Travelers 2014 Annual Report Download - page 29

Table of Contents
RATINGS
Ratings are an important factor in assessing the Company's competitive position in the insurance industry. The Company receives ratings from
the following major rating agencies: A.M. Best Company (A.M. Best), Fitch Ratings (Fitch), Moody's Investors Service (Moody's) and Standard &
Poor's Corp. (S&P). Rating agencies typically issue two types of ratings for insurance companies: claims
- paying (or financial strength) ratings
which reflect the rating agency's assessment of an insurer's ability to meet its financial obligations to policyholders, and debt ratings, which reflect
the rating agency's assessment of a company's prospects for repaying its debts and are considered by lenders in connection with the setting of
interest rates and terms for a company's short
- and long - term borrowings. Agency ratings are not a recommendation to buy, sell or hold any
security, and they may be revised or withdrawn at any time by the rating agency. Each agency's rating should be evaluated independently of any
other agency's rating. The system and the number of rating categories can vary widely from rating agency to rating agency. Customers usually
focus on claims
- paying ratings, while creditors focus on debt ratings. Investors use both to evaluate a company's overall financial strength. The
ratings issued on the Company or its subsidiaries by any of these agencies are announced publicly and are available on the Company's website
and from the agencies.
A downgrade in one or more of the Company's claims
- paying ratings could negatively impact the Company's business volumes and
competitive position because demand for certain of its products may be reduced, particularly because some customers require that the Company
maintain minimum ratings to enter into or renew business with it.
Additionally, a downgrade in one or more of the Company's debt ratings could adversely impact the Company's ability to access the capital
markets and other sources of funds, including in the syndicated bank loan market, and/or result in higher financing costs. For example, downgrades
in the Company's debt ratings could result in higher interest expense under the Company's revolving credit agreement (under which the cost of
borrowing could range from LIBOR plus 87.5 basis points to LIBOR plus 150 basis points, depending on the Company's debt ratings), the
Company's commercial paper program, or in the event that the Company were to access the capital markets by issuing debt or similar types of
securities. See "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital
Resources" for a discussion of the Company's revolving credit agreement and commercial paper program. The Company considers the level of
increased cash funding requirements in the event of a ratings downgrade as part of the evaluation of the Company's liquidity requirements. The
Company currently believes that a one
- to two - notch downgrade in its debt ratings would not result in a material increase in interest expense under
its existing credit agreement and commercial paper programs. In addition, the Company considers the impact of a ratings downgrade as part of the
evaluation of its common share repurchases.
Claims—Paying Ratings
The following table summarizes the current claims
- paying (or financial strength) ratings of the Travelers Reinsurance Pool, Travelers C&S Co.
of America, Travelers Personal single state companies, Travelers C&S Co. of Europe, Ltd., Travelers Insurance Company of Canada, The Dominion
of Canada
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