The St. Paul’s Affirmed

A.M. Best Co. affirmed the “A+” FSR of The St. Paul Companies’ property/casualty subsidiaries and lowered the company’s long-term debt ratings.

Senior debt has been lowered from “a+” to “a;” subordinated debt from “a” to “a,” and preferred securities from “a” to “a-.” The company’s commercial paper rating of “AMB-1” has been affirmed. All ratings have been removed from under review.

The action follows A.M. Best’s review of the group’s capitalization in the wake of losses from the Sept. 11 terrorist attacks and its announcement to record a $900 million pretax charge in the fourth quarter 2001. A.M. Best has also reviewed the group’s loss reserves, particularly in the problematic health-care book, and initiatives to reduce volatility in earnings and dependence on stop-loss reinsurance resulting from the strategic review of operations by the group’s new CEO, Jay S. Fishman.

As a result of this comprehensive strategic and financial review, the group has announced a significant restructuring of its business, primarily in the global health care, international and reinsurance segments. Management believes these businesses either do not offer attractive returns for the long term or subject The St. Paul’s results to undesirable earnings volatility. The health-care, reinsurance and international businesses will either be re-underwritten, sold or run off in order to secure a foundation on which to build a leaner, more focused company. A.M. Best believes these initiatives will lead to substantially improved profitability and capitalization for the group in 2002 and 2003.

The strategic repositioning of the group should enable it to redirect valuable capital resources toward its profitable core commercial and specialty-lines operations, where it can leverage its underwriting skills in pursuit of business with higher risk-adjusted returns. As a result of the hardening property/casualty markets, pricing trends remain highly favorable in the majority of The St. Paul’s specialty and commercial property/casualty business segments.

The affirmation of The St. Paul’s financial strength rating was heavily influenced by the organization’s strong capital levels that withstood A.M. Best’s stress testing of reserve adequacy and underwriting results. Management projects significant decreases in reserve levels resulting from the proposed business initiatives, which will require lower capital levels in 2002. In addition, St. Paul’s long history of adequate reserves and balance-sheet integrity is expected to continue under the company’s new leadership.

Topics AM Best Property Casualty