Fitch Affirms Travelers' Ratings; Outlook Stable

CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has affirmed its ratings on The Travelers Companies, Inc. TRV as follows:

--Issuer Default Rating (IDR) at 'A+';

--Senior unsecured notes at 'A';

--Subordinated notes at 'BBB+';

--Insurer Financial Strength (IFS) on insurance company subsidiaries at 'AA'.

A full list of rating actions follows at the end of this release. The Rating Outlooks are Stable.

KEY RATING DRIVERS

TRV's ratings are supported by a strong competitive position as a top six U.S. property/casualty insurer, an adequate reserve position, prudent capital management, a history of solid earnings and financial flexibility.

TRV's market position and size/scale is characterized as 'Large' by Fitch given its greater than 4% market share of the property/casualty industry measured by net written premium. The company offers a wide range of insurance products to both the commercial and personal lines markets and frequently occupies a top tier position among independent insurance agencies.

Capitalization at the operating company level scored 'Very Strong' on Fitch's proprietary capital model, Prism, which is considered consistent with TRV's 'AA' Insurer Financial Strength rating. Other measures of capital strength such as operating leverage and net leverage ratios were 1.1x and 3.7x as of year-end 2014 and are at median guidelines for the current rating category. Fitch estimates TRV's NAIC risk-based capital (RBC) was 289% of the company action level at year-end 2014.

TRV's debt-to-capital ratio was 21.6% at March 31, 2015, remaining within management's stated target range of 15%-25%. Operating EBIT covered fixed charges by 14.5x times during 2014, which is at the upper end of the range for Fitch's median guidelines for the current rating category.

TRV's underwriting and return ratios remain at the upper end of the median guidelines for the 'AA' rating category within Fitch's sector credit factors. The combined ratio was 88.9% during the first quarter of 2015, essentially unchanged from 2014 at 89.0%. All three business segments, Business and International Insurance, Bond & Specialty Insurance, and Personal Insurance, reported underwriting profits and favorable prior period reserve development.

Annualized return on stockholders' equity (ROE) was 14.4% for the first quarter of 2015, down from 15.7% for the full year 2014. Profitability is expected to decrease in the near term as net investment income continues to be challenged in the low interest rate environment.

Fitch expects share repurchase activity to reflect underlying profitability and not reduce Travelers' capital strength. TRV repurchased 35.8 million common shares during 2014 at a total cost of $3.3 billion. During the first three months of 2015 TRV repurchased 6.3 million common shares at an average price of $107 for a total cost of $672 million. At the close of the first quarter 2015 TRV's board of directors authorized a $5 billion share repurchase program in addition to the $884 million remaining under the previous share repurchase program.

TRV has maintained significant holding company liquidity with $1.7 billion in cash, short-term invested assets and other readily marketable securities at March 31, 2015 compared to an estimation of one year's interest expense and common dividends of $1.1 billion. TRV's liquidity profile is supplemented by an $800 million commercial paper program that is backed by a $1 billion syndicated credit facility that expires on June 7, 2018. During 2015, a maximum of $3.25 billion in dividends are available from TRV's underwriting subsidiaries without the prior approval of the Connecticut Insurance Department.

RATING SENSITIVITIES

Key rating triggers that could lead to a downgrade include:

--Capitalization at the underwriting subsidiaries that is inconsistent with standards for the current rating category such as consolidated statutory net leverage greater than 4.5x, a long-term increase in the financial leverage ratio to greater than 25% or a deterioration in the Prism score to below the 'Very Strong' category.

--A GAAP fixed charge coverage ratio less than 8x on a run rate basis.

--A sustained period of net losses or catastrophe losses out of proportion with the company's market share.

Key rating triggers that could lead to an upgrade include:

--Improvement in TRV's capitalization measured by a Prism score of 'Extremely Strong'. However, given publicly traded companies' sensitivity around managing capital, this level of overcapitalization is unlikely.

--Sustained underwriting performance across business lines that is clearly better than the industry and similarly-rated peers.

