A.M. Best reiterated the financial strength rating of A (Excellent) and the issuer credit rating of “a+” of Travelers Insurance Company Limited ("TICL"), the primary underwriting operation of The Travelers Companies, Inc. TRV in the United Kingdom and Ireland. The outlook for both ratings remains stable.
The rating affirmation came on the back of sturdy risk-adjusted capitalization and guarantee provided by St. Paul Fire and Marine Insurance Company on TICL’s liabilities stemming from the underwriting activities.
TICL boasts being a specialist underwriter of liability and commercial property business in the U.K. and enjoys Travelers’ strong brand acceptance there. The company’s sturdy risk-adjusted capitalization helps it to digest higher-than-expected losses.
However, the company estimates 4–5% year-over-year gross written premium decline in 2015 attributable to stiff completion in its core markets. However, the same is projected to improve about 2% in 2016 on rate hikes and new product offerings.
However, soft underwing results overshadow the positives. Its combined ratio averaged 115% in the last five years. Though the same is expected to improve in 2015 and 2016, it is estimated to remain above 100%.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as in maintaining credit worthiness in the market. On the other hand, rating downgrades damage business, apart from increasing costs of future debt issuances. We believe that strong ratings will help TICL retain investor confidence and help it in writing more businesses going forward.
Travelers carries a Zacks Rank #2 (Buy). Investors interested in the property and casualty insurers can also look at Cincinnati Financial Corp. CINF, RLI Corp. RLI and The Chubb Corp. CB. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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