Zacks_Analysts' Blog : Rating Actions on Travelers - Analyst Blog

The financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Travelers Auto Insurance Co. of New Jersey and Travelers of New Jersey Group, wholly owned subsidiaries of The Travelers Companies Inc. (TRV), have been withdrawn by A.M. Best Co. The rating agency has assigned an NR-5 (Not Formally Followed) to the FSRs and an “nr” to the ICRs.

The rating withdrawal follows the merger of Travelers Auto Insurance Co. of New Jersey with Fidelity and Guaranty Insurance Underwriters Inc. and First Trenton Indemnity Company, effective November 1, 2010. Fidelity and Guaranty Insurance Underwriters will now write the personal lines business previously written by Travelers Auto Insurance Co.

Consecutively, the FSR of A (Excellent) and ICR of “a” of First Trenton have been affirmed by A.M. Best Co. The outlook remains stable. The affirmation came on the back of First Trenton’s adequate risk-adjusted capitalization, solid operations and strong market position as a provider of personal lines coverages in New Jersey.

However, geographic concentration in one state is a partial offset to the positives, as underwriting and operating profitability has been adversely affected in the past few years due to challenging market dynamics in the New Jersey private passenger auto segment.

Travelers reported a solid third quarter driven by good underwriting results across segments as well as lower shares outstanding. On the third quarter conference call, management raised the earnings guidance for full year 2010 to a range of $5.75 to $5.95 per share from $5.20 to $5.45 previously.

The Zacks Consensus Estimate for fourth-quarter 2010 is $1.70 per share. The Zacks Consensus Estimate, for fiscal 2010 as well as 2011, is $6.04.

W.R. Berkley Corp. (WRB), which competes with Travelers, posted third quarter operating earnings that beat the Zacks Consensus Estimate by 3 cents. Another peer, Hartford Financial Services Group Inc. (HIG), reported third-quarter adjusted earnings of 98 cents per share, surpassing the Zacks Consensus Estimate. Hartford’s solid execution, including disciplined underwriting performance, improved investment results and growth in assets under management along with an impressive book value were the high points of the quarter.

We maintain our Neutral recommendation on Travelers Companies over the long term. The quantitative Zacks #3 Rank (short-term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

Based in New York, The Travelers Companies, through its subsidiaries, provides a wide variety of property and casualty insurance and surety products and services to businesses, organizations and individuals in the United States and in selected international markets.