequently occupies a top five position among independent insurance agencies, supporting its strong competitive position.

A history of solid earnings can be seen in TRV's 14.6% 5-year average return on equity through year-end 2010. Total return to shareholders over the same 5-year period was 41% compared to 12% for the S&P 500. Financial results have suffered year-to-date given heavy catastrophe losses. Specifically, weather-related losses during the first half of 2011 reached $1.2 billion, reducing bottom line results to $475 million compared to $1.3 billion over the same period in 2010.

TRV continues to exhibit prudent capital management as evidenced by a debt-to-capital ratio of 20.9% at June 30, 2011. This level of financial leverage is consistent with Fitch's expectation that debt-to-capital ratio will be managed within a range of 20% - 25%. Share repurchase activity has moderated considerably in light of heavy weather-related losses during 2011. Capitalization measures at the consolidated insurance operating companies such as total financing and commitments ratio and operating leverage remain conservative at 0.35 times (x) and 1.1x, respectively at year-end 2010.

Financial flexibility is enhanced by significant holding company liquidity with cash, short-term invested assets, and other readily marketable securities totaling $2.4 billion as of June 30, 2011. Additional flexibility is provided by subsidiaries that can pay up to $3.5 billion of dividends during 2011 without prior regulatory approval. TRV's liquidity profile is supplemented by an $800 million commercial paper program that is backed by a three-year $1.0 billion syndicated credit facility that expires in June 2013.

The company is a large investor in state, municipal, and revenue bonds, holding $39 billion at June 30, 2011. This asset class is experiencing a heightened level of stress given the fiscal problems of many states and municipalities. Fitch's concerns about TRV's municipal bond holdings are largely mitigated by the portfolio's diversity and high credit quality.

Key rating drivers that could lead to a downgrade include:

--Capitalization at the underwriting subsidiaries that is inconsistent with standards for the current rating category or a long-term increase in debt-to-total capital ratio to greater than 25%.

--A sustained period of net losses or catastrophe losses out of proportion with the company's market share.

Key rating drivers that could lead to an upgrade include:

--A substantially overcapitalized position relative to TRV's current rating level. However, given publicly traded companies' sensitivity around managing capital, this level of overcapitalization is unlikely.

--Sustained underwriting performance across business lines that is clearly better than the industry and similarly-rated peers.

The following ratings have been affirmed by Fitch, with a Stable Outlook:

The Travelers Companies, Inc.
--IDR at 'A+';
--Short-term IDR at 'F1'
--5.375% senior notes due June 15, 2012 at 'A';
--5.50% senior notes due Dec. 1, 2015 at 'A';
--6.25% senior notes due June 20, 2016 at 'A';
--5.75% senior notes due Dec. 15, 2017 at 'A';
--5.80% senior notes due May 15, 2018 at 'A';
--5.90% senior notes due June 2, 2019 at 'A';
--3.90% senior notes due Nov. 1, 2020 at 'A';
--6.75% senior notes due June 20, 2036 at 'A';
--6.25% senior notes due June 15, 2037 at 'A';
--5.35% senior notes due Nov. 1, 2040 at 'A'.
--6.25% junior subordinated debentures due March 15, 2067 at 'BBB+';
--$800 million commercial paper (CP) program at 'F1'.

MMI Capital Trust I
--7.625% Trust preferred due Dec. 15, 2027 at 'BBB+'.

USF&G Capital Trust I
--8.500% Trust preferred due Dec. 15, 2045 at 'BBB+'.

USF&G Capital Trust III
--8.312% Trust preferred due July 1, 2046 at 'BBB+'.

Travelers Insurance Group Holdings Inc.
--IDR 'A+';
--7.75% senior notes due April 15, 2026 at 'A'.

Travelers Property Casualty Corp.
--IDR 'A+';
--5.00% senior notes due March 15, 2013 at 'A';
--6.375% senior notes due March 15, 2033 at 'A';

The IFS ratings of the following members of the Travelers Inter-company Pool have been affirmed at 'AA', with a Stable Outlook:

--St. Paul Fire and Marine Insurance Company
--The Travelers Indemnity Company
--Travelers Casualty and Surety Company
--The Phoenix Insurance Company
--The Standard Fire Insurance Company
--United States Fidelity and Guaranty Company
--Travelers Casualty Insurance Company of America
--Farmington Casualty Company
--The Automobile Insurance Company of Hartford, Connecticut
--The Travelers Indemnity Company of Connecticut
--The Charter Oak Fire Insurance Company
--St. Paul Surplus Lines Insurance Company
--The Travelers Indemnity Company of America
--St. Paul Protective Insurance Company
--Travelers Casualty Company of Connecticut
--Travelers Commercial Casualty Company
--Travelers Commercial Insurance Company
--St. Paul Mercury Insurance Company
--Travelers Property Casualty Company of America
--Travelers Property Casualty Insurance Company
--Athena Assurance Company
--St. Paul Medical Liability Insurance Company
--TravCo Insurance Company
--Travelers Excess and Surplus Lines Company
--The Travelers Home and Marine Insurance Company
--Travelers Personal Security Insurance Company
--Travelers Personal Insurance Company
--Discover Property & Casualty Insurance Company
--Discover Specialty Insurance Company
--Fidelity and Guaranty Insurance Underwriters, Inc.
--St. Paul Guardian Insurance Company
--American Equity Specialty Insurance Company
--Northfield Insurance Company
--Northland Insurance Company
--Northland Casualty Company

In addition, the IFS ratings of the following members of the Travelers Group have been affirmed at 'AA', with a Stable Outlook:

--Fidelity and Guaranty Insurance Company
--Select Insurance Company
--St. Paul Fire and Casualty Insurance Company
--The Travelers Lloyds Insurance Company
--Travelers Lloyds of Texas Insurance Company
--First Floridian Auto and Home Insurance Company
--First Trenton Indemnity Company
--Travelers Casualty and Surety Company of America
--Gulf Underwriters Insurance Company

The rating for Travelers Auto Insurance Co. of New Jersey was withdrawn following its merger into Fidelity and Guaranty Insurance Underwriters, Inc.

Additional information is available at [ www.fitchratings.com ].

Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (March 31, 2011);
--'Non-Life Insurance Rating Methodology' (March 31, 2011);
--'Fitch's Approach to Rating Insurance Groups' (Dec. 14, 2010.
--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (March 31, 2011);
--'Rating Hybrid Securities' (Dec. 29, 2009).

Applicable Criteria and Related Research:
Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766 ]
Non-Life Insurance Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369 ]
Fitch's Approach to Rating Insurance Groups
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765 ]
Insurance Industry: Global Notching Methodology and Recovery Analysis
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114 ]
Rating Hybrid Securities
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086 ]

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