Canadian Underwriter

Travelers out of Citigroup umbrella

December 19, 2001   by Canadian Underwriter

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Citigroup Inc. confirms that it will spin off Travelers Property Casualty Corp. Up to 20% of Travelers will be released through an initial public offering, and the remainder will be spun off to Citigroup shareholders.
The deal follows a long and complicated history that saw Travelers become part of the initial Citigroup merger in 1998, and then fully bought by the financial giant in 2000. The original plan was to create a one-stop financial services provider.
The move effectively makes Travelers a separate entity, which will be headed by Robert Lipp, who reassumes the position of chairman and CEO of the company.
Little impact is expected to be felt by Travelers’ Canadian arm, and there are currently no plans for changes in employment, confirms a spokesperson for the company. Travelers Canadian operations wrote net premiums of Cdn$9.7 million in 2000.
Travelers and Citigroup will continue to offer one another’s products, the terms of which will be worked out through management agreements.
“In addition to enabling Citigroup to focus its resources more fully on higher growth areas of global financial services, this spin-off creates a stand-alone, leading publicly-owned property casualty company,” says Citigroup chairman and CEO Sanford I. Weill.
The amount Citigroup will receive in the initial public offering will depend on market conditions. Prior to the initial public offering, it is intended that Travelers Property Casualty will declare a dividend of approximately US$1 billion, which will be paid to Citigroup over the course of 2002.
The initial public offering is expected to take place in the first quarter of 2002, with the spin-off to be concluded by year-end 2002, subject to regulatory approval.
In response to the announcement, Standard & Poor’s lowered its senior debt and preferred stock ratings on Travelers Property Casualty Corp. to “single-A-minus” and “triple-B,” respectively, from “single-A-plus” and “single-A-minus.” At the same time, S&P affirmed its “double-A-minus” financial strength ratings on the members of the Travelers Property Casualty Pool, assigning a stable outlook to the ratings. A.M. Best has affirmed the “A-double-plus” (superior) financial strength rating of Travelers p&c pool and affirmed the “double-aa-minus” senior debt rating of Travelers Property Casualty Corp. and the “single-a-plus” rating of the trust preferred securities issued by Travelers P&C Capital I and II.
Both rating agencies cited slight concerns over Travelers being removed from the financial services giant, but Best notes that the distribution agreements will allow Travelers access to Citigroup’s large customer base.
S&P notes that no change is expected to Citigroup’s rating as a result of the deal and calls it “a logical strategic move for a company that wants to focus on high-growth and higher-return businesses”. The p&c operations accounted for only about 8% of Citigroup’s earnings, S&P adds.

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