Best Downgrades R&SA-USA Ratings

A.M. Best Co. announced that it has downgraded the financial strength ratings of Royal & SunAlliance USA Insurance Pool (RSAUSA) and the Royal Surplus Lines Insurance Company (Connecticut) to “C++” (Marginal) from “B” (Fair). The surplus lines company is a wholly owned subsidiary of Royal Indemnity Company, a member of the pool. The rating outlook is negative.

“This rating action follows RSAUSA’s announcement of a $240 million reserve charge primarily related to prior year workers’ compensation business,” said Best. “Given the magnitude of this charge, the pool’s capitalization has deteriorated to a level no longer supportive of its previous ‘B’ (Fair) rating.”

Best added that in its opinion “there is potential for additional reserve development in light of the significant and lengthy history of reserve deficiencies experienced by the U.S. entities. As a result of the significant level of uncertainty regarding all of these issues, the outlook remains negative.”

The rating agency also said it has “placed the financial strength ratings of ‘B’ (Fair) of Viking Insurance Company of Wisconsin (Colorado), Peak Property and Casualty Insurance Corp. (Colorado) and Viking County Mutual Insurance Company (Texas) under review with negative implications.”

It added that “management is continuing with its plan to withdraw these companies from the pool to become direct and wholly owned subsidiaries of Royal Group, Inc., the group’s U.S.-based holding company. As separately owned and capitalized entities, these companies would be independent of the RSAUSA pool and appropriately capitalized to continue writing the profitable non-standard automobile book of business. The Viking and Peak companies’ ratings will remain under review until management’s plans, which are subject to regulatory approval, are implemented.”