The St. Paul Companies Affirmed

A.M. Best Co. affirmed the “A+” financial strength rating (FSR) of The St. Paul Companies Inc., property/casualty subsidiaries.

Additionally, A.M. Best has assigned an “a+” rating to St. Paul’s existing senior debt; an “a” rating to the existing zero coupon convertible subordinated note; an “a” rating to the existing capital securities issued by USF&G Capital I, II and III and MMI Capital Trust I; and an “AMB-1” rating on commercial paper issued by St. Paul. Furthermore, A.M. Best has assigned indicative ratings to securities to be issued under the $1-billion shelf registration filed by St. Paul.

The financial strength and debt ratings reflect the group’s strong capitalization, conservative reserve strategy, historically favorable operating performance and dominant position within select commercial lines markets. These strengths are derived from St. Paul’s strong brand recognition, specialized underwriting expertise, disciplined operating focus and growing global market presence.

The ratings also recognize the strategic repositioning of the group in recent years, having divested itself of underperforming businesses where it lacked sufficient scale to effectively compete. This has enabled the group to redirect valuable capital resources towards its core commercial and specialty lines operations where it can leverage its underwriting skills and loss-control capabilities in pursuit of business with higher risk-adjusted returns.

St. Paul’s financial flexibility is excellent due to its moderate financial leverage, with a total debt plus preferred securities-to-capital ratio of 24 percent at June 30, and access to the capital markets. St. Paul’s current holding company cash and dividend capacity is more than ample to cover its annual fixed charges. Furthermore, the company’s profitability and consistency of earnings, as well as capital generation, should strengthen from price increases being implemented in the majority of its property/casualty business segments.

These positive rating factors are partially offset by the group’s weakened core earnings over the past few years, stemming from unfavorable market conditions within most of its property/casualty business segments. Re-underwriting initiatives and the implementation of significant price increases over the past two years have benefited St. Paul’s commercial and specialty business segments.

The current rating outlook is dependent upon management’s success in addressing these challenges, reducing its reliance on excess of loss reinsurance and building on the company’s firm foundation of overall reserve adequacy and underwriting capability to improve profitability and stabilize reserves.

Topics Property Casualty