S&P Cuts R&SA, Off CreditWatch

S&P lowered the counterparty credit rating and insurer FSR on U.K. insurer Royal & Sun Alliance and various operating entities from “AA” to “A+,” and has removed them from its CreditWatch.

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 “AA” category. 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 Sept. 11, and S&P’s concerns over the adequacy of U.S. loss reserves as major factors leading to the downgrade.

S&P 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 disposal 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. If losses from Sept. 11. are included, the combined ratio rises to 107.9 percent.

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 percent target.