S&P says prognosis negative for Royal Sun

Standard & Poor’sRatings Services has affirmed its insurer financial strength and counterpart credit ratings onRoyal & Sun Alliance(R&SA) Lenders Mortgage Insurance at AA-.

Meanwhile the ratings house has downgraded R&SA’s Insurance Australia, Insurance (New Zealand), and Liability Insurance businesses from A+ to A.

Lenders Mortgage Insurance maintained its ratings as a consequence of its “very strong financial structure . . . and legal undertakings to protect its very strong capitalisation”, according to Standard & Poor’s. The outlook for the business, however, was rated as negative.

The other businesses were downgraded following their UK-based parent company, Royal & Sun Alliance Insurance Group being similarly downgraded from A+ to A. The outlook for all of the businesses has been rated as negative.

“The revised ratings of R&SA reflect the group’s excellent global market position in general insurance and an improving earning outlook. However capitalisation is not consistent with the ratings, and the group’s ability to secure external capital is restricted. An accumulation of pressures in the past three years has reduced capital adequacy to adequate levels in 2002, from very strong levels in 1999,” Standard & Poor’s says.

It also says that R&SA’s need for additional capital is to fund the expected string growth in its core business in 2003 and beyond. The ratings house expects that capital adequacy will be strengthened to meet growth expectations. But if the insurer fails to meet this expectation in the next six months, Standard & Poor’s could further downgrade the rating.