FULL LIST OF RATING ACTIONS

Fitch has assigned the following rating:

--American Equity Insurance Company IFS 'AA'.

Fitch has affirmed the following ratings:

The Travelers Companies, Inc.

--IDR at 'A+';

--Short-term IDR at 'F1'

--5.50% senior notes due Dec. 1, 2015 at 'A';

--6.25% senior notes due June 20, 2016 at 'A';

--5.75% senior notes due Dec. 15, 2017 at 'A';

--5.80% senior notes due May 15, 2018 at 'A';

--5.90% senior notes due June 2, 2019 at 'A';

--3.90% senior notes due Nov. 1, 2020 at 'A';

--6.75% senior notes due June 20, 2036 at 'A';

--6.25% senior notes due June 15, 2037 at 'A';

--5.35% senior notes due Nov. 1, 2040 at 'A';

--4.60% senior notes due Aug. 1, 2043 at 'A';

--6.25% junior subordinated debentures due March 15, 2067 at 'BBB+';

--$800 million commercial paper (CP) program at 'F1'.

MMI Capital Trust I

--7.625% Trust preferred due Dec. 15, 2027 at 'BBB+'.

USF&G Capital Trust I

--8.500% Trust preferred due Dec. 15, 2045 at 'BBB+'.

USF&G Capital Trust III

--8.312% Trust preferred due July 1, 2046 at 'BBB+'.

Travelers Insurance Group Holdings Inc.

--IDR 'A+';

--7.75% senior notes due April 15, 2026 at 'A'.

Travelers Property Casualty Corp.

--IDR 'A+';

--6.375% senior notes due March 15, 2033 at 'A'.

The IFS ratings of the following members of the Travelers Inter-company Pool have been affirmed at 'AA', with a Stable Outlook:

--St. Paul Fire and Marine Insurance Company

--The Travelers Indemnity Company

--Travelers Casualty and Surety Company

--The Phoenix Insurance Company

--The Standard Fire Insurance Company

--United States Fidelity and Guaranty Company

--Travelers Casualty Insurance Company of America

--Farmington Casualty Company

--The Automobile Insurance Company of Hartford, Connecticut

--The Travelers Indemnity Company of Connecticut

--The Charter Oak Fire Insurance Company

--St. Paul Surplus Lines Insurance Company

--The Travelers Indemnity Company of America

--St. Paul Protective Insurance Company

--Travelers Casualty Company of Connecticut

--Travelers Commercial Casualty Company

--Travelers Commercial Insurance Company

--St. Paul Mercury Insurance Company

--Travelers Property Casualty Company of America

--Travelers Property Casualty Insurance Company

--The Travelers Casualty Company

--Travelers Constitution State Insurance Company

--TravCo Insurance Company

--Travelers Excess and Surplus Lines Company

--The Travelers Home and Marine Insurance Company

--Travelers Personal Security Insurance Company

--Travelers Personal Insurance Company

--Discover Property & Casualty Insurance Company

--Discover Specialty Insurance Company

--Fidelity and Guaranty Insurance Underwriters, Inc.

--St. Paul Guardian Insurance Company

--American Equity Specialty Insurance Company

--Northfield Insurance Company

--Northland Insurance Company

--Northland Casualty Company

In addition, the IFS ratings of the following members of the Travelers Group have been affirmed at 'AA', with a Stable Outlook:

--Fidelity and Guaranty Insurance Company

--Select Insurance Company

--St. Paul Fire and Casualty Insurance Company

--The Travelers Lloyds Insurance Company

--Travelers Lloyds of Texas Insurance Company

--First Floridian Auto and Home Insurance Company

--Travelers Casualty and Surety Company of America

--Gulf Underwriters Insurance Company

Additional information is available on www.fitchratings.com

Applicable Criteria

Exposure Draft: Insurance Notching Criteria (Proposed Methodology Changes) (pub. 12 May 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=865576

Insurance Rating Methodology (pub. 04 Sep 2014)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986112

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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