Travelers Group's Acquisition of Aetna Affirmed by Fitch

Strategic Insights -

The Travelers Group, Inc.'s planned acquisition of the domestic property and casualty business of Aetna for $4.0 billion has been affirmed by Fitch, with the credit trend remaining improving. The affirmation follows the announcement of the company's planned acquisition, which will create the fourth largest P/C company in the U.S. and offers opportunities for significant expense savings and market impact.

Key Takeaways:

  • The Travelers Group's 'A+' senior debt, 'A' preferred stock, and 'F-1' commercial paper ratings are affirmed by Fitch.
  • The acquisition will create the fourth largest P/C company in the U.S. and offers opportunities for significant expense savings and market impact.
  • The businesses of the two companies are complementary from a geographic and product point of view, but Travelers will introduce a more conservative reserving policy and catastrophe risk appetite.
  • Travelers will own 82% of a new company, which in turn owns the combined P/C operations of Travelers and Aetna, with the remaining 18% being publicly owned.
  • The acquisition is expected to be accretive to earnings from the outset, even with the added financing costs to fund the acquisition.
  • The new P/C company has a firm capital foundation and strengthened reserves, with the operating subsidiaries being left well capitalized.
  • The acquisition strengthens the business profile of the Travelers P/C company without adding substantial financial risk.
  • Travelers management is proficient in evaluating and structuring, and then adequately controlling, large acquisitions.

Statistics:

  • $4.0 billion: The value of the acquisition of Aetna's domestic property and casualty business by The Travelers Group, Inc.
  • 82%: The percentage of ownership by The Travelers Group in the new company resulting from the acquisition.
  • 18%: The percentage of shares in the new company that will be publicly owned.
  • $3.5 billion: The amount of cash required to fund the acquisition, including $750 million for surplus replenishment.
  • 118%: The double leverage of The Travelers Group before the acquisition.
  • 122%: The expected double leverage of The Travelers Group after the acquisition.
  • 4th largest: The expected ranking of the new P/C company in the U.S. following the acquisition.

Sources:

  • Fitch.
  • The Travelers Group, Inc..
  • Aetna.