R&SA Group Ratings under Review

“I do not like them…here or there.” With apologies to Dr. Seuss, that about sums up the views the rating agencies have taken concerning Royal & Sun Alliance’s latest earnings announcement, which also outlined plans to raise additional capital, increase reserves and sell off more operating units. They do not like it in the U.K., and they especially do not like it in the U.S.

A.M. Best, Standard & Poor’s and Moody’s all announced that they have put their ratings on the R&SA Group under various reviews for possible downgrades. Fitch and S&P have already lowered R&SA USA’s ratings, while Best has placed them under review.

Best announced that it has placed R&SA’s financial strength rating of ‘A-‘ (Excellent) and the “bbb” and “bbb-” ratings of its subordinated debt and preferred stock “under review with developing implications.” S&P said it had placed its long-term counterparty credit and insurer financial strength ratings on various operating entities of Royal & Sun Alliance Insurance Group PLC, most of which it currently rates in the ‘A-‘ category, on “CreditWatch with negative implications.” Moody’s put R&SA and all of its affiliates “on review for possible downgrade.”

The rating agencies took the actions following the company’s first half earnings report, and the announcement of plans to raise an additional £960 million ($1.52 billion) through a one for one rights issue. It also will increase reserves by around £800 million ($1.265 billion) and will further restructure its U.S. business, including a renewal rights agreement with Travelers to transfer its standard personal lines and the majority of its commercial lines business. (See IJ Website Sept. 4) All of these are viewed as potentially negative developments, despite the company’s improving results.

Both Best and S&P indicated that they were holding meetings with R&SA’s management to assess the situation and would announce their respective decisions in the near future.