S&P Puts Cooperativa, R&SA (Puerto Rico) on CreditWatch

June 11, 2003

Standard & Poor’s Ratings Services announced that it has placed its ‘A’ counterparty credit and financial strength ratings on Cooperativa de Seguros Multiples of Puerto Rico (Cooperativa) on CreditWatch with negative implications and Royal & SunAlliance Insurance (Puerto Rico) Inc. on CreditWatch developing, following the announcement of a preliminary agreement between the two companies for R&SA to sell its Puerto Rican subsidiary to Cooperativa. (See IJ Website June 10)

S&P noted that the consideration, around $61 million, “is about 33% of Cooperativa’s surplus,” and is to be “paid in cash upon completion of the sale and will be subject to accounting adjustment,” subject to “certain conditions, including normal regulatory approvals.”

S&P noted that the size of R&SA (PR’s) commercial lines operations and Cooperativa’s personal lines operations are similar. “The imminence of the financing and the integration of RSA PR into Cooperativa’s existing operations could pose a considerable challenge to the group’s profitability and management capabilities,” noted S&P credit analyst Polina Chernyak. “Cooperativa’s risk-adjusted capitalization is projected to remain extremely strong following the RSA PR purchase, but is expected to be materially lower than it was at year-end 2002.”

S&P said it would “resolve the CreditWatch status of the ratings upon completion of transaction,” and “will continue to evaluate the execution of the combined business strategy change of the combined organization and its ability to maintained overall profitably.”

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