Fitch Rates Travelers' Senior Unsecured Debt Issuance 'A'; Outlook Stable

Thu Jul 25, 2013 2:39pm EDT

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(The following statement was released by the rating agency) CHICAGO, July 25 (Fitch) Fitch Ratings has assigned an 'A' rating to The Travelers Companies, Inc. (NYSE: TRV), $500 million 30-year senior unsecured debt issuance. KEY RATING DRIVERS TRV issued $500 million of senior unsecured debt to partially fund its acquisition of The Dominion of Canada General Insurance Co. (The Dominion). TRV's ratings continue to benefit from its strong competitive position as a top-five U.S. property/casualty insurer with a history of solid earnings across several business segments and prudently structured balance sheet. Fitch continues to monitor TRV's investment concentration in municipal bonds. At the close of the second quarter 2013, Travelers had $2 billion in liquid assets at the holding company and the debt-to-total capital ratio was 20.0%. Pro forma debt-to-total capital as of June 30, 2013 would increase to 21.4%. Earnings-based interest coverage for the first half of 2013 was 13.5x, and pro forma interest coverage with the debt issuance is approximately 12x. Both pro forma financial leverage and interest coverage remain consistent with Fitch's guidelines for the current rating category. The next significant debt maturity is $400 million of senior debt in December 2015. Travelers' return on equity was 14.6% for the first half of 2013, up significantly from 10.5% in the comparable period of 2012. Improved underwriting margins and lower catastrophe losses were responsible for the period-to-period change. Underwriting margins and lower catastrophe losses led to a consolidated GAAP combined ratio of 91.4% through June 30, 2013, relative to 96.3% for the same period in 2012. Favorable reserve development helped the first half of 2013 combined ratio by 3.8 percentage points, while catastrophe losses added 3.9 percentage points to the combined ratio. 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 or a long-term increase in debt-to-total capital ratio to greater than 25%; --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: --A substantially overcapitalized position relative to TRV's current rating level. 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. The following rating has been assigned by Fitch: The Travelers Companies, Inc. --$500 million senior notes due July, 2043 at 'A'. Contact: Primary Analyst Douglas M. Pawlowski, CFA Senior Director +1-312-368-2054 Fitch Ratings, Inc. 70 West Madison St. Chicago, IL 60602 Secondary Analyst Gerry Glombicki, CPA Director +1-312-606-2354 Committee Chairperson Jeff A. Mohrenweiser Senior Director +1-312-368-3182 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --'Insurance Rating Methodology', Jan. 13, 2013. Applicable Criteria and Related Research: Insurance Rating Methodology — Amended here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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