A.M. Best Notes R&SA USA Pool and Royal Surplus Lines Co. Ratings Remain Unchanged

A.M. Best Co. commented that the financial strength ratings of A- (Excellent) of the Royal & SunAlliance USA Insurance Pool and the affiliated Royal Surplus Lines Insurance Company remain unchanged following the parent company’s announcement of the 2002 year-end results. The U.S. rating outlooks remain negative.

As expected, the parent’s 2002 year-end results reflect the group’s improving operating performance while maintaining an excellent business position in its key markets, both in the United States and worldwide, despite losses driven by additions to loss reserves in the United States.

R&SA-USA continues to execute its risk reduction program, exiting non-core lines of business and further divesting and closing non-core operations. The sale of Royal Specialty Underwriting, Inc. (RSUI), which could represent a significant source of capital release, is likely to be completed before June 2003. The anticipated and significant decline in net premium volume during 2003 is expected to lead to a reduction in risk capital requirements, enabling R&SA-USA to focus on growing its priority lines in the United States.

A.M. Best believes that the U.S. operations are on track to achieving the group’s stated goals of reducing risk exposure and expenses. However, the consolidated earnings of the insurance pool will be negatively impacted by the anticipated loss of RSUI’s strong earnings.

In addition, the group remains potentially exposed to further capital erosion from additional loss reserve development on retained liabilities.