A report that The St. Paul Travelers Companies of St. Paul, Minn. is discussing the possibility of a merger with Switzerland's Zurich Financial Services could signal that the U.S. company is having difficulty expanding, an analyst suggested today.

Bear Stearns Analyst David Small, reacting to a Wall Street Journal article that preliminary talks between the two firms were underway, commented that over the past year, St. Paul Travelers management "has consistently discussed a desire to grow.''

He said he suspected "this news means that the company is having trouble growing organically, as many of its core markets are softening. We have heard from both commercial brokers and retail agents that [St. Paul Travelers] has been aggressive on price and terms in many lines of business."

Mr. Small wrote that if the two firms were to merge that would mean more restructuring for St. Paul Travelers.

He speculated, "It could be that management's other problem is that not only can it not find top-line opportunities, but earnings growth may be challenging, as there are few expense benefits left from the St. Paul-Travelers merger."

The positive view of such a merger, he said, is that investors could assume Jay Fishman, St. Paul Travelers chief executive, is seeking to follow the American International Group model and balance U.S. risks with European ones.

But Mr. Small expressed a caution over that notion saying that "at this time we believe the European market is softening faster than the market in the United States. This could be counterbalanced by the fact that Zurich has made some first strides in terms of its own restructuring."

Neither Zurich nor St. Paul Travelers would comment on the report.

In 2002, Mr. Fishman told Minnesota Public Radio that he would like to see the company grow to become the third largest property-casualty insurer, but the company has not hit that target yet. It currently stands fourth behind Allstate, followed by Zurich in fifth place in rankings based on net premiums written for 2004.

Were the two insurers to merge it would like make the combined group the second largest p-c concern based on net written premium behind State Farm, and the largest commercial lines writer, eclipsing AIG.

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A St. Paul Travelers Expansion Problem?

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