In the new Financial Services Authority regulated environment brokers need to be confident about the financial standing of the insurance companies they deal with on a day-to-day basis. With this in mind Insurance Age has introduced a new feature in association with Standard and Poor's to give an indepth financial review of all the major insurance companies - starting with Royal & Sun Alliance
In October 2004, Standard & Poor's (S&P) revised its outlook on the main operating entities of Royal & Sun Alliance Insurance Group (RSA) to A-/Stable from A-/negative. The stable outlook reflected RSA's stronger capitalisation and improved underlying earnings, as well as the belief that management will continue to successfully execute its strategy.
The results announced for 2004 meet S&P's expectations and so the rating is unaffected. The announcement of £160m loss reserve charge was consistent with the opinion, stated in the rating analysis, that the loss will not exceed £400m. It also described a continued track record of effectively executed strategy since the arrival of the new ceo in March 2003. This success will be further demonstrated by the reduction in the expense base by 3%, the full benefits of which will be seen in 2006.
The ratings on RSA reflect the group's strong competitive position, capitalisation and operating performance. The competitive position is based on its standing in its key markets of the UK and Scandinavia. The group is also considered to have a stronger position in commercial than personal lines in the UK, its largest market.
Capitalisation has improved and risk-based capital adequacy is also strong and is to a significant extent resilient to further reserve deficiencies.
RSA has strengthened its balance sheet through its capital-