R&SA’s U.S. Operations Ratings Cut To ‘BB’; Outlook Negative

Standard & Poor’s Ratings Services has lowered its counterparty credit and insurer financial strength ratings on Royal & Sun Alliance Insurance Group PLC’s U.S. insurance operations to ‘BB’ from ‘BB+’. The outlook remains negative. At the same time, the ratings were withdrawn at the request of the companies’ management.

“The downgrade reflects the reduced appetite of RSA USA’s parent to provide the U.S. operations with additional capital should the need arise,” said Standard & Poor’s credit analyst Tom E. Thun.

RSA USA effectively went into run-off in 2005 following the sale of its nonstandard auto business. Standard & Poor’s expects RSA USA to continue to meet its policyholder obligations over the near term. The companies’ statutory surplus at year-end 2005 totaled $834 million, supporting net loss reserves of $3.4 billion. Of these reserves, approximately $540 million is related to asbestos & environmental exposures, which are long tail and notoriously volatile.

The negative outlook continues to reflect the extent of the residual reserving risk at RSA USA and the companies’ weak prospective financial flexibility. Because of the complexities associated with the run-off of RSA USA’s book of business, Standard & Poor’s believes that management will continue to be faced with challenges.