Fitch Ratings reiterated Issuer Default Rating ("IDR") at 'A+'
of
The Travelers Companies Inc.
(
TRV
). Concurrently, the rating agency reiterated Insurer financial
strength ("IFS") on the company's subsidiaries at 'AA'.
The rating agency also affirmed Senior unsecured notes at 'A'
and Subordinated notes at 'BBB+.' The outlook remains stable.
The rating affirmations came on the back of Travelers' dominant
market position, sustained operating profitability and solid
capital management.
The rating agency noted that Travelers, being the sixth largest
U.S. property & casualty insurer, holds almost 5% of the market
share with a wide array of product offerings.
Travelers has managed to deliver average return on equity
("ROE") above 12% for the last five years, despite suffering from
catastrophe losses of $2.6 billion in 2011. Its ROE is much higher
than that of its nearest peer
American International Group Inc.
(
AIG
) with a negative ROE of 36.6% and close to another competitor
W.R. Berkley Corporation
(
WRB
) with ROE of 12.5%. ROE for the first quarter of 2012 was 13%, up
considerably from 5.7% in 2011.
It recorded a debt-to-capital ratio of 23% at March 31, 2012,
well within the guideline of the rating agency. Fitch expects the
company to maintain a debt-to-capital within 20%-25%.
The rating agency also noted that Travelers' financial
flexibility is supported by cash, short-term invested assets, and
other readily marketable securities, which totaled $2.2 billion at
first quarter 2012 end. Further, it is supported by the
subsidiaries enabling the company to pay a dividend of $2 billion
in 2012. Also, the liquidity is enhanced by $800 million commercial
paper program.
It will retire $250 million senior debt in June 2012 with the
next maturity of $500 million debt lined up for March 2013. The
company's interest coverage stands at 23.34x, comparing favorably
with 4.14x of AIG and 19.25x of Berkley's. Travelers' five-year
average interest coverage was 11.9x.
Fitch stated that it might consider a rating upgrade if
Travelers maintains a solid capitalization and continued strong
underwritings results.
Nevertheless, Fitch stated that the ratings might be subject to
downgrade if debt-to-total capital ratio exceeds 25%, suffers huge
cat loss or if the capital position erodes.
We believe the company's strong ratings scores will help retain
investor confidence and help it to write more business going
forward.
We retain our Neutral recommendation on Travelers. The
quantitative Zacks #2 Rank (short-term Buy rating) for the company
indicates slight boost on the stock over the near term.
AMER INTL GRP (AIG): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
BERKLEY (WR) CP (WRB): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research