Best, S&P Comment on R&SA Results

March 12, 2004

A.M. Best Co. and Standard & Poor’s Ratings Services have both issued comments indicting that their ratings on the U.K.’s Royal & Sun Alliance Insurance Group plc will not be affected by the group’s reported decrease in earnings for 2003 (See IJ Web site Mar.11)

Best rates R&SA and its core subsidiaries “A-” (Excellent) and the group’s subordinated debt and preferred stock (“bbb” and “bbb-“, respectively). They were last affirmed on December 5, 2003. S&P rates R&SA “A-” and its debt “A-2. Both rating agencies had assigned a “negative” outlook to their ratings.

Best indicated that would remain in place and is “in line with A.M. Best’s expectations.” The rating agency noted that “the 2003 result was negatively impacted by reserve strengthening of GBP 665 million (USD 1,182 million). The majority of this was due to specific reserve increases announced at the 2003 half-year, while GBP 96 million (USD 171 million) was utilised in the fourth quarter 2003 from the contingent reserve established at the third quarter 2003 in relation to adverse loss development.” Best said it would “continue to closely monitor the development of R&SA’s reserves during 2004.”

S&P also attributed the decline in operating profits “primarily to reserve strengthening previously announced in September 2003 as a package of measures funded by a GBP960 million rights issue.” It said that “When excluding the impact of this reserve strengthening, R&SA has met Standard & Poor’s earnings expectations by recording a combined ratio of less than 102 percent for 2003.”

S&P also indicated that it “expects R&SA to achieve further improvements in the combined ratio during 2004, and to continue execution of its restructuring and capital release program to restore capital adequacy to a strong level.”

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