Fitch Affirms Travelers' Ratings; Outlook Stable

Fitch Ratings has affirmed its ratings on The Travelers Companies, Inc. (NYSE: 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'.

See the full list of rating actions below. The Rating Outlooks are Stable.

KEY RATING DRIVERS

TRV's ratings are supported by a strong competitive position as a top-5 U.S. property/casualty insurer, solid earnings, prudent capital management, and financial flexibility. Balanced against these strengths is TRV's continued investment concentration in municipal bonds.

TRV's market position and size/scale are characterized as 'Large' by Fitch given its nearly 5% 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.

TRV's combined ratio was 90.6% for the first three quarters of 2013, leading to a 15.6% annualized return on stockholders' equity (ROE). The combined ratio and ROE averaged 95.3% and 12.5%, respectively, over the five-year period 2008-2012. Profitability benefited from a benign catastrophe year in 2013 relative to 2012, which included losses from Superstorm Sandy in the fourth quarter.

Capitalization at the operating company level scored 'Very Strong' on Fitch's proprietary capital model, Prism, which is considered consistent with TRV's 'AA' IFS rating. Other measures of capital strength such as operating leverage and net leverage ratios were, respectively, 1.1x and 3.5x as of Sept. 30, 2013, and are at median guidelines for the current rating category. Fitch estimates TRV's NAIC risk-based capital (RBC) to be 277% of the company action level at Sept. 30, 2013.

TRV's debt-to-capital ratio was 21% at Sept. 30, 2013, which is within management's stated target range of 15%-25%. Operating EBIT covered fixed charges by nearly 15x during the first nine months of 2013, which is at the upper end of the range for Fitch's median guidelines for the current rating category. The next significant debt maturity is $400 million of senior debt in December 2015.

TRV repurchased 17 million common shares year-to-date Sept. 30, 2013. The average price per share repurchased was $82 and the total amount spent on repurchases was $1.4 billion, which represented slightly more than one-half of net income over the period. TRV's board of directors authorized a $5 billion share repurchase authorization at the close of the third quarter 2013.

TRV has maintained significant holding company liquidity with cash, short-term invested assets and other readily marketable securities totaling $1.9 billion at Sept. 30, 2013. One year's interest expense and common dividends is estimated to be $1.1 billion. TRV's liquidity profile is supplemented by an $800 million commercial paper (CP) program that is backed by a three-year $1 billion syndicated credit facility.

The company carries a large investment allocation in state, municipal and revenue bonds, amounting to $36 billion or 58% of fixed-income securities as of Sept. 30, 2013. This asset class is experiencing a heightened level of stress given the fiscal problems of many states and municipalities. Concerns over the municipal portfolio are largely mitigated by its diversification, high credit quality and $1.6 billion unrealized gain as of Sept. 30, 2013. In addition, greater than one-quarter of TRV's municipal bonds are 'prefunded', meaning there is an escrow to fund repayment, significantly reducing credit risk.

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.

The following ratings have been affirmed by Fitch:

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 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 at '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 at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Nov. 13, 2013.

Applicable Criteria and Related Research:

Insurance Rating Methodology -- Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=815238

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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.