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09 Nov 2007
Moody's affirms Royal & Sun Alliance (Uruguay)'s Baa3 IFS rating
New York, November 09, 2007 -- Moody's Investors Service announced that it has affirmed Baa3 global local
currency insurance financial strength (IFS) rating (global local currency)
of Royal & Sun Alliance Seguros (Uruguay) ("RSA Uruguay").
At the same time, Moody's upgraded RSA Uruguay's IFS
on the Uruguayan national scale to Aa1.uy from Aa2.uy.
Both ratings have stable outlook.
According to Moody´s, the affirmation of RSA Uruguay´s
global local currency rating and upgrade on the national scale reflect
the company´s overall stable business profile, its improving
trend in investment quality, its solid and sustained underwriting
results, and its adequate capital adequacy. The company's
investment quality has improved over the past few years driven by both
the upgrade of Uruguayan government bonds to B1 from B3 and by the allocation
of a portion of its assets in two highly-rated banks for deposits
(one Aaa and the other Aa1). That said, the rating agency
maintains concern about the average credit quality of RSA Uruguay's
investments which remains below investment grade.
Moody's added that RSA Uruguay's underwriting results have
remained positive during the last three fiscal years and in the first
nine months of 2007, as the company has experienced good growth
in its gross premiums. Despite its growth, its gross operating
leverage has remained relatively stable around 2.8 times its reported
RSA Uruguay has maintained its position as the leading privately-owned
insurance company in the property and casualty market in Uruguay.
The company holds a 14% market share based on gross premiums as
of December 31, 2006, but it ranks a distant second in the
overall P&C market when including the Uruguayan state-owned
insurer, Banco de Seguros del Estado, which is the largest
player with above 60% market share.
Moody's views positively the ownership and implicit support from
the company's shareholder, Royal & Sun Alliance Insurance
Group PLC (rated Baa2 for subordinated debt guaranteed by its primary
UK operating company). Support is provided in the form of intercompany
reinsurance agreements, the Royal & Sun Alliance brand,
and management, as well as head office oversight and controls over
local operations. Moreover, Royal & Sun Alliance Insurance
Group recently renewed its Latin American strategic expansion initiatives
by acquiring the top P&C Chilean carrier, Cruz del Sur.
Offsetting these credit strengths and positive developments, however,
are the risk of possible substantial inflation growth and RSA Uruguay's
large exposure to foreign currency-denominated investments that
are exposed to local currency appreciation. The high inflation
rate in Uruguay and a strengthening local currency have caused significant
investment losses for the company that have offset much of the company's
underwriting profits in recent years and actually caused a net loss in
the most recent fiscal quarter. The rating agency commented that,
in addition, the other noteworthy credit challenges for RSA Uruguay
are risks associated with its still high exposure to speculative grade
investments, as well as the high risk operating environment in Uruguay.
Headquartered in Montevideo, Uruguay, Royal & Sun Alliance
Seguros (Uruguay) reported a net loss of UR$6.6 million
in the first nine months of 2007 fiscal year, ended September 30,
2007. Total assets accounted to UR$831.5 million
and Royal & Sun Alliance´s equity closed at UR$361.7
NOTE: Moody´s national scale insurance financial strength
ratings rank an enterprise's financial strength on a relative basis in
comparison with other firms within the same country. Such ratings
are designed for use at the local (national) level, and they are
not globally comparable. For Uruguayan companies, national
scale ratings carry the identifier of ".uy".
In contrast, global local currency insurance-financial strength
ratings indicate the relative credit risk of an insurance company on a
globally comparable scale. In the case of ratings of insurers domiciled
in a country with a speculative grade sovereign rating, such as
Uruguay, these ratings are the result of, among several factors,
the political risk, the risk of a generalized debt moratorium,
the weakness of the legal environment or framework, and the risk
of interference in the functioning of the financial system. Taken
together, the national scale and global local-currency ratings
provide a more comprehensive opinion about the credit risk of the company.
Moody's insurance financial strength ratings are opinions about the ability
of insurance companies to punctually repay senior policyholder claims
For more information, please visit our website at www.moodys.com/insurance.
Vice President - Senior Analyst
Financial Institutions Group
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
No Related Data.
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