St. Paul Travelers To Sell A Unit As Net Drops

NU Online News Service, Feb. 1, 2:03 p.m. EST?The St. Paul Travelers Companies' fourth-quarter net income earnings fell 38 percent to $303 million, dragged down by a $922 million asbestos charge as well as losses from South Atlantic hurricanes, management said..[@@]

Net income for the comparable quarter in 2003 was $489 million. The company said it will examine selling off its asset management firm, Nuveen Investments.

While The St. Paul Travelers' asbestos charge has been anticipated in the industry, one major ratings firm took action following the company's announcement.

Oldwick, N.J.-based A.M. Best said it has placed its financial strength rating of Travelers Property-Casualty pool and debt ratings of St. Paul Travelers under review with "negative implications."

The St. Paul, Minn.-based property-casualty insurer?formed last year when The St. Paul Companies and Travelers Property Casualty Corp. merged?also made a corporate restructuring announcement.

The company said it would "explore strategic alternatives" to sell its 79 percent stake in mutual-fund and asset-management company Nuveen Investments to improve its corporate financial flexibility.

Additionally, the company said it has promoted T. Michael Miller and Brian MacLean to newly-created chief operating officer positions, reporting to Chief Executive Officer Jay Fishman.

Mr. Miller is responsible for the company's specialty business and the regional executive organization, while Mr. MacLean oversees the commercial business, including runoff businesses.

The latest fourth-quarter result for The St. Paul Travelers also includes an underwriting loss of $263 million, a steep drop from underwriting gain of $98 million one year ago. The commercial segment, in particular, did poorly, reporting an operating loss of $192 million, which includes asbestos and environmental claims reserve strengthening.

For calendar-year 2004, The St. Paul Travelers had $955 million in net income, down from $1.62 billion profit reported for The St. Paul and Travelers Property Casualty Corp.

The biggest factor hurting the 2004 fourth-quarter earnings of the combined St. Paul Travelers was the asbestos reserve boost of $922 million pre-tax, as well as $84 million for environmental-related claims?which resulted in an after-tax charge of $673 million.

The $922 million asbestos reserve increase, the company said, is a result of an internal "bottom-up" review of all policies potentially carrying asbestos liability. The study included an analysis of exposure and claim payment patterns by policyholder category as well as recent settlements, policyholder bankruptcies, state judicial rulings and legislative actions.

An asbestos reserve charge in the neighborhood of $1 billion by The St. Paul Travelers during this earnings period was widely expected in the investment community. William Wilt of New York-based investment research firm Morgan Stanley commented in his research note that "most investors" had expected a charge of roughly $1 billion.

During the second quarter of last year, The St. Paul Travelers had already taken $1.6 billion in reserve charges, and now with its new charge, The St. Paul Travelers will be able to "clear its near-term asbestos hurdle," Mr. Wilt said. He added, "Our analysis suggests the charge will be manageable."

A.M. Best, however, placed the "A-plus" financial strength rating of Travelers Property-Casualty Pool and debt ratings of The St. Paul Travelers Companies under review with "negative implications." These rating actions, A.M. Best said; follow a boost in prior-year loss reserves, resulting in weaker-than-expected earnings for the year.

Another impact on The St. Paul Travelers' fourth-quarter earnings came from catastrophe losses. The company said its pre-tax CAT losses totaled $113 million?$78 million after taxes?caused by last year's unprecedented hurricane season.

On the positive side, the company said it had a record operating income of $378 million in its personal-lines segment for the fourth quarter, which included $169 million of favorable prior- and current-year reserve development. The specialty segment also did well, reporting operating income of $140 million for the quarter.

The St. Paul Travelers' overall net written premiums for the fourth quarter came in at $5.154 billion, down one percent when compared to the year-ago figures from both The St. Paul and Travelers Property Casualty Corp. The combined company did well in its investment earnings, posting $562 million in net investment income for the 2004 fourth quarter.

Jay Fishman, chief executive officer of The St. Paul Travelers, said he was particularly pleased with the performance in the personal segment, which, in contrast to the commercial segment, generated record operating income.

Also commenting on the plan to sell Nuveen, Mr. Fishman said a divestiture of The St. Paul Travelers' stake in the asset-management company would improve the insurer's financial flexibility, operating company capital and tangible net worth.

"We are working closely with the Nuveen management to facilitate a smooth transition and are focused on ensuring the continuation of their exciting prospects," he said. The company didn't say who the prospective buyers of its Nuveen stake might be and when it may complete the sell-off process.

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St. Paul Travelers To Sell A Unit As Net Drops

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