Best Puts R&SA Ratings on Review/Positive

September 29, 2006

A.M. Best Co. has placed the financial strength rating (FSR) of “A-” (Excellent) and the issuer credit ratings (ICR) of “a-” of the U.K.’s Royal & Sun Alliance Insurance Group plc and its rated subsidiaries under review with positive implications. The action follows yesterday’s announcement (See IJ Website) that R&SA is selling its remaining U.S. operations to Arrowpoint Capital, a new company formed by R&SA’s U.S. management team.

At the same time, the ratings of R&SA’s debt instruments and preferred stock have also been placed under review with positive implications.

Best said it “will review the impact of the transaction on R&SA’s risk adjusted capitalization, particularly the impact of the removal of the U.S. technical reserves from its balance sheet.” Best also indicated that it “anticipates that this will result in a reduction in potential volatility, although prior to 2004 the company suffered shortfalls in its non-U.S. reserves (as well as it U.S. reserves).”

Best said it “believes that after completion of the sale, R&SA’s continuing exposure to the U.S. operation will be largely limited to timing risk relating to an adverse development cover and the maintenance of existing letter of credit facilities. (The U.S. operation has a $150 million letter of credit from its UK parent.). If the U.S. business were to draw down on this facility then repayment would have priority before any distribution could be made, subject to a limit of $100 million.

“The under review status of the ratings has positive implications, reflecting A.M. Best’s view that the review will most likely result in an affirmation or upgrade of R&SA’s existing ratings. A.M. Best anticipates finalizing its review in line with R&SA’s timeframe for completion of the sale which is expected by year-end 2006.”

For a complete list of Royal & Sun Alliance Insurance Group plc’s FSRs, ICRs and debt ratings, please visit

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