Travelers’ ratings also consider the financial flexibility and liquidity provided by TRV. Despite significant share repurchases since 2006, TRV maintained $1.7 billion of cash and marketable securities, and its adjusted debt-to-capital ratio, excluding accumulated other comprehensive income (AOCI), remained moderate at 20.7% at March 31, 2014. Adjusting for tangible capital, the adjusted debt-to-tangible capital (excluding AOCI) ratio was 23.8%, well within A.M. Best’s expectations at the current rating level. Interest coverage also remained strong through the first quarter of 2014 at 17.0 times.Offsetting these positive rating factors are the ongoing competitive environment within the property/casualty markets and Travelers’ exposure to natural and man-made catastrophes. Being among the largest commercial and personal insurers and national property writers, the group has significant exposure to natural catastrophes, which was evident in 2011 and 2012, and potential terrorist-related losses. Travelers has comprehensive reinsurance and risk management programs in place to manage its spread of risk and limit its overall exposure. Despite reporting an increased level of catastrophe loss activity in 2011 and 2012, Travelers managed to report solid returns while maintaining strong liquidity and risk-adjusted capitalization, which is a testament to the group’s conservative operating philosophy, strong business profile and comprehensive risk management program. Like other leading carriers within the U.S. property/casualty industry, Travelers remains exposed to the potential development of asbestos and environmental (A&E) liabilities; however, in more recent years, it has seen less adverse A&E reserve development emerge. Over the past several years, the group’s overall commercial lines reserves appear to have stabilized, as evidenced by favorable prior year loss reserve development, while redundancies have consistently occurred in personal lines reserves. The ratings of TCSA and TCSCE primarily recognize TCSA’s strong risk-adjusted capitalization, specialized underwriting expertise, highly favorable underwriting and operating performance and leadership position in the surety, fidelity and management liability segments. These strengths are partially offset by TCSA’s limited product diversification as well as the negative impact that continued competitive property/casualty markets and challenging macroeconomic conditions may have on premium and profitability levels.
The ratings of TICC recognize its superior risk-adjusted capitalization, favorable underwriting and operating profitability, strong profile as a leading specialty lines writer in the surety and corporate management liability segments, as well as the additional operational support and financial flexibility afforded by Travelers and TRV. Partially offsetting these positive rating factors are the recent increased competition and continued soft market conditions, as well as the modest increase in TICC’s expense ratio due to its projected investments in technology and cost surrounding the entrance into new lines of business.The ratings of Premier acknowledge its strong risk-adjusted capitalization, historically favorable operating profitability and the additional operational support and financial flexibility afforded by Travelers and TRV. These positive rating factors are partly offset by the deterioration in Premier’s underwriting results in recent years, geographic concentration of business in Massachusetts as well as its limited product scope (focused on private passenger automobile coverage). The ratings of First Floridian recognize its strong risk-adjusted capitalization, trend of highly profitable operating results in recent years, operating efficiencies and local market focus, which enables it to respond effectively to issues associated with Florida’s personal lines market, as well as the additional operational support and financial flexibility afforded by Travelers and TRV. Partially offsetting these strengths are First Floridian’s exposure to catastrophe losses and single state geographic concentration in Florida. While A.M. Best believes that TRV and its subsidiaries are well positioned at their current rating levels given the rating upgrades, positive movement is unlikely in the near term. Factors that could lead to negative rating actions include deterioration in underwriting and operating performance to a level below peers and/or an erosion of surplus that causes a decline in risk-adjusted capital to a level that is no longer supportive of the current ratings. For a complete listing of The Travelers Companies, Inc. and its subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/052303travelers.pdf. The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.