These ratings were first put on the S&P CreditWatch list last November, when the St. Paul, Minn.-based insurer announced that it plans to merge with Travelers Property Casualty Corp. in Hartford, Conn.

The outlook on ratings before being placed on CreditWatch was negative, which reflected S&P's concerns about The St. Paul's reserve adequacy for the discontinued health care and reinsurance operations.

S&P credit analyst John Iten explained that his firm decided to change the CreditWatch status following The St. Paul's announcement that it will take a $228 million after-tax charge to boost reserves on rising medical malpractice claims in its run-off health care business.

Mr. Iten said his firm still has concerns about The St. Paul's adequacy of loss reserves associated with runoff operations, reserves for business written in the soft market years of 1998-2001, and asbestos exposure.

S&P said: "Based on analysis of carried reserves as of year-end 2002, Standard & Poor's has concluded that carried reserves might still be three percent to five percent deficient following this charge." S&P added it is also keeping an eye on the potential for future losses in The St. Paul's surety operations.

The St. Paul ratings are expected to remain on "CreditWatch Developing" until the planned merger with Travelers is completed, most likely in second-quarter 2004. Mr. Iten forecast that if The St. Paul's merger with Travelers doesn't go through as planned, the financial strength rating on The St. Paul and long-term ratings on The St. Paul's insurance company subsidiaries might be lowered. But should this occur, it is unlikely that these ratings would fall by more than one notch, he said.

The St. Paul offers liability and casualty, property, workers' comp, auto, marine, and other commercial coverage. Its international operations include Lloyd's of London syndicates that specialize in niche markets, including kidnap and ransom, personal accident, and creditor coverage. The company said last week that the announced merger of The St. Paul and Travelers remains on track to close in the second quarter of 2004.