Travelers Upgraded by A.M. Best - Analyst Blog

On Monday, the rating agency A.M. Best upgraded the issuer credit rating (ICR) and senior debt ratings of The Travelers Companies (TRV) from “a-" to “a" and revised the outlook for the ICRs from “positive" to “stable."

A.M. Best has also upgraded the credit ratings of Travelers Group (Travelers), its property/casualty members and affiliate, Travelers Casualty and Surety Company of America (TCSA) and TCSA’s affiliate, Travelers Casualty and Surety Company of Europe Limited (TCSCE). It upgraded the ICR from “aa-" to “aa."

The agency upgraded the rating based on Travelers’ leading market position, favorable operating and underwriting results, prudent risk management, conservative investment portfolio, diversified product offering, wide operational footprint, improved technology and internal information systems, solid financial position, strong risk-adjusted capitalization and superior management team. Travelers’ solid financial position is supported by its strong liquidity with $3.03 billion of liquid funds, debt-to-capital ratio of 18.0%, a handsome 14.5% of equity in intangible assets and interest coverage ratio of 9.7.

Additionally, the effective implementation of Travelers’ comprehensive enterprise risk management program has resulted in strong underwriting and operating results and surplus growth. The successful implementation has also given the company a competitive edge.

However, these positive are to some extent marred by Travelers’ exposure to emerging asbestos and environmental (A&E) claims, increased catastrophe losses and heightened competition. Further, weak insurance market conditions led by unstable capital markets partially offset the positives.

The upward revisions came with affirmation and revisions of ratings and outlook. A.M. Best affirmed the financial strength ratings (FSR) of “A+" (Superior) of Travelers, TCSA and TCSCE; affirmed the outlook on the FSRs at “stable."

Furthermore, the rating agency affirmed the FSR of “A+" (Superior) and ICR of “aa-" rating of Travelers Guarantee Company of Canada. The outlook for both ratings remains “stable."

In addition, A.M. Best also affirmed the FSR of “A" (Excellent) and ICR of “a+" for The Premier Insurance Company of Massachusetts and an FSR of “A" (Excellent) and ICR of “a" for Travelers of New Jersey Group and its property/casualty members. The outlook for these ratings is “stable."

The rating agency affirmed the FSR of “A-" (Excellent) and ICR of “a-" for First Floridian Auto and Home Insurance Company. The outlook for these ratings remains “stable."

The rating affirmations were based on strong capitalization, improved underwriting results, high quality of diversified product portfolio, leading market position and additional financial operational flexibility for being an affiliate of Travelers. However, these positives are partially offset by heightened competition, lackluster global market and single state business exposure.

Travelers experienced an increase in investment income and a favorable prior-year reserve development during the first quarter of 2010. With a conservative balance sheet and high retention rates, the company is better positioned than many of its peers, given its focus on small and mid-sized commercial accounts, balanced personal lines book and lack of exposure to large-account casualty business. With these factors and rating revisions in its favor, we expect Travelers to gain market share as the economic recovery gathers pace.
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