Raters have mixed reaction to St. Paul Travelers reserve hit

Raters gave mixed reviews, although generally produced a fast ratings hit to correspond with the announcement of a US$1.625 billion reserve boost by the newly merged St. Paul Travelers. St. Paul Travelers says the reserve addition, which will be recorded in second-quarter 2004 results, could produce a loss of US$275-$300 million for the quarter. A good portion of the reserves relate the construction and surety exposure the company faces.
A.M. Best downgraded the company’s debt ratings, but affirmed the merged entity’s financial strength ratings. However, the rater notes, “with regard to asbestos and environmental (A&E) reserves, A.M. Best is cautiously awaiting the completion of an internal annual reserve study to be concluded in fourth quarter 2004, which may result in the possibility of further A&E reserve strengthening at the St. Paul Companies. Furthermore, despite the added conservatism to the St. Paul Companies’ core reserves, as well as reserves on discontinued businesses, A.M. Best believes some additional reserve adjustments may be necessary.”
Moody’s affirmed both the debt and financial strength the ratings of St. Paul Travellers. It also remains concerned over the reserve adequacy of the St. Paul inter-company pool.
Fitch downgraded the financial strength rating of Travelers to “AA-” from “AA”, and assigned an “AA-” rating to the St. Paul pool.