Royal & SunAlliance USA Lowered

Fitch Ratings has downgraded the ratings of the Royal & SunAlliance USA insurance subsidiaries from “A+” to “A” and removed the ratings from Rating Watch negative. The outlook is stable.

The ratings were placed on rating Watch Negative in February 2002 when Royal & SunAlliance USA’s parent company, Royal & Sun Alliance Insurance Group plc (RSA), announced significant increases in loss reserves, a series of initiatives designed to improve the group’s capital position and a new quota share reinsurance arrangement.

Additionally, Fitch has adopted a group rating approach to the core operations of RSA. Royal & SunAlliance USA represents 34 percent of RSA’s non-life business and Fitch considers it to be a core operation.

The rating action recognizes that RSA’s capital has diminished to the point where it is constraining RSA’s ability to grow written premium and, therefore, limits RSA’s ability to benefit fully from hardening insurance market conditions. RSA’s capital has fallen from GBP 7.3 billion at yearend 1997 to GBP 4.8 billion at yearend 2001.

Fitch notes that RSA is reporting significant price increases in most of its lines of business and, as a result, should be able to replenish lost capital through increased future earnings.