Matthew Goldstein
Analysts say the Travelers review will probably put pressure on other property and casualty firms to reassess their own exposure to asbestos lawsuits and possibly boost their litigation reserves. The lingering uncertainty over asbestos exposure at other insurers may be one reason shares of Chubb(CB Quote - Cramer on CB - Stock Picks) and American International Group(AIG Quote - Cramer on AIG - Stock Picks) were largely unchanged Tuesday, despite the rally in Travelers stock.
In taking the charge, the company will boost its asbestos reserves from $950 million to $3.4 billion. Roughly $555 million of that sum is coming from Citigroup, which agreed to partially indemnify Travelers against asbestos claims, as part of the IPO. The remainder is coming from a group of unidentified reinsurers -- firms that provide insurance to insurers. By comparison, Chubb last year set aside $625 million to cover future payouts in asbestos lawsuits. But some on Wall Street caution that there's no guarantee that Travelers won't have to boost its reserves again. "There's so much opaqueness and lumpiness of this issue," said Alan Murray, a senior credit analyst with Moody's Investors Service. "It's very difficult for anyone without inside knowledge of the cases to claim to have a lot of visibility of what's coming down the pike." In fact, Travelers said it will be another two or three years before asbestos payments by the insurance industry peak. Following the Travelers announcement, Moody's lowered its credit rating on the insurer's long-term debt by one notch. The credit agency took the action because the $1.3 billion charge exceeded its own estimate of Travelers' asbestos liability. Still, Murray said the big charge will likely boost investor confidence in Travelers since it continues to boast strong "core earnings." For 2003, Travelers expects to earn $1.7 billion and post operating earnings of $1.8 billion. Meanwhile, in a sign of disagreement between ratings agencies, A.M. Best affirmed its rating on Travelers debt. A.M. Best, a credit agency that specialized in covering insurers, said Travelers' action is a long-term "positive" one for the company.
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