Moody's Lowers St. Paul Ratings, Outlook Stable

Moody's Lowers St. Paul Ratings, Outlook Stable

NU Online News Service, April 2, 4:25 p.m. EST?Concluding a rating review started in February, Moody's Investors Service downgraded by one notch long-term and short-term ratings of The St. Paul Companies Inc. and its subsidiaries, with the outlook revised to "stable."

The downgrades involve lowering the insurance financial strength rating of St. Paul Fire & Marine and its pooled affiliates to "A1" from "Aa3" and the senior unsecured debt to "A3" from "A2." The rating for St. Paul's commercial paper was also lowered, to "Prime-2" from "Prime-1."

Moody's explained, in its report, that these downgrades were based on "its concerns regarding the pace of de-leveraging at the holding company and the potential for future earnings drag from St. Paul's runoff and surety business lines."

And although the New York-based ratings agency expects St. Paul's financial leverage ratios will improve, the rating downgrade action anticipates ratios will remain high compared to its peer group through next year, Moody's stated.

Moody's also explained that runoff risks at the St. Paul are related to a number of factors, including medical malpractice, reinsurance and asbestos exposures. Also, with the current economic condition in the United States, getting a break-even underwriting result in surety is unlikely, Moody's warned.

On the positive side, Moody's noted the St. Paul, Minn.-based insurer continues to maintain a strong position in several commercial property-casualty market segments and has diversified its earnings through its part ownership in The John Nuveen Co., a publicly-traded investment management services firm.

Additionally, Moody's said, improving market conditions in the insurance sector are also expected to support earnings improvement and organic capital growth.