Best Raises RSA Operating Companies’ Ratings; S&P Sees No Change

March 2, 2009

A.M. Best Co. has upgraded the financial strength ratings (FSR) to ‘A’ (Excellent) from ‘A-‘ (Excellent) and the issuer credit ratings (ICR) to “a” from “a-” of the rated UK operating subsidiaries of the UK’s RSA Insurance Group plc. Best also upgraded the ICR to “bbb” from “bbb-” of RSA, the non-operating holding company of the RSA group of companies, as well as the ratings of RSA’s debt instruments, which are guaranteed by Royal & Sun Alliance Insurance plc, and the preferred stock issued by RSA. The outlook for all ratings is stable.

Standard & Poor’s Ratings Services, however, issued a brief notice indicating that “the ratings and outlooks on the core operating entities of the U.K.-based non-life insurer RSA Group (main operating entities rated A/Stable/–) are unchanged following the release of the group’s 2008 results.”

S&P added that the published results [See IJ web site – had met its expectations, “and demonstrated continued strong underwriting performance (net combined operating ratio of 94.5 percent compared with 94.9 percent for 2007), above-target return on equity (18.5 percent compared with 21.3 percent for 2007), and resilient capital adequacy (economic capital surplus of £1.8 billion [$2.56 billion] at Dec. 31, 2008, compared with £2.2 billion [$3.128 billion] a year earlier) in the face of very difficult investment conditions.”

Best said it had upgraded RSA’s ratings “due to sustained improvement in the group’s consolidated risk-adjusted capitalization. This improvement has been supported by RSA’s excellent financial results in 2008, including a 25 percent increase in shareholders’ funds deriving from solid retained earnings, a rise in the group’s pension scheme surplus and foreign exchange gains.”

In addition Best noted that it “believes that RSA’s strong financial performance at year-end 2008 will be maintained in 2009. Year-end 2008 results were supported by solid investment performance, which outperformed A.M. Best’s expectations given the impact of weak economic conditions on the financial markets. Solid investment income from the group’s conservative investment portfolio, combined with gains from its various hedging strategies and asset sales, more than offset investment losses incurred during the year.

“Year-end 2008 results were also supported by excellent underwriting performance, with the group benefiting from further expense savings through improved operational efficiencies and lower weather-related losses, which impacted 2007 technical performance.

“RSA also benefits from its excellent business profile, which supports its distinct competitive advantage within its segment of the market. The UK continues to be RSA’s core market (representing 42 percent of consolidated net premium income in 2008), where it maintains a strong position within the commercial and personal lines segments of the market. Modest growth was achieved in this region in 2008, supported by some rate increases and solid retention rates.”

However, Best also indicated that the “sustained competitive environment continues to limit development in the UK. RSA also maintains a strong position in certain international markets (particularly in Scandinavia and Canada) and continues to develop its presence within the emerging markets.

An increase in consolidated net premium income of 11 percent in 2008 to £6.462 billion [$9.13 billion] (2007: £5.837 billion [$8.3 billion]) largely derived from growth in RSA’s non-UK business. Best also concluded that in 2009 RSA should post a “modest rise in net premium volume, reflecting some improvement in rates across RSA’s core market.”

A.M. Best has upgraded the FSR to ‘A’ (Excellent) from ‘A-‘ (Excellent) and the ICR to “a” from “a-” of the following subsidiaries of RSA Insurance Group plc:
Royal & Sun Alliance Insurance plc
The Globe Insurance Company Limited
Sun Insurance Office Limited
The London Assurance
Royal & Sun Alliance Reinsurance Limited
Sun Alliance and London Insurance plc

The following debt ratings have been upgraded:
— RSA Insurance Group plc (guaranteed by Royal & Sun Alliance Insurance plc) — to “bbb+” from “bbb” on EUR 200 million 6.875 percent subordinated notes,due 15 October 2019
— to “bbb+” from “bbb” on EUR 300 million floating rate subordinated
notes, due 15 October 2019
— to “bbb+” from “bbb” on USD 23,679,000 8.95 percent subordinated notes,due 15 October 2029
— to “bbb+” from “bbb” on GBP 450 million 8.5 percent perpetual
subordinated notes
— to “bbb+” from “bbb” on GBP 375 million 6.701 percent perpetual
subordinated notes

The following rating on preferred stock has been upgraded:

RSA Insurance Group plc—
— to “bb+” from “bb-“on GBP 125 million 7.375 percent preferred stock

For Best’s Credit Ratings, an overview of the rating process and
rating methodologies, please visit

Sources: A.M. Best – and Standard & Poor’s –

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