Fitch Places St. Paul’s Debt on Rating Watch Positive

November 18, 2003

Fitch Ratings has placed its ‘BBB+’ long-term senior debt and ‘F2’ commercial paper ratings of The St. Paul Companies, Inc. (SPC) on Rating Watch Positive. This follows Monday’s announcement that SPC and Travelers Property Casualty Corp. (Travelers) will merge through a tax-free exchange of stock.

Concurrent with its rating actions on SPC, Fitch has placed its ratings of Travelers, including Travelers ‘A’ long-term senior debt rating, on Rating Watch Negative, meaning the ratings could either remain the same or be lowered one notch. Fitch expects to upgrade SPC’s long-term debt rating to ‘A-‘ or ‘A’ at the close of the merger, subject to further analysis. The expected upgrade reflects SPC’s merger with a higher rated entity. The merger will reportedly create the nation’s second largest commercial lines insurer and largest independent agency writer in the U.S.

Travelers utilizes less financial and operating leverage, and generates higher run-rate earnings levels, than SPC. As a result, Fitch believes that the merged company’s earnings-based interest coverage will be moderately higher than that currently generated by SPC. Fitch also believes that over time, the merged company will benefit from enhanced scale and efficiencies as it consolidates various parts of its operations.

Furthermore, Fitch believes that the merged company’s size will enable it to bolster its competitive position in ways that would have been more difficult for SPC to accomplish on its own.

Due to SPC’s and Traveler’s large size and relative complexity, Fitch believes that this merger carries a significant amount of integration risk. This risk is mitigated somewhat by the management teams involved.

Several members of SPC’s senior management team were members of Travelers’ senior management team before moving to SPC and Fitch believes that they have a good understanding of both companies’ operations and cultures. In addition, SPC has experience integrating operations due to its 1998 merger with USF&G Corp. and its 1996 acquisition of Allstate’s commercial line companies.

Fitch notes that one of its key rating concerns for SPC has been the reserve adequacy of the company’s run-off lines of business, and the potentially dampening affect those run-off lines could have on the company’s earnings. Given the enhanced earnings profile and capital base of the merged company, Fitch would view this as less of an issue going forward should the merger be executed as planned.

Fitch plans to resolve the Rating Watch and to assign financial strength ratings to any of the merged company’s primary operating subsidiaries that it currently does not rate, concurrent with the transaction’s close.

SPC’s ratings were initiated by Fitch as a service to users of Fitch ratings. The ratings have historically been based primarily on publicly available information. Fitch’s ratings of Travelers, including analysis of the planned merger, have been based on an interactive relationship with management.

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