Canadian Underwriter

Royal & Sun parent loses A rating from Fitch

February 25, 2003   by Canadian Underwriter

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Rating agency Fitch’s has downgraded the financial strength of U.K.-based Royal & SunAlliance Insurance plc (RSAIP) from A- to BBB+. The company’s long-term rating was also lowered to BBB- from BBB, and its junior subordinated debt to BB+ from BBB-.
This follows the group’s ratings being lowered with a “negative outlook” in mid-November of last year.
Fitch says there are concerns about the group’s ability to raise capital and to implement its turnaround strategy over the next 18 months. Among the concerns is reserving, particularly its exposure to the U.S. casualty market which has been an industry-wide focus for Fitch recently. The group has said it may need to increase provisions by $250 million pounds (Cdn$588 million) in the fourth quarter of 2002, but Fitch thinks even this may be inadequate. Asbestos reserving is also a concern as it has been for many other companies
Overall, Fitch sees the group in a weak capital position, while noting that efforts are being made to correct this. However, the sale of certain operations outlined in the group’s restructuring plan has not been followed by any actual disposition, and Fitch worries that the current market constrains the ability to sell of these units.
The Canadian operations of Royal & SunAlliance still currently hold a rating of A- from A.M. Best.

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