Best Takes Various Rating Actions on R&SA’s Canada Group Subsidiaries

January 20, 2006

A.M. Best Co. has made several announcements concerning its ratings on Royal & Sun Alliance’s Canadian operations.

Best affirmed the financial strength ratings (FSR) of “A-” (Excellent) of Royal & Sun Alliance Company of Canada (RSA Canada) and Quebec Assurance Company. Best also affirmed the “B+” (Very Good) FSR of Ascentus Insurance Ltd.

However, Best downgraded the FSR’s to “C” (Marginal) from “B++” (Very Good) and to “B++” (Very Good) from “A-” (Excellent) of Newfoundland-based Unifund Assurance Company and Western Assurance Company, respectively.

Best noted: “All the above companies are subsidiaries of R&SA Canada Group. All companies are located in Ontario, unless otherwise specified. All ratings have a negative outlook.”

Best said the ratings of RSA Canada and Quebec Assurance reflect its opinion that, “their respective stand alone risk-based capitalization comfortably supports both underwriting and investment risk. Furthermore, the ratings also take into consideration both companies’ overall profitable operating performance.

“The rating of Ascentus is based on its adequate level of capitalization to support its underwriting and investment risk. While underwriting and operating results are improving, historically these companies have been collectively dependent upon investment income to drive operating results. Despite these improvements, A.M. Best is concerned that the companies will be challenged to maintain positive trends during softening market conditions.”

Best added that it its opinion “there is an imbalance in the capitalization among the Canadian companies arising in part from the differing rates of growth; and as a consequence, Unifund and Western Assurance’s ratings reflect that the overall capitalization has weakened relative to existing underwriting and investment risk and no longer supports their current rating levels.

“The outlook is largely driven by issues unique to the Canadian companies, such as the historical dependence on investment income and softening market conditions. The outlook also considers the uncertainties in respect to Royal & Sun Alliance Insurance Group plc’s (United Kingdom) runoff of its discontinued business in the United States.”

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