A.M. Best Affirms Ratings of The Travelers Companies, Inc. and Its Subsidiaries

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has affirmed the financial strength rating (FSR) of A++ (Superior) and the issuer credit ratings (ICR) of “aa+” of the property/casualty subsidiaries of The Travelers Companies, Inc. (TRV) (New York, NY) [NYSE:TRV], also known as Travelers Group (Travelers), TRV’s affiliate, Travelers Casualty and Surety Company of America (TCSA) (Hartford, CT), and TCSA’s affiliates, Travelers Casualty and Surety Company of Europe Limited (TCSCE) (United Kingdom) and Travelers Insurance Company of Canada (TICC) (Ontario).

Concurrently, A.M. Best has affirmed the ICR and senior debt ratings of “a+” of TRV and its two wholly owned downstream holding companies, Travelers Property Casualty Corp. and Travelers Insurance Group Holdings Inc. (both domiciled in Hartford, CT). All outstanding debt securities issued by the two downstream holding companies are guaranteed by TRV. The outlook for the above ratings is stable.

A.M. Best also has affirmed the FSR of A (Excellent) and the ICR of “a” of The Dominion of Canada General Insurance Company (Dominion) (Toronto Ontario, Canada). The outlook for these ratings is stable.

A.M. Best also has affirmed the FSR of A (Excellent) and the ICR of “a+” of The Premier Insurance Company of Massachusetts (Premier) (Worcester, MA) and the FSR of A- (Excellent) and the ICR of “a-” of First Floridian Auto and Home Insurance Company (First Floridian) (Tampa, FL). The outlook for these ratings is stable. (Please see link below for a detailed listing of the companies and ratings.)

The rating affirmations reflect Travelers’ solid risk-adjusted capitalization, trend of favorable operating and underwriting results, excellent market profile in commercial and personal lines (largely distributed through independent agents) and effective management team. The ratings also acknowledge Travelers’ proactive and comprehensive risk management, underwriting and financial discipline, relatively conservative investment portfolio, geographic and product diversification and enhanced technology and internal information systems, which have improved its underwriting effectiveness and ability to service agents and customers in both commercial and personal lines. In addition, Travelers’ superior product breadth, industry leading data and analytics and leading position within its distribution network have enabled it to report a trend of strong earnings that have outperformed the majority of its peers over time. This has occurred despite an increase in weather-related losses and the current low interest rate environment.

Travelers’ ratings also consider the financial flexibility and liquidity provided by TRV. Despite significant share repurchases since 2006, TRV maintained $1.7 billion of cash and marketable securities, and its adjusted debt-to-capital ratio, excluding accumulated other comprehensive income (AOCI), remained moderate at 20.8% at March 31, 2015. Adjusting for tangible capital, the adjusted debt-to-tangible capital (excluding AOCI) ratio was 23.9%, well within A.M. Best’s expectations at the current rating level. Interest coverage also remained strong through the first quarter of 2015 at 13.5 times.

Offsetting these positive rating factors are the ongoing competitive environment within the property/casualty markets and Travelers’ exposure to natural and man-made catastrophes. Being among the largest commercial and personal insurers and national property writers, the group has significant exposure to natural catastrophes, which was evident in 2011 and 2012, and potential terrorist-related losses. Further, personal auto performance has underperformed in certain years, but appears to have stabilized as a result of expense reduction initiatives, as well as the introduction of Quantum 2.0. Travelers has comprehensive reinsurance and risk management programs in place to manage its spread of risk and limit its overall exposure. Despite reporting an increased level of catastrophe loss activity in 2011 and 2012, Travelers managed to report solid returns while maintaining strong liquidity and risk-adjusted capitalization, which is a testament to the group’s conservative operating philosophy, strong business profile and comprehensive risk management program.

Like other leading carriers within the U.S. property/casualty industry, Travelers remains exposed to the potential development of asbestos and environmental (A&E) liabilities; however, in more recent years, it has seen less adverse A&E reserve development emerge. Over the past several years, the group has experienced significant favorable prior year loss reserve development in the majority of both its personal and commercial lines reserves.

