Fitch affirms St Paul Travelers Companies’ ratings

Fitch Ratings has affirmed all ratings of The St. Paul Travelers Companies, Inc. (STA), including the ‘A-‘ long-term issuer rating, ‘A-‘ ratings on STA’s senior unsecured notes, and ‘BBB+’ ratings on STA’s subordinated notes and capital securities.Additionally, Fitch has affirmed the ‘AA-‘ insurer financial strength (IFS) ratings on members of the St. Paul Travelers Inter-company Pool (St. Paul-Travelers). The Rating Outlooks are Stable. Fitch’s affirmation follows STA’s release of its fourth-quarter 2005 earnings, which include a US$566-million, after-tax addition to reserves for asbestos-related claims and a US$236-million, after-tax addition to reserves for previously reported Hurricane Katrina and Hurricane Rita reserves.STA’s fourth-quarter 2005 results also include $187 million in after-tax losses related to Hurricane Wilma, which was a fourth-quarter event. In 2005, STA generated US$2 billion of after-tax operating income and a 10% operating return on equity, despite incurring US$1.5 billion in after-tax catastrophe-related losses and the previously mentioned US$566 million after-tax increase in asbestos reserves. Fitch notes STA’s debt-to-capital ratio (excluding FAS 115) declined moderately in 2005 to 21%. The company also improved its tangible capital base by divesting its former subsidiary, Nuveen Investments, Inc. Additionally, the agency’s expectation is that STA’s primary operating subsidiaries’ year-end 2005 NAIC risk-based capital ratios will be approximately 15% higher than their prior year levels. “Fitch continues to consider STA an acquisitive company and believes that the company’s acquisitive nature increases the potential volatility of its ratings,” the ratings agency noted. “STA was formed through a merger, and its predecessor companies’ recent histories included significant mergers and acquisitions. “Fitch believes that the company may continue to participate in merger and acquisition activity in the medium term. Fitch also believes that successful property/casualty mergers and acquisitions are very difficult to execute because of reserve uncertainty, acquirers’ information disadvantages, and concerns about distribution channel concentration.”