Best Affirms R&SA ‘A-‘ Ratings

March 9, 2007

A.M. Best Co. has affirmed the financial strength rating (FSR) of “A-” (Excellent) and the issuer credit rating (ICR) of “a-” of the U.K.-based Royal & Sun Alliance Insurance Group plc and its rated subsidiaries. Best also affirmed the ratings of R&SA’s debt instruments and preferred stock.

“These actions remove the under review status applied in September 2006 when the sale of R&SA’s U.S. operation to Arrowpoint Capital was announced,” Best explained. “The outlook for all ratings is positive, reflecting lower anticipated earnings volatility and a likely improving trend in R&SA’s consolidated risk-adjusted capitalization following the completion of the sale.”

Best noted that in its opinion “the disposal of the U.S. operation is likely to lead to strengthening of R&SA’s consolidated risk-adjusted capitalization, despite the negative impact on equity of £499 million ($963 million) at year-end 2006. The removal of U.S. technical reserves from the company’s balance sheet has reduced the uncertainty relating to the adequacy of R&SA’s reserves and, consequently, potential earnings volatility (although prior to 2004, the company suffered shortfalls in its non-U.S. reserves as well as its U.S. reserves).”

Best added that it “believes R&SA’s continuing exposure to the U.S. operation is largely limited to timing risk relating to an adverse development cover and the maintenance of existing letter of credit facilities.”

In addition Best discussed the “significant restructuring over recent years,” undertaken by R&SA, “including the sale of its U.S. business.” These moves have “improved R&SA’s focus on its core profitable markets, where it is best placed to optimize its returns,” said Best. “A solid operating performance is anticipated in 2007 as sustainable expense savings largely offset deteriorating premium rates. In 2006, the company reported a post-tax loss of £20 million ($39 million), compared to a profit of £605 million ($1.168 billion) in 2005, owing to the loss on disposal of the U.S. operation.”

Best also indicated that the ratings are “supported by R&SA’s excellent business profile in its core markets, particularly in the United Kingdom, Scandinavia and Canada. In addition, the company continues to successfully develop its presence in selected emerging markets, such as the Baltic States, Latin America and India.”

The FSR of A- (Excellent) and the ICR of “a-” of Royal & Sun Alliance Insurance Group plc and the following subsidiaries have been affirmed:
— The Globe Insurance Company Limited
— Royal & Sun Alliance Insurance plc
— Sun Insurance Office Limited
— The London Assurance
— Royal & Sun Alliance Reinsurance Limited
— Sun Alliance and London Insurance plc

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