The ratings of TCSA and TCSCE primarily recognize TCSA’s strong risk-adjusted capitalization, specialized underwriting expertise, highly favorable underwriting and operating performance and leadership position in the surety, fidelity and management liability segments. These strengths are partially offset by TCSA’s limited product diversification as well as the negative impact that continued competitive property/casualty markets and challenging macroeconomic conditions may have on premium and profitability levels.

The ratings of Travelers Insurance Company of Canada (TICC) reflect its superior risk-adjusted capitalization, favorable underwriting and operating profitability, excellent brand recognition, strong profile as a leading specialty lines writer in the surety and corporate management liability segments, as well as receiving the implicit and explicit support from its direct parent, TCSA, as well as TRV. Partially offsetting these positive rating factors are the recent increased competition, continued soft market conditions, growth from its recently added lines of business, as well as an increase in the expense ratio due to projected investments in technology and the new business mix.

The ratings of Dominion reflect its good risk-adjusted capitalization; excellent brand recognition; established Canadian market presence nationally, but most notably in Ontario; and the implicit and explicit support it receives from its new parent, TRV. Partially offsetting these positive rating factors is the company’s fluctuating operating performance, resulting primarily from legacy issues within its Ontario auto business, which pre-dates current ownership. Additional offsetting factors include recent increased competition; competitive market conditions (more legislative in nature in Ontario) throughout its underwriting territories combined with lower investment yields – a product of current financial market conditions; and a modest increase in the expense ratio due to several changes brought about by the company's new ownership.

A.M. Best does not expect to lower, or place a negative outlook on, the ratings of Dominion in the near to intermediate term. Such actions would ensue if Dominion’s relationship to its parent and its support changes in a manner that affects its operational stance; if it incur material losses in its capitalization; has a severe reduction in the profitability of its core book of business; or incurs severe adverse development within its reserves relative to its peers, as well as the industry’s averages.

The ratings of Premier acknowledge its strong risk-adjusted capitalization, historically favorable operating profitability and the additional operational support and financial flexibility afforded by Travelers and TRV. These positive rating factors are partly offset by the deterioration in Premier’s underwriting results earlier in most recent five-year period, geographic concentration of business in Massachusetts and its limited product scope (focused on private passenger automobile coverage).

The ratings of First Floridian recognize its strong risk-adjusted capitalization, trend of highly profitable operating results in recent years, operating efficiencies and local market focus, which enables it to respond effectively to issues associated with Florida’s personal lines market, and the additional operational support and financial flexibility afforded by Travelers and TRV. Partially offsetting these strengths are First Floridian’s exposure to catastrophe losses, albeit declining, and single state geographic concentration in Florida.

While A.M. Best believes that TRV and its subsidiaries are well-positioned at their current rating levels, positive movement is unlikely in the near term. Factors that could lead to negative rating actions include deterioration in underwriting and operating performance to a level below peers and/or an erosion of surplus that causes a decline in risk-adjusted capital to a level that is no longer supportive of the current ratings.

For a complete listing of The Travelers Companies, Inc.’s FSRs, ICRs and debt ratings, please visit The Travelers Companies, Inc.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

• Catastrophe Analysis in A.M. Best Ratings
• Equity Credit for Hybrid Securities
• Gauging the Basis Risk of Catastrophe Bonds
• Insurance Holding Company and Debt Ratings
• Rating Members of Insurance Groups
• Rating Surety Companies
• Risk Management and the Rating Process for Insurance Companies
• The Treatment of Terrorism Risk in the Rating Evaluation
• Understanding BCAR for Canadian Property/Casualty Insurers
• Understanding BCAR for Property/Casualty Insurers
• Understanding Universal BCAR

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150528006509/en/

A.M. Best Company, Inc.

Michael Russo, 908-439-2200, ext. 5372

Senior Financial Analyst

[email protected]

or

Michael Lagomarsino, CFA, 908-439-2200, ext. 5810

Assistant Vice President

[email protected]

or

Christopher Sharkey, 908-439-2200, ext. 5159

Manager, Public Relations

[email protected]

or

Jim Peavy, 908-439-2200, ext. 5644

Assistant Vice President, Public Relations

[email protected]

Source: A.M. Best Company, Inc.