Moody’s May Cut St. Paul Cos. Ratings

Moody’s Investors Service has placed the ratings of property-casualty insurer The St. Paul Cos. on review for possible downgrade. Included in the review are the insurance financial strength ratings of St. Paul Fire and Marine, currently rated “Aa3,” and its rated affiliates. The company’s “A2” senior unsecured debt rating, its “A3” subordinated debt ratings and its Prime-1 commercial paper rating are also part of the review.

Commenting on the reasons for review, Moody’s explained that fourth quarter results continued to reflect an adverse deviation in the company’s actual performance relative to the rating agency’s expectations. Specifically, these expectations included improved core earnings not dampened by reserve adjustments and a steady decline in financial leverage.

Moody’s noted that while performance in the company’s core business segments is strong, continued drag from St. Paul’s run-off segments remains a risk. Moody’s will further evaluate these risks during the course of its rating review. In previous press releases, Moody’s has indicated its concerns regarding the pace of future de-leveraging at the holding company. The review process will also involve an assessment of the group’s prospective strategy for managing its on-balance sheet leverage.

The St. Paul reported net income of $8.9 million in 2002, and about $3.5 billion in securities could be affected by a ratings downgrade.

The following ratings have been placed on review for downgrade:
— St. Paul Cos. Inc. – senior unsecured debt at “A2,” commercial paper at Prime-1, prospective senior unsecured debt at “(P)A2,” prospective subordinated debt at “(P)A3,” prospective
preferred stock at “(P)Baa1”;
— St. Paul Capital Trust I – capital securities at “A3”;
— St. Paul Capital Trust II – prospective capital securities at “(P)A3”;
— USF&G Corporation – guaranteed senior unsecured debt at “A2,” guaranteed subordinated debt at “A3”;
— USF&G Capital Trusts I, II and III – guaranteed capital securities at “A3”; MMI Companies, Inc. – guaranteed subordinated debt at “A3”; MMI Capital Trust I – guaranteed capital preferred securities at “A3”;
— American Continental Insurance Co. – insurance financial strength at “A1”; Athena Assurance Company – insurance financial strength at “Aa3”;
— St. Paul Fire and Marine Insurance Company – insurance financial strength at “Aa3”;
— St. Paul Medical Liability Insurance Company – insurance financial strength at “Aa3”;
— St. Paul Reinsurance Company Limited – insurance financial strength at “Aa3”;
— St. Paul Surplus Lines Insurance Company – insurance financial strength at “Aa3”; United States Fidelity & Guaranty Company – insurance financial strength at “A1.”
— The St. Paul Cos. is a Minnesota-based, publicly traded holding company for several
property-casualty insurance and asset management subsidiaries.