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.
TRV's ratings continue to be founded on its strong competitive position, history of solid earnings and prudent capital management. A heavy catastrophe year in 2011 challenged TRV's earnings, and Fitch continues to monitor TRV's investment concentration in municipal bonds.
TRV is the sixth 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.
In spite of catastrophe related losses of $2.6 billion in 2011, amounting to 11.6 percentage points on a combined ratio of 105.1%, TRV's five-year average return on equity (ROE) through year-end 2011 was in excess of 12%. In the first three months of 2012 TRV reported a 13% ROE, up significantly from 5.7% for the full year 2011.
TRV's prudent capital management can be seen in its debt-to-capital ratio of 23% at March 31, 2012, which was consistent with Fitch's median guideline of 20% for the rating category. Fitch expects debt-to-capital will be managed within a range of 20%-25%. Capitalization measures at the consolidated insurance operating companies such as total operating leverage and net leverage remain conservative at 1.1x and 4.0x, respectively at year-end 2011.
Financial flexibility is enhanced by significant holding company liquidity with cash, short-term invested assets, and other readily marketable securities totaling $2.2 billion as of March 31, 2012. Additional flexibility is provided by subsidiaries that can pay up to $2 billion of dividends during 2012 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 that expires in June 2013.
TRV had $250 million in senior debt mature during June and the next significant debt maturity is $500 million of senior debt in March 2013. Earnings before interest expense and taxes covered fixed charges by 12.1 times during the first three months of 2012, which is consistent with Fitch's median guidelines for the current rating category. TRV's five-year average interest coverage was 11.9x in spite of a poor 2011 with 4.4x coverage.
The company is a large investor in state, municipal, and revenue bonds, holding $39 billion at March 31, 2012. Approximately one-fifth of TRV's municipal bonds are 'prefunded', meaning there is an escrow to fund repayment, significantly reducing credit risk. Despite the fact that municipal bonds are experiencing a heightened level of stress given the fiscal problems of many states and municipalities, Fitch's concerns 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.
Fitch has affirmed 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 has affirmed 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
Fitch has also affirmed 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', Sept. 22, 2011.
Applicable Criteria and Related Research:
Insurance Rating Methodology
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