A.M. Best Affirms Ratings of Travelers Insurance Company Limited

Wed Nov 21, 2012 9:34am EST

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A.M. Best Affirms Ratings of Travelers Insurance Company Limited

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a+” of Travelers Insurance Company Limited (TICL) (United Kingdom). The outlook for both ratings is stable.

A.M. Best expects TICL to maintain excellent stand-alone risk-adjusted capitalisation in 2012, supported by an increase in retained earnings. The ratings also continue to factor in the explicit parental support, which is in the form of a guarantee provided by St. Paul Fire and Marine Insurance Company (SPFM), a subsidiary of its ultimate parent, The Travelers Companies, Inc. (Travelers) [NYSE: TRV], for all TICL liabilities arising from underwriting activities.

Pre-tax profit is expected to be lower in 2012 than the GBP 44.5 million reported in 2011, primarily due to lower investment earnings. The technical result is expected to benefit from prior year reserve releases, albeit lower than GBP 17.4 million released in 2011. In spite of this, an underwriting loss is anticipated, with the company’s expense ratio expected to remain high, reflecting a reduction in premium income following its exit from personal lines business in Ireland, as well as high operating costs associated with significant investment in infrastructure. Investment income from the company’s high quality investment portfolio is expected to offset the underwriting loss. In 2011, the combined ratio deteriorated to 105% (2010: 102%), with an improved loss ratio offset by higher management expenses.

TICL has a good business profile in its core UK market as a specialist underwriter of liability and commercial property business. The company’s profile also benefits from the strong brand name recognition of Travelers. TICL is Travelers’ main underwriting operation in the United Kingdom and Ireland. Following the termination of personal lines business in Ireland, overall gross written premiums in 2011 decreased by 13% to GBP 278 million and is likely to decrease by approximately 5% in 2012. Growth in the near term will be constrained by competitive market conditions, although modest rate increases are being achieved in UK commercial lines.

Positive rating actions are unlikely in the near future for TICL, whereas unexpected weak operating performance, a material deterioration in its risk-adjusted capitalisation, or deterioration in explicit group support could lead to negative rating pressure.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Natural Catastrophe Stress Test Methodology”; “Understanding Universal BCAR”; and “Rating Members of Insurance Groups”. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company. Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Company, Inc.
Reza Pakravan
Financial Analyst
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Catherine Thomas
Director, Analytics
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Rachelle Morrow
Senior Manager, Public Relations
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Jim Peavy
Assistant Vice President, Public Relations
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