R&SA-USA Downgraded

A.M. Best Co. downgraded the financial strength ratings of Royal & SunAlliance USA Insurance Pool and the Royal Surplus Lines Insurance Co., based in Connecticut to “C++” (marginal) from “B” (fair). The surplus lines company is a wholly owned subsidiary of Royal Indemnity Co., 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. According to 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.

In Best’s 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.

Best said it placed the financial strength ratings of “B” (fair) of Viking Insurance Co. of Wisconsin, Peak Property and Casualty Insurance Corp. in Colorado and Viking County Mutual Insurance Co. in Texas under review with negative implications.

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.