S&P Cuts RSA’s Ratings to ‘A+’, Off CreditWatch

Standard & Poor’s announced that it has lowered the counterparty credit and insurer financial strength ratings on U.K. insurer Royal & Sun Alliance and various operating entities from double-‘A-‘minus to single-‘A’-plus, and has removed them from its CreditWatch, where they had been placed on Sept. 20.

“The downgrade reflects an accumulation of pressures on the group’s capital base, which have reduced capital adequacy to levels inconsistent with a rating in the double-‘A’ category,” said the announcement. It added, however, that “The group’s excellent global market position in general insurance, combined with an improving earnings outlook, are supportive of the current ratings.”

S&P cited the “combined effects of weak investment markets, losses related to the September 11 terrorist attacks, and Standard & Poor’s concerns over the adequacy of U.S. loss reserves” as major factors leading to the downgrade.

It stressed, however, that R&SA’s strength in the global market, and its commitment to focus on “high value-added specialty lines, particularly in the U.S.,” would lead to higher, but could expose the group “to increased volatility in its underwriting results.” It saw RS&A’s current U.S. restructuring and its geographical diversity as positive factors.

S&P’s report noted the company’s announced program of strengthening all its underwriting standards, and disposing of underperforming lines. It has already reduced its combined ratio to 103.6 percent, compared with 107.2 percent for the same period in 2000, excluding the losses from Sept.11. If these are included the combined ratio rises to 107.9 percent.

The report concluded that S&P “expects R&SA to successfully release sufficient capital over the next two years, in particular from the life business, to replenish capital levels consistent with the current ratings, and to support strong organic growth in its core general business. The improvement in reported earnings is expected to accelerate during 2002 as rate rises drive the combined ratio below the 103% target.”|”snp, cuts, rsa’s, ratings, ‘a+’,, off, creditwatch