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Travelers (TRV) & Units' Ratings Unchanged by A.M. Best - Analyst Blog

A.M. Best reiterated the issuer credit rating (ICR) and senior debt ratings of ‘a+’ on The Travelers Companies, Inc. TRV and two of its holding companies – Travelers Property Casualty Corp. and Travelers Insurance Group Holdings. The outlook was stable.

Subsequently, the credit rating agency reiterated the financial strength ratings (FSR) of A++ (Superior) and ICR of ‘aa+’ on the property/casualty subsidiaries of Travelers, 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 of these ratings was also stable.

The affirmation accounted for Travelers’ strong operating and underwriting performances, sturdy risk-adjusted capitalization, solid market holdings in commercial and personal lines, and financial flexibility and liquidity. Ratings also reflect company’s product and geographic breadth, underwriting discipline, financial strength and conservative investment portfolio.

However, Travelers’ exposure to asbestos and environmental (A&E) claims, catastrophes and stiff competition in property/casualty markets nullify the positives to some extent.

Performance at personal auto, that remained soft for a few years, has been seeing favorable results on cost containment efforts and the introduction of Quantum 2.0. The company, so as to manage the spread of risk and limit catastrophe exposure, has comprehensive reinsurance and risk management programs. Moreover, it experienced lower A&E reserve development in recent times.

The ratings on TCSA and TCSCE were reiterated on TCSA’s solid risk-adjusted capitalization, better underwriting and operating performance, as well as a dominant position in surety, fidelity and management liability segments. However, TCSA’s narrow product diversification and competitive property/casualty markets weigh on the positives.

The agency affirmed the ratings of TICC on the back 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. However, heightened competition and sustained softness in macro conditions, coupled with a slightly higher expense ratio are partial offsets.

Subsequently, the FSR of A (Excellent) and the ICR of “a” on The Dominion of Canada General Insurance Company was also reiterated with a stable outlook. Strong capitalization, brand positioning, market presence are its positives. These are offset by unstable operating results, competition, higher expense ratio and soft investment rests.

Concurrently, the rating agency affirmed the FSR of A (Excellent) and ICR of ‘a+’ on The Premier Insurance Company of Massachusetts and the FSR of A- (Excellent) and ICR of ‘a-’ on First Floridian Auto and Home Insurance Company. The outlook remains stable.

The rating agency also affirmed the ratings on The Premier Insurance Company of Massachusetts based on its solid risk-adjusted capitalization, sustained operating profitability and financial support provided by Travelers. These upsides were partially offset by soft underwriting results, saturation of business in Massachusetts and limited product diversification.

The ratings on First Floridian Auto and Home Insurance Company were affirmed based on solid risk-adjusted capitalization and continued operating performance, and benefits derived from its local market presence. These positives, however, were partly negated by the exposure to catastrophe losses and saturation of business in a single state.

The rating agency stated that though a positive rating action on Travelers or its units is unlikely, they might consider a downgrade if underwriting and operating performance deteriorates or erosion of surplus leads to lower risk-adjusted capital.

Travelers carries a Zacks Rank #3 (Hold). Better-ranked property and casualty insurers are Endurance Specialty Holdings Ltd. ENH, Markel Corp. MKL and State Auto Financial Corp. STFC. All these stocks sport Zacks Rank #1 (Strong Buy).
 

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
TRAVELERS COS (TRV): Free Stock Analysis Report
 
MARKEL CORP (MKL): Free Stock Analysis Report
 
ENDURANCE SPLTY (ENH): Free Stock Analysis Report
 
STATE AUTO FINL (STFC): Free Stock Analysis Report
 
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