Fitch Affirms Travelers' Ratings; Outlook Stable
CHICAGO -- December 19, 2012
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'.
A full list of rating actions follows below. The Rating Outlooks are Stable.
TRV's ratings continue to be founded on its strong competitive position as a
top five U.S. property/casualty insurer with a history of solid earnings and
prudently structured balance sheet. TRV's losses from Superstorm Sandy were
manageable and Fitch expects it to report improved earnings for full year 2012
relative to 2011. Fitch continues to monitor TRV's investment concentration in
TRV's market share is nearly 5% of the property/casualty industry measured by
net written premium. The company offers a wide range of insurance products to
both the commercial and personal lines markets and frequently occupies a top
tier position among independent insurance agencies.
TRV's return on stockholders' equity (ROE) averaged 12.2% over the five-year
period 2007-2011 and annualized ROE through the first nine months of 2012 is
modestly below that average at 11.4%. Operating results improved in 2012 as
year-to-date third quarter weather related losses were $525 million or
approximately one-third of 9 month 2011's figure of $1.6 billion.
Losses from Superstorm Sandy were recently estimated by the company to be
approximately $650 million after tax and net of reinsurance. This loss was
considered manageable since TRV is expected to report solid profitability for
the full year 2012.
TRV's debt-to-capital ratio was 21.8% at Sept. 30, 2012, which is consistent
with Fitch's median sector credit factors for the current rating category. The
company actively repurchases it common shares and activity in 2012 was
consistent with trends in earnings. Capitalization measures at the operating
company level such as Fitch's proprietary capital model, Prism, as well as
NAIC risk-based capital (RBC) and operating leverage are all within
expectations for the current rating category.
TRV has maintained significant holding company liquidity with cash, short term
invested assets and other readily marketable securities totaling $2 billion at
Sept. 30, 2012. Additional flexibility is provided by insurance subsidiaries
that can pay nearly another $2 billion of dividends to the holding company
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
billion syndicated credit facility.
Earnings before interest expense and taxes covered fixed charges by 11 times
during the first nine months of 2012, which is consistent with Fitch's median
guidelines for the current rating category. The next significant debt maturity
is $500 million of senior debt in March 2013.
The company carries a large investment allocation in state, municipal and
revenue bonds, amounting to $39 billion as of Sept. 30, 2012. This asset class
is experiencing a heightened level of stress given the fiscal problems of many
states and municipalities. The diversity, credit quality and large unrealized
gain position largely mitigate concerns over municipal investments. In
addition, approximately one-fifth of TRV's municipal bonds are 'prefunded',
meaning there is an escrow to fund repayment, significantly reducing credit
Key rating triggers that could lead to a downgrade include:
--Capitalization at the underwriting subsidiaries that is inconsistent with
standards for the current rating category such as consolidated statutory net
leverage greater than 4.5x or a long term increase in debt-to-total capital
ratio to greater than 25%.
--A GAAP fixed charge coverage ratio less than 8x on a run rate basis.
--A sustained period of net losses or catastrophe losses out of proportion
with the company's market share.
Key rating triggers 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.
Fitch affirms the following ratings with a Stable Outlook:
The Travelers Companies, Inc.
--IDR at 'A+';
--Short-term IDR at 'F1';
--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.
--7.75% senior notes due April 15, 2026 at 'A'.
Travelers Property Casualty Corp.
--5.00% senior notes due March 15, 2013 at 'A';
--6.375% senior notes due March 15, 2033 at 'A';
Fitch affirms the IFS ratings of the following members of the Travelers
Inter-company Pool 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, Fitch affirms the IFS ratings of the following members of the
Travelers Group 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
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology', Oct. 18, 2012.
Applicable Criteria and Related Research:
Insurance Rating Methodology ￢ﾀﾔ Amended
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Douglas M. Pawlowski, CFA, +1-312-368-2054
70 West Madison St.
Chicago, IL 60602
Gerry Glombicki, CPA, +1-312-606-2354
Jeff A. Mohrenweiser, +1-312-368-3182
Brian Bertsch, +1-212-908-0549
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