–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 municipal bonds.
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 risk.
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
Applicable Criteria and Related Research:
–‘Insurance Rating Methodology’, Oct. 18, 2012.
Applicable Criteria and Related Research:
Insurance Rating Methodology ￢ﾀﾔ Amended