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

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

The ratings of TICL reflect the support provided by St. Paul Fire and Marine Insurance Company (SPFM) in the form of an explicit guarantee covering all of TICL’s liabilities arising from its underwriting activities. SPFM is a subsidiary of TICL’s ultimate parent, The Travelers Companies, Inc. (Travelers) [NYSE: TRV]. TICL is Travelers’ main underwriting operation in the United Kingdom and Ireland. The ratings also reflect TICL’s strong stand-alone risk-adjusted capitalisation and solid business profile. Offsetting these strengths is the company’s weak underwriting performance.

TICL maintains strong risk-adjusted capitalisation with a sufficient cushion to support future growth plans and to absorb higher than expected losses. Shareholders’ funds are expected to show little change at year-end 2014 from the GBP 506 million reported at year-end 2013.

The company has a solid business profile as a specialist underwriter of liability and commercial property business and also benefits from Travelers’ strong brand recognition. Reported gross written premium (GWP) will be lower in 2014, reflecting intense competitive conditions in core markets and the exit from certain classes as profitability challenges are addressed. GWP is expected to resume growth in 2015, supported by rate increases, deeper relationships with brokers and new product offerings.

TICL’s underwriting record is weak as demonstrated by its five-year average combined ratio of 112%. The result was particularly weak in 2013, as adverse prior year reserve development and weather losses following the storms and flooding in the fourth quarter resulted in a combined ratio of 137%. Reported technical results are expected to remain weak for 2014, albeit substantially improved over 2013, due in part to modest adverse prior year reserve development and a continuing high expense ratio. The combined ratio should improve further over 2015 and 2016 as remedial underwriting and pricing actions take full effect. Pre-tax profit, which has depended significantly on investment income, will continue to be dampened in 2014 by the low interest rate environment.

Positive rating actions are unlikely in the near term, whereas an unexpected weak operating performance, a material deterioration in TICL’s 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. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilised:

• Catastrophe Analysis in A.M. Best Ratings

• Rating Members of Insurance Groups

• Risk Management and the Rating Process for Insurance Companies

• Understanding Universal BCAR

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.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit Ratings & Criteria Center.

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