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Rating Action on Travelers

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A.M. Best reiterated the issuer credit rating (ICR) and senior debt ratings of ‘a’ of The Travelers Companies, Inc. (TRV - Free Report) .

The credit rating agency also reiterated the financial strength ratings (FSR) of A+ (Superior) and ICR of ‘aa’ of Travelers Group, its property/casualty members, and affiliate, Travelers Casualty and Surety Company of America (TCSA) and its affiliate, and Travelers Casualty and Surety Company of Europe Limited (TCSCE). The outlook remains stable.

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

However, Travelers’ exposure to emerging asbestos and environmental claims and natural and man-made catastrophes, as well as stiff competition in the property/casualty markets, are partial offsets to the positive factors.

Nevertheless, the rating agency noted that though Travelers’ results were severely hit by cat loss in 2011, it could report satisfactory returns while maintaining strong liquidity and risk-adjusted capitalization.

The ratings of TCSA and TCSCE are affirmed on the basis of TCSA’s solid risk-adjusted capitalization, strong underwriting and operating performance and dominant position in the surety and fidelity segments. However, TCSA’s limited product diversification, adverse loss reserve development and competitive property/casualty markets somewhat dwarfed the positives.

Furthermore, A.M. Best raised the ICR to ‘aa’ from ‘aa-’ with outlook revised to stable from positive of Travelers Insurance Company of Canada. The rating agency reiterated FSR of A+ (Superior) with a stable outlook.

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, the rating agency affirmed the ratings.

The upgrade was based on the rating agency’s expectation that Travelers Canada will continue to deliver solid results and maintain a strong level of risk-adjusted capitalization. However, heightened competition and sustained softness in the macro conditions are partial offsets, though the company is well positioned to weather them.

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. Also, 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 flexibility provided by Travelers, partially offset by soft underwriting results, geographic concentration of business in Massachusetts and limited product diversification coupled with uncertainties associated with the recent automobile insurance reform in Massachusetts, thus leading to heightened competition.

The ratings of First Trenton Indemnity Company and First Floridian Auto and Home Insurance Company were affirmed based on its sufficient risk-adjusted capitalization and continued operating performance and benefits derived from its local market presence. These positives, however, are partly mitigated by the exposure to catastrophe losses and single state geographic concentration, 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 risk-adjusted capital might result in rating downgrades.

Travelers carries a Zacks #3 Rank, implying a short-term Hold rating, with no clear directional pressure on the stock in the near term.  It competes with peers like Hartford Financial Services Group Inc. (HIG - Free Report) and W.R. Berkley Corporation (WRB - Free Report) .

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