Will Travelers Take $1 Billion Asbestos Charge?

Will Travelers Take $1 Billion Asbestos Charge?

NU Online News Service, Jan. 28, 3:16 p.m. EST?Travelers Property Casualty Corp., eager to start its merger with The St. Paul Companies Inc. with a clean slate, could take an asbestos charge in the $1 billion range, according to New York-based investment bank Fox-Pitt, Kelton.[@@]

The Hartford, Conn.-based Travelers' last remaining asbestos exposures come from ACandS Inc., an insulation installer which filed for bankruptcy. As Travelers and The St. Paul work their way toward closing their merger in the middle of 2004, Travelers "may fess up" to this exposure, according to an analysts at Fox-Pitt.

Travelers and ACandS have been involved in legal wrangling, trying to determine how much the insurer should owe ACandS for asbestos-related claims. Last year, ACandS filed a new lawsuit claiming that Travelers is obligated to fund 45 percent of ACandS' unpaid but purportedly settled asbestos bodily injury claims, which would amount to some $1.3 billion for Travelers.

Fox-Pitt commented that with the closing of the St. Paul/Travelers deal growing closer, shareholders of the two companies will want to see asbestos liabilities a thing of the past for the new corporation--and investors are usually more forgiving prior to a merger. "We believe that Travelers will put forth its best efforts to settle this case," Fox-Pitt stated in its report.

Fox-Pitt, the investment banking unit of Zurich, Switzerland-based Swiss Reinsurance Company, also forecast that the settlement would mostly likely be in the $1 billion range and that the majority of that amount would be financed by an earnings charge, not by Travelers' existing asbestos reserves.

"We believe investors would penalize Travelers if it were to finance a hit in the $1 billion range largely from its existing reserves," Fox-Pitt analysts said. While Travelers took a large asbestos-reserve hit only one year ago, its reserve levels, when compared to its peers, show up "remarkably light," they added.

The St. Paul, based in St. Paul, Minn., has already made an effort to clear the decks in advance of the pending merger. Last week, the company said it was taking a $228 million after-tax charge for the 2003 fourth quarter to strengthen reserves on rising medical malpractice claims in its run-off health care business.

Both Travelers and The St. Paul are scheduled to release their 2003 fourth-quarter earnings figures later today.