Merrill Advises On St. Paul, Travelers Deal

Merrill Advises On St. Paul, Travelers Deal

In his "Flash Note" released today, Jay Cohen, an analyst at the New York-based financial services firm, said the combination will result in a complementary business mix and create a powerful insurer in the independent agent/broker market.

Mr. Cohen said the business lines of the two companies are "fairly complementary"--with each insurer having a sizeable standard middle market commercial presence.

But while Travelers has the larger national accounts business and small commercial business, The St. Paul brings a more developed specialty business. And unlike Travelers, The St. Paul is not in the personal lines business, Mr. Cohen said.

Furthermore, Mr. Cohen expressed confidence that the two companies will likely experience a smooth transition as they merge to create The St. Paul Travelers Companies, which would become the nation's second-largest commercial insurer.

"Both companies have gone through sizeable integrations over the past seven years," Mr. Cohen said, "suggesting a certain level of experience in the challenging task of putting together two large companies."

He cautioned that while this "does not guarantee success," it does boost Merrill's confidence that the merger will take place without major problems.

Mr. Cohen also commented that the merger process will benefit from the experience and knowledge of Jay Fishman, chief executive at The St. Paul, who will serve as chief executive officer of the combined company.

Mr. Fishman had long management experience at Travelers before moving to The St. Paul, Mr. Cohen pointed out. While the two companies have historically had different cultures, Mr. Fishman has been "Travelersizing" The St. Paul since his arrival there two years ago, adopting a more rigorous financial reporting system and taking steps to reduce the volatility in the business, including exiting reinsurance, Mr. Cohen said.

"Clearly, Mr. Fishman is intimately familiar with the inner workings of Travelers, improving the chances for a smoother integration," said Mr. Cohen.

Strategically, he added, the deal creates "a powerful insurance company in the independent agent/broker market," especially in the standard commercial lines. Mr. Cohen observed that agents have seen a gradual consolidation among carriers, as some companies lose critical A.M. Best ratings and others sell renewal rights to their business. And since both The St. Paul and Travelers were sizeable markets for agents, the agents' choices will be narrowed even further after the merger, Mr. Cohen predicted.