Moody’s changes Royal & SunAlliance outlook to positive

Following a recent report of strong quarterly and annual results by Royal & SunAlliance, Moody’s Investors Service has changed the outlook on the European ratings of the Royal & Sun Alliance Group to positive from stable.
Ratings affected are the Baa1 insurance financial strength rating (“IFSR”) of Royal & Sun Alliance Insurance plc and the Group’s Scandinavian subsidiaries and the Baa3 rating for long-term guaranteed subordinated debt at Royal & Sun Alliance Insurance Group plc.
The ratings of the Group’s U.S. subsidiaries (all with an IFSR of Ba3) were affirmed with a stable outlook.
Moody’s said the outlook change reflects the Group’s continued success in meeting its strategic objectives, as reflected in Royal & Sun Alliance’s return to profitability in 2005 and the improved balance sheet and capital position of the Group.
“More specifically, Moody’s notes that Royal & Sun Alliance’s operating result in 2005 improved by GBP440 million to GBP698 million, driven by a continued strong performance of the Group’s core businesses (ongoing combined ratio of 93.8%) and considerably reduced underwriting losses from its U.S. operations,” Moody’s noted in a press release. “Profit after tax stood at GBP605 million (v. a loss of GBP80 million in 2004), reflecting the improved operating performance, the benefit of changes to the U.K. pension scheme and a number of disposals.”
Moody’s went on to say that going forward any upgrading of the group’s core ratings would be “determined by the extent to which the current and prospective profitability of Royal & SunAlliance’s core businesses can be sustained in a challenging market environment, whilst further reducing the Group’s gross underwriting leverage, building its capital base and maintaining moderate amounts of financial leverage.
“In particular, positive rating movement could be triggered by the core businesses maintaining a combined ratio of around 95% for 2006, a core group underlying ROE of above 12% and Group financial leverage (including pension adjustments) below 30%.
“Additionally, further positive rating action is predicated on the Group’s success in further reducing or eliminating its exposure to its U.S. operations without materially damaging its financial strength.”