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TRV Ratings Affirmed, Outlook Upgarded - Analyst Blog

Posted
5/31/2013 11:55:00 AM
By: Zacks.com
Referenced Stocks:AXS;HCI;MRH;TICC;TRV

A.M. Best reiterated the issuer credit rating (ICR) and senior debt ratings of 'a' of The Travelers Companies, Inc . ( TRV ) and two of its holding companies - Travelers Property Casualty Corp. and Travelers Insurance Group Holdings. The outlook was upgraded to positive from stable.

Subsequently, the credit rating agency also reiterated the financial strength ratings (FSR) of A+ (Superior) and ICR of 'aa' of the property/casualty subsidiaries of Travelers and its affiliate - Travelers Casualty and Surety Company of America (TCSA) and TCSA's affiliates Travelers Casualty and Surety Company of Europe Limited (TCSCE) and Travelers Insurance Company of Canada (TICC). The outlook was upgraded to positive from stable.

The affirmation came on the back of Travelers' solid operating and underwriting performances, sturdy risk-adjusted capitalization, strong market holdings in commercial and personal lines and financial flexibility and liquidity. The ratings also consider the company's product and geographic breadth, underwriting and financial discipline and conservative investment portfolio.

However, Travelers' exposure to asbestos and environmental (A&E) claims, catastrophes, and stiff competition in the property/casualty markets dwarf the positives to some extent. However, it experienced lower A&E reserve development in recent times.

Nevertheless, the rating agency noted that though Travelers' results were severely hit by cat loss in 2011 and 2012, it generated better returns while maintaining solid liquidity and risk-adjusted capitalization.

The ratings of TCSA and TCSCE are affirmed on the basis of TCSA's solid risk-adjusted capitalization, better underwriting and operating performance, as well as a dominant position in the surety, fidelity and management liability segments. However, TCSA's narrow product diversification, adverse loss reserve development and competitive property/casualty markets weigh on the positives.

On the heels of its superior risk-adjusted capitalization, continued underwriting and operating profitability, dominant brand positioning and outstanding business profile as a specialty lines writer in the surety and corporate management liability segments as well as support from Travelers, the agency affirmed the ratings of TICC. However, heightened competition and sustained softness in the macro conditions coupled with slightly higher expense ratio are partial offsets.

Concurrently, the rating agency affirmed the FSR of A (Excellent) and ICR of 'a+' of The Premier Insurance Company of Massachusetts and the FSR of A (Excellent) and ICR of 'a' of First Trenton Indemnity Company. Moreover, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of 'a-' of First Floridian Auto and Home Insurance Company. The outlook remains stable.

The rating agency affirmed the ratings of The Premier Insurance Company of Massachusetts based on its solid risk-adjusted capitalization, sustained operating profitability and financial support provided by Travelers, partially offset by soft underwriting results, saturation of business in Mass. and limited product diversification coupled with uncertainties associated with the recent automobile insurance reform in Mass., thus leading to increased competition.

The ratings of First Trenton Indemnity Company and First Floridian Auto and Home Insurance Company were affirmed based on sufficient risk-adjusted capitalization and continued operating performance, and benefits derived from its local market presence. These positives, however, were partly mitigated by the exposure to catastrophe losses and saturation of business in a single state, as well as the increased volatility in underwriting and operating results.

The rating agency stated that if Travelers continues to deliver solid underwriting results and operational performance, they might consider a rating upgrade. However, declining underwriting and operating performance or erosion of surplus leading to lower risk-adjusted capital might result in rating downgrades.

Travelers carries a Zacks Rank #2 (Buy).Other property and casualty insurers AXIS Capital Holdings Limited ( AXS ), HCI Group, Inc . ( HCI ) and Montpelier Re Holdings Ltd . ( MRH ), among others carry a favorable Zacks Rank #1 (Strong Buy).



AXIS CAP HLDGS (AXS): Free Stock Analysis Report

HOMEOWNERS CHCE (HCI): Free Stock Analysis Report

MONTPELIER RE (MRH): Free Stock Analysis Report

TRAVELERS COS (TRV): Free Stock Analysis Report

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