Royal & Sun USA Downgraded To "B-plus"

The rating actions follow Best's review of the U.S. group's business profile, portfolio uncertainties and reduced financial flexibility following the Sept. 4 announcement by the U.S. group's U.K. parent, Royal & Sun Alliance Insurance Group plc (RS&A), of the group's restructuring of its U.S. business.

According to the announcement, the restructuring will include a substantial charge for loss reserves, as well as the disposition of a sizable portion of the U.S. group's mid-market commercial and personal lines business.

Best said that while the proposed restructuring in the United States will reduce the group's global consolidated risk capital requirements for ongoing business, the restructuring will negatively impact the business profile of its U.S. operations and significantly erode the capital position of R&SA's U.S. insurance entities.

The rating firm said the companies' ability to sustain additional adverse loss reserve development of existing liabilities is hampered.

There is potential, in Best's opinion, for additional reserve development in light of the significant and lengthy history of reserve deficiencies experienced by the U.S. entities.

Best said it no longer considers the U.S. group to be strategically important to the U.K. parent. Best noted, however, that the U.K. parent remains committed to ensuring that the U.S. operations' statutory surplus is maintained at appropriate levels for regulatory purposes.

Best said it expects to resolve the under review status of the companies' U.S. ratings following a review of the group's third-quarter and pro forma full-year operating performance, capitalization and reserve adequacy.