Best Affirms RSA Group’s ‘A’ Ratings

January 25, 2010

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

The outlook for all of the ratings is stable.

Best said that in its opinion, “RSA’s consolidated risk-adjusted capitalization is likely to remain strong, in spite of an expected reduction in shareholders’ funds in 2009 resulting from a movement in the group pension scheme funding from surplus to deficit, exceptional re-organization costs and enhanced dividend payments to shareholders.

“RSA is expected to report an excellent profit for 2009. A marginal improvement in the group’s combined ratio from the 97.5 percent achieved in 2008 is anticipated, with a further improvement expected in 2010. Strong underwriting performance is likely to be driven by targeted growth in profitable business in Scandinavia, Canada, Latin America and the Middle East and by favorable prior year loss reserve development.”

Best also indicated that, although market conditions in the UK “remain competitive,” it believes that “RSA’s disciplined approach to underwriting will sustain profitability. In UK personal lines, only a marginal increase in net written premiums in 2009 is expected to be reported, while in commercial lines, a decrease of approximately 5 percent is likely. Overall performance is expected to be supported by a good investment return from the group’s conservative investment portfolio.”

The ratings report also described RSA as having “an excellent business profile, reflecting its well-diversified portfolio of commercial risks, personal motor and household business. The UK continues to be RSA’s primary market, representing 42 percent of the group’s consolidated net written premiums in 2008, although this proportion is expected to reduce.

“Internationally, RSA maintains a strong position in Scandinavia (largely Denmark and Sweden) and in Canada and continues to strengthen its presence in the emerging markets, particularly Latin America, Asia and the Middle East.”

Best conclude that in overall terms it “anticipates a rise in net premium volume in 2009 of between 5 percent and 10 percent over the £6.5 billion [$10.55 billion] achieved in 2008, followed by a similar increase in 2010.”

Best summarized the ratings as follows: The FSRs of ‘A’ (Excellent) and ICRs of “a” have been affirmed for 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 affirmed:
RSA Insurance Group plc (guaranteed by Royal & Sun Alliance Insurance plc)—
— “bbb+” on £500 million [$812 million] 9.375 percent subordinated notes, due 20 May 2039
— “bbb+” on $23,679,000 8.95 percent subordinated notes, due 15 October 2029
— “bbb+” on £450 million |$730.6 million] 8.5 percent perpetual subordinated notes
— “bbb+” on £375 million [$608.8 million] 6.701 percent perpetual subordinated notes

The following rating on preferred stock has been affirmed:
RSA Insurance Group plc—
— “bb+” on £125 million [$203 million] 7.375 percent preferred stock

Source: A.M. Best –

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