Fitch Affirms Rating for St. Paul Travelers Ratings After Asbestos Charge; Outlook is Stable

January 31, 2005

Fitch Ratings has affirmed the ‘A-‘ long-term issuer and senior debt ratings of The St. Paul Travelers Companies Inc. (STA), Travelers Property Casualty Corp. and Travelers Insurance Group Holdings. The ‘AA-‘ insurer financial strength (IFS) ratings of the members of the Travelers Property Casualty Group (TPC) and St. Paul Fire and Marine Inter-company pool (SPC), which are rated on a group basis, have also been affirmed by Fitch. The Outlook for all ratings is Stable.

These actions follow Monday’s announcement by STA that its fourth quarter 2004 earnings will include a $922 million pre-tax asbestos-related reserve charge and that the company is considering strategic alternatives to divest its 79% interest in Nuveen Investments (JNC).

The charge follows completion of the company’s annual asbestos study and predominantly reflects increased loss cost projections due to elevated trial activity that has resulted in higher litigation costs in recent periods.

However, despite this most recent reserve charge, in excess of $400 million of after-tax catastrophe losses during the third quarter, and $1 billion of after-tax reserve strengthening in the second quarter, largely at SPC, STA will report 2004 after-tax operating income of approximately $1 billion, maintain consistent holding company liquidity and a post a moderate reduction in financial leverage during 2004.

While Fitch recognizes the pitfalls of using a survival ratio analysis at the company level, in large part due to numerous items that can distort claim payment data, it does provide a useful benchmark for comparison to peers. Since TPC significantly increased asbestos reserves during the fourth-quarter 2002, its adjusted three-year asbestos survival ratio has trended downward from 17x at year-end 2002 to 7x at year-end 2003 (11x proforma for the fourth quarter 2004 reserve charge). Fitch’s benchmark survival ratio for the industry is 17.5x.

However, given STA’s aggressive claims settlement practices, Fitch haircuts the benchmark for STA to roughly 13x. Utilizing this approach implies an asbestos reserve short-fall of roughly $1 billion, which is considered in Fitch’s analysis of STA.

At Sept. 30, 2004, STA reported GAAP assets and shareholders’ equity of $110 billion and $21 billion, respectively.

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