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10 Oct 2002
MOODY'S DOWNGRADES ROYAL & SUN ALLIANCE INSURANCE GROUP BY TWO NOTCHES TO A3 (FINANCIAL STRENGTH) AND Baa2/Baa3 (LONG-TERM DEBT), AND ONE NOTCH TO P-2 (COMMERCIAL PAPER); RATINGS REMAIN ON REVIEW FOR FURTHER DOWNGRADE
Other rating actions on RSA subsidiaries also announced
London, 10 October 2002 -- Moody's Investors Service today downgraded the ratings of Royal &
Sun Alliance Insurance Group and subsidiaries: the Insurance Financial
Strength Rating (IFSR) of Royal & Sun Alliance Insurance Plc was downgraded
by two notches to A3 from A1, and Commercial Paper by one notch
to P-2 from P-1. At the same time, the subordinated
debt of Royal Insurance Holdings Plc was downgraded by two notches to
Baa3 from Baa1, and subordinated debt of Royal & Sun Alliance
Insurance Group Plc to Baa2 from A3. Many of the group's subsidiaries
have also been downgraded by two notches - see detailed list below.
These rating actions follow the initiation of a review for downgrade on
15 August this year, and all ratings remain on review for further
Moody's said the downgrades reflect a number of issues facing the group,
particularly the losses (including unrealised losses on investments) sustained
in 2001 and the first half of 2002, which have considerably eroded
the group's capital base. Royal & Sun Alliance Insurance Group
has acknowledged that the capital position needs to be improved for the
group to take full advantage of the positive premium rate environment.
Moody's notes the positive action taken in 2002, with planned asset
sales and release of capital from the life businesses being on track.
However, whilst a number of options remain open to further address
the capital position - renewed capital raising, further asset
sales, reinsurance, changes in business and asset mix -
Moody's notes that some uncertainty surrounds the amount and accessibility
of some of these options due to the current volatile investment environment
which has reduced both the value of insurance businesses and the number
of potential purchasers for these businesses.
Irrespective of any capital bolstering that may take place, Moody's
remains concerned about the ongoing earnings capacity of the group and
its ability to achieve target returns quickly and return to statutory
profits. Whilst some progress has been made in reducing the combined
ratio and a number of areas are achieving target returns, there
is still work to be done in several key operational areas. Investment
market conditions remain adverse.
In addition, Moody's notes that the recent departure of the group's
CEO has also created uncertainty and a new CEO may review the future strategy
of the group.
Moody's is also concerned about the impact of possible further reserve
strengthening, particularly in relation to A&E liabilities in
the USA, potential further goodwill impairment charges (H1 2002:
GBP 150 million) and possible outcomes of current litigation issues.
The ratings remain under review for possible further downgrade pending
earnings developments and more clarity on the above issues.
The following ratings were downgraded:
Royal & Sun Alliance Insurance Plc: IFSR to A3 from A1 and Commercial
Paper to P-2 from P-1.
Royal & Sun Alliance Insurance Group Plc: Subordinated debt
to Baa2 from A3.
Royal Insurance Holdings Plc: Subordinated debt to Baa3 from Baa1.
Royal & Sun Alliance Life & Pensions Ltd: IFSR to Baa1 from
Sun Alliance & London Assurance Company Ltd: IFSR to Baa1 from
Codan Insurance Company Ltd: IFSR to A3 from A1.
Trygg-Hansa Insurance Company Ltd: IFSR to A3 from A1
American & Foreign Insurance Co: IFSR to A3 from A1.
Connecticut Indemnity Co: IFRS to A3 from A1.
Design Professionals Insurance Co: IFSR to A3 from A1.
EBI Indemnity Co: IFSR to A3 from A1.
Employee Benefits Insurance Co: IFSR to A3 from A1.
Fire & Casualty Insurance Co. of Connecticut: IFSR to
A3 from A1.
Globe Indemnity Co: IFSR to A3 from A1.
Guaranty National Insurance Co: IFSR to A3 from A1.
Royal Indemnity Co: IFSR to A3 from A1.
Royal Insurance Co. of America: IFSR to A3 from A1.
Safeguard Insurance Co: IFSR to A3 from A1.
Security Insurance Co. of Hartford: IFSR to A3 from A1.
Phoenix Assurance Company of New York to A3 from A1.
Sea Insurance Company of America to A3 from A1.
Viking Insurance Company of Wisconsin to A3 from A1.
Atlantic Indemnity Co: IFSR to Baa1 from A2.
Atlantic Security Insurance Co: IFSR to Baa1 from A2.
Guaranty National Insurance Co. of Connecticut: IFSR to Baa1
Landmark American Insurance Co: IFSR to Baa1 from A2.
Orion Insurance Co: IFSR to Baa1 from A2.
Peak Property & Casualty Insurance Corp: IFSR to Baa1 from A2.
Unisun Insurance Co: IFSR to Baa1 from A2.
Royal & Sun Alliance Insurance Group Plc, headquartered in London,
England, had total assets of GBP 66.7 billion at the end
of June 2002.
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454
Duncan W. Rawson
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454
No Related Data.
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