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Member, Beacon International Group, Ltd.
ST. PAUL, Minn.--A.M. Best Co. has downgraded the financial strength rating of the St. Paul Cos. Inc. to A from A+, and Moody's Investors Service is reviewing the insurer for a possible downgrade.
The rating agencies' moves come on the heels of St. Paul's announcement that it has entered into a nearly $1 billion settlement with its largest asbestos claimant, Western Asbestos Co.
St. Paul's net loss from the settlement is estimated to total about $380 million after reinsurance, tax benefits and a reduction in asbestos and environmental incurred-but-not-reported losses, according to Best.
Best said that it considered this large settlement an anomaly for St. Paul, which historically has insured small and middle-market policyholders.
St. Paul assumed the Western Asbestos claim as part of its 1998 acquisition of USF&G Corp., which insured Western prior to 1961. Western Asbestos was acquired by Western MacArthur Co., a California building products distributor, in 1967.
In lowering its financial strength rating to A, or excellent, from A+, superior, Best said the rating outlook is stable.
Moody's placed St. Paul under review for possible downgrade when the insurer revealed in its first-quarter filing with the Securities and Exchange Commission that it might have to make to substantial asbestos-related payments. St. Paul carries an Aa3 insurance financial strength rating from Moody's. The rating agency reiterated that it might downgrade the insurer after the Western announcement.
Shares of several large insurers fell sharply in response to the St. Paul news, raising fears of other large settlements, analysts said.
In response to the downgrade, a St. Paul spokesman said "we believe that our capital position remains strong" and that it "doesn't hamper our ability to conduct business."
He added that the insurer is "in discussions" with other rating agencies.