Another St Paul Ratings Knock

NU Online News Service, June 7, 10:34 a.m.EST?Fitch Ratings in Chicago yesterday became the latestrating firm to take action on The St. Paul Companies, Inc. placingthem on Rating Watch Negative.

Fitch had earlier put the company on a Negative Outlook. Fitchrates the company debt at A- and its trust preferred securitiesBBB+.

Fitch's latest rating move followed The St. Paul Companies'announcement that it will incur a $380 million net of reinsurance,after-tax charge in the second quarter 2002 to settle asbestoslitigation.

On Monday A.M. Best Co. in Oldwick, N.J. said it was downgradingthe St. Paul strength rating to "A" (excellent) from "A-plus"(superior). Best mentioned the asbestos case, but also said it wasconcerned about possible impact on company reserves from Enronclaims and various runoff obligations.

Standard & Poor's and Moody's have also put the company on aratings watch.

St. Paul has said it has plenty of reserves, is in a solidfinancial position and does not believe the nearly $1 billionsettlement will have any effect on its ability to do business.

Fitch noted The St. Paul Companies is currently evaluatingraising equity capital and said it anticipates resolving its RatingWatch when The St. Paul completes its evaluation.

Fitch said St. Paul's current consolidated financial leverage isat the high end of Fitch's tolerance for the current ratinglevels.

The rating firm said it believes that St. Paul's operatingcompanies' capitalization will suffer as a result of the asbestossettlement litigation.

Additionally, Fitch said it believes that St. Paul's operatingcompanies will likely resume paying dividends to St. Paul in 2003,which will further constrain the operating companies' capitalformation. As a result, Fitch considers The St. Paul Companies'ability to raise equity capital a key factor in the company'sability to maintain its current ratings.

Other key factors that Fitch said it will consider whenreviewing The St. Paul ratings include its view of the company'srun-rate earnings profile and ability to manage the execution risksassociated with restructuring efforts that were implemented in2001.