Best Affirms RSA Canada, Subs and Holding Company Ratings

March 13, 2012

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a” of Royal & Sun Alliance Insurance Company of Canada (RSA Canada) and Western Assurance Company, both domiciled in Toronto, as well as Quebec Assurance Company, headquartered in Montreal. The members are together known as RSA Canadian Property/Casualty Pool (RSA Canadian Pool).

Best has also revised the outlook to positive from stable and affirmed the FSR of ‘B’ (Fair) and the ICR of “bb+” of Vancouver-based Canadian Northern Shield Insurance Company (CNS).

In addition Best has affirmed the FSR of’ B+’ (Good) and ICR of “bbb-” of Toronto-based Ascentus Insurance Ltd, as well as the FSR of ‘B’ (Fair) and ICR of “bb+” of Unifund Assurance Company, which is headquartered in St. John’s, Newfoundland.

Best said the outlook for the above ratings is stable, with the exception of CNS. Collectively, all of the insurance entities in Canada are referred to as the RSA Group of Canada, based in Ontario. All of the companies are subsidiaries of Roins Financial Services Limited (RFSL), the Canadian immediate holding company for its parent, the UK-based RSA Insurance Group plc.

Best also said it has withdrawn the FSR of ‘A’ (Excellent) and ICR “a+” of Toronto-based GCAN Insurance Company, “due to the amalgamation of the company into RSA Canada on January 1, 2012.”

Best explained that its rating actions on the RSA Canadian Pool reflect its viewpoint that “the pool maintains strong risk-adjusted capitalization, solid investment income and sound reserve development.

“The pool has produced solid underwriting results, which have consistently increased equity over the last five years, prior to stockholder dividends. Collectively, the pool provides commercial property/casualty coverage as well as personal and specialty coverages throughout Canada.

“The pool maintains a presence in all of the Canadian provinces and distributes its products through multiple distribution channels, including a large independent broker network. The ratings also reflect RSA Canadian Pool’s strong integration with RSA plc through its systems and procedures as well as its significant contribution to RSA plc’s overall profit.”

In addition Best noted that its ratings of CNS “acknowledge its elevated underwriting leverage, high underwriting expenses and adequate operating performance. CNS affords the RSA Group of Canada improved geographic diversity, increased distribution and growth opportunities within British Columbia, where a majority of its premiums are written.

“CNS is fully integrated into RSA Group of Canada’s operations and continues to benefit from the implicit and explicit support it receives as a member of that group. Its revised outlook represents RSA Group of Canada’s recent elevated commitment to CNS in the near term, particularly as it implements significant reinsurance protection.”

Best also explained that its ratings of Unifund “recognize its continued stabilized risk-adjusted capitalization, consistent operating performance and favorable reserve development. The rating actions also reflect Unifund’s strong integration with RSA plc through its systems and procedures and its significant contribution to RSA plc’s overall profit.

“Historically, Unifund has been a growth vehicle for the overall Canadian organization. In prior years, rapid premium expansion outpaced equity growth, which resulted in elevated underwriting leverage measures and a sharp decline in overall risk-adjusted capitalization.

“More recently, premium levels have risen gradually, equity has paced this growth and overall risk-adjusted capitalization has plateaued. However, Unifund remains highly leveraged as net and gross underwriting leverage ratios exceed the industry composite. The company primarily is a writer of personal lines insurance for associations and affinity groups throughout Ontario, Alberta, Newfoundland and Labrador and Nova Scotia.

“The ratings of Ascentus are based on its solid level of risk-adjusted capitalization, which supports its underwriting and investment risk. The company’s level of premium volume has sharply declined in recent years, since all private passenger auto and personal property business was renewed into RSA Canada. The company now writes some marine business throughout Canada.”

Best added that it “will be disclosing for all rated entities the potential rating factors that could cause negative rating movement in the near to midterm.”As a result, Best said it “does not expect to downgrade (or place a negative outlook on) the ratings of the insurance entities of RFSL in the near to midterm (except where noted below).

“However, such actions would ensue if: the companies were to incur material losses in their risk-adjusted capitalization; be unable to maintain their underwriting to the budgeted levels with the current set of preventative measures that have been recently put in place; have a material change in the level of operational and/or financial support provided by RSA plc in a manner that affects their operational performance; or have substantial adverse reserve development relative to their peers, as well as to the industry’s averages.

“The positive outlook on the ratings of CNS already factors in probable positive movement in the near term, although the company remains susceptible to all aforementioned downside risks.”

Source: A.M. Best

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