S&P Downgrades R&SA Ratings from ‘A+’ to ‘A’

Standard & Poor’s Ratings Services announced that it has lowered its long-term counterparty credit and insurer financial strength ratings on various operating entities of U.K.-based Royal & Sun Alliance Insurance Group PLC (R&SA) to single-‘A’ from single-‘A’-plus with a negative outlook, “following a decline in the group’s capital adequacy.”

“The downgrades reflect the decline in R&SA’s capital adequacy, and the expectation that the group’s capital base will not be rebuilt to levels in line with Standard & Poor’s previous expectations,” stated S& P’s credit analyst Mark Button.

S&P confirmed R&SA’s” excellent global market position in general insurance and an improving earnings outlook,” and its “very strong” position in the “U.K., Scandinavia, Canada, and Australasia.” It also noted that the company “is a significant player in the highly competitive U.S. market. But it indicated that this was offset by the fact that R&SA’s “capitalization is not consistent with the ratings, and the group’s ability to secure external capital is restricted.”

The report noted that “An accumulation of pressures over the past three years has reduced capital adequacy to adequate levels in 2002, from very strong levels in 1999. R&SA has made good progress toward its target of releasing GBP800 million ($1.22 billion) of capital, but weak investment markets during 2002 have hindered the capital-rebuilding program. Capital adequacy is a weakness in the rating profile.”

“R&SA’s primary need for additional capital is to fund the expected strong growth in its core business in 2003 and beyond,” Button stated. He expects that R&SA’s capital adequacy will be strengthened to meet its growth aspirations, but warned that “The ratings on the group could be lowered by a further notch, however, if R&SA does not meet this expectation over the next six months, as this could prevent R&SA from maximizing its opportunities in the current favorable rating environment, and could negatively affect the group’s very strong business position.”

R&SA issued a statement indicating that it intended to do regain the A+ rating, and was taking the necessary steps to shore up its capital position in order to do so.