S&P Raises Royal&Sun Ratings to ‘A’

December 12, 2007

Standard & Poor’s Ratings Services has raised its long-term counterparty credit and insurer financial strength ratings on the main operating entities of The Royal & Sun Alliance Insurance Group PLC (RSA) to ‘A’ from ‘A-‘. The outlook on all of the Group’s rating is stable.

S&P also raised the short-term counterparty credit rating on Royal & Sun Alliance Insurance PLC to ‘A-1’ from ‘A-2’.

“The ratings reflect our strong assessment of RSA’s enterprise risk management (ERM), which in turn provides us with greater confidence in the group’s underwriting cycle management and its ability to produce consistently positive earnings,” noted S&P credit analyst Nigel Bond.

S&P indicated that it has a “positive opinion about RSA’s management and corporate strategy. The group also has a strong competitive position.” However the rating agency said that these “positive factors are partially offset by RSA’s capitalization and financial flexibility that, despite improvement, are not yet consistent with the new rating level.”

“We expect RSA’s management to remain committed to its strategy of sustainable profitable performance, underpinned by its strong ERM, and will continue to produce ‘combined operating ratios’ in the mid-90s and to exceed its 12 percent underlying ROE target,” Bond added. S&P expects this year’s combined ratio to be around 100 percent and the ratio for 2008 to be around 98 percent or better.

Bond indicated that having “completed its restructuring, the group is expected to enhance its competitive position mainly through organic development, although small acquisitions are also likely. Capital adequacy is expected to remain strong, with no deterioration in the quality of capital employed.”

S&P concluded that the “ratings are unlikely to rise over the rating horizon. Negative rating pressure may be exerted if RSA does not meet its public ‘combined operating ratio’ and underlying ROE targets, or if its capital adequacy were to fall significantly below its rating level.

Source: Standard & Poor’s – www.standardandpoors.com

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