A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of "a" of the main UK operating subsidiaries of RSA Insurance Group plc (RSA) (United Kingdom). At the same time, A.M. Best has withdrawn the ratings from three subsidiaries, which ceased business effective 1 January 2012.
A.M. Best also has affirmed the ICR of "bbb" of RSA, the non-operating holding company of the RSA group of companies as well as the debt ratings of RSA, which are guaranteed by Royal & Sun Alliance Insurance plc (United Kingdom), and the preferred stock issued by RSA. The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)
The ratings of RSA's operating subsidiaries reflect the group's consistently profitable operating performance and excellent business profile in its core markets. An offsetting rating factor is the level of consolidated risk-adjusted capitalisation, which although likely to remain good, has been reduced in recent years by a relatively high dividend payout ratio to shareholders and reducing bond yields. Moreover, the group's organic growth plans and acquisitions continue to be supported only by internal capital generation, which has the potential to weaken the group's risk-adjusted capital position, particularly through purchased goodwill. However, the group's good operating performance in 2011 has led to a modest rise in shareholders' funds to GBP 3,801 million from the GBP 3,766 million reported at year-end 2010.
Pre-tax profit in 2011 increased to GBP 613 million from the GBP 474 million reported in 2010, which was badly affected by adverse weather events in Scandinavia, Ireland and the United Kingdom, in addition to the Chilean earthquake early in the year. A solid underwriting performance was achieved, despite losses arising from the New Zealand and Japanese earthquakes, the Slave Lake fire in Canada and floods in Denmark, Ireland and Thailand. Performance was boosted by RSA's acquisitions during 2010 in the Middle East, Ireland and Canada, together with targeted growth in profitable business in Scandinavia, Canada and Latin America. Overall favourable prior year loss reserve development also assisted results, although reserves required strengthening in relation to claims arising from the UK winter weather in late 2010 and deterioration in Italian motor business. The group reported strong underwriting results in 2011 in Canada, Scandinavia and Ireland. In the United Kingdom, challenging market conditions continue, but a good increase in net written premiums of 6% was achieved, driven by strong rate increases in personal motor and household business and some growth in commercial motor and specialty lines. Overall performance was supported by a good investment return from the group's conservative investment portfolio.
RSA has an excellent business profile, reflecting its well-diversified international portfolio of commercial risks, personal motor and household business. The United Kingdom continues to be RSA's largest market, representing 38% of the group's consolidated net written premiums in 2011, although this proportion is expected to reduce slightly in 2012. Internationally, RSA maintains a strong position in Scandinavia (largely Denmark and Sweden) and Canada, where its presence has been bolstered through acquisitions. Additionally, RSA continues to build up its business in the emerging markets, particularly Latin America, Asia and the Middle East.
Given RSA's consistently good operating performance and excellent international business profile, upward movement in the group's ratings could result from sustained improvement in risk-adjusted capitalisation. Downward movement in the ratings could result from a significant deterioration in operating performance or erosion of risk-adjusted capitalisation.
The FSR of A (Excellent) and ICRs of "a" have been affirmed for the following subsidiaries of RSA Insurance Group plc:
- Royal & Sun Alliance Insurance plc
- Royal & Sun Alliance Reinsurance Limited
- Sun Insurance Office Limited
The FSR of A (Excellent) and ICRs of "a" have been withdrawn from the following subsidiaries of RSA Insurance Group plc, as they are no longer licensed to write insurance business:
- The Globe Insurance Company Limited
- The London Assurance
- 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 GBP 500 million 9.375% subordinated notes, due 20 May 2039
-- "bbb+" on USD 23, 679, 000 8.95% subordinated notes, due 15 October 2029
-- "bbb+" on GBP 450 million 8.5% perpetual subordinated notes
-- "bbb+" on GBP 375 million 6.701% perpetual subordinated notes
The following debt rating has been affirmed:
RSA Insurance Group plc—
-- "bb+" on GBP 125 million 7.375% preferred stock
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilised include: "Risk Management and the Rating Process for Insurance Companies"; "Catastrophe Analysis in A.M. Best Ratings"; "Understanding BCAR for Property/Casualty Insurers"; "Understanding Universal BCAR"; "Rating Members of Insurance Groups"; and "A.M. Best's Ratings & the Treatment of Debt". Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.
A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best Company.Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2012 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.
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