Rating Action on Travelers' Unit - Analyst Blog

A.M. Best Europe - Rating Services Limited, a subsidiary of A.M. Best Company, reiterated the financial strength rating (FSR) of A (Excellent) and issuer credit rating (ICR) of "a+" of Travelers Insurance Company Limited (TICL), a subsidiary of The Travelers Companies, Inc. ( TRV ). The ratings outlook is stable.

TICL is Travelers' primary underwriter in the United Kingdom and Ireland and holds a dominant position as liability and commercial property underwriter in UK. Alongside, it benefits from the brand name of its parent company.

TICL, in 2011, experienced a 13% decline in its gross written premiums subsequent to the discontinuation of the personal lines business in Ireland. A. M. Best estimates it to decrease 5% in 2012. Though the rating agency noted rate increases in UK commercial businesses, it believes growth will be limited by the competitive macro environment.

The rating agency estimates TICL's 2012 pre-tax earnings to be less than the 2011 level. The lower earnings are expected to be induced by lower investment earnings. However, it expects technical performance to improve from the prior-year reserve releases, though lower than the 2011 level. Nevertheless, A.M. Best projects an underwriting loss and elevation in expense ratio. This is expected to stem from lower premium due to the exit from personal lines business in Ireland and increase in operating costs attributable to infrastructure investments. The rating agency anticipates improved investment income to write off the underwriting loss.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as maintaining creditworthiness in the market. We believe the company's strong score with the credit rating agencies will help it write more business going forward.

The rating agency stated that though positive revisions are less likely in the short term, the ratings will be subject to downgrade if operating results deteriorate, capital erodes or support from the parent company weakens.

Travelers carries a Zacks #3 Rank implying a short-term Hold rating. The Hartford Financial Services Group, Inc. ( HIG ) and W.R. Berkley Corporation ( WRB ), which closely compete with Travelers, share the same Zacks Rank.

HARTFORD FIN SV (HIG): Free Stock Analysis Report

TRAVELERS COS (TRV): Free Stock Analysis Report

BERKLEY (WR) CP (WRB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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