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Credit analyst: Drop to market weight on Travelers debt, still overweight St. Paul
By Ronda Fears
Nashville, Nov. 17 - The merger of The St. Paul Cos. and Travelers Property Casualty Corp. is a not a harbinger of widespread consolidation in the property and casualty insurance business, said CreditSights analyst Rob Haines in a report Monday.
"Although we fundamentally like both credits, we would recommend that investors now market weight Travelers debt but continue to overweight St. Paul," Haines said.
On Monday, St. Paul and Travelers announced a $16 billion merger that would create the second-largest commercial insurer in the United States, to be named The St. Paul Travelers Cos.
Under terms of the merger, holders of Travelers Class A and Class B common stock will each receive 0.4334 shares of St. Paul common stock for each share.
Because St. Paul's chief executive Jay Fishman formerly was the top executive at Travelers, Haines noted that execution risk is at the low end of the spectrum for this merger.
"Prior to this announcement much of the merger talk in the insurance industry had centered on the life group, which was sparked by the pending John Hancock/ManuLife deal," Haines said, noting that Travelers' CEO Robert Lipp said informal talks with Fishman began this past June.
"Overall, we see this deal as a one-off special situation and not the start of a near-term consolidation cycle within the property and casualty industry, since the industry is still experiencing healthy organic growth," Haines added, although he noted that according to AM Best, hard market conditions should continue through 2004.
"We do expect additional deals in the longer to intermediate term, particularly as the current hard market conditions begin to decelerate," he said.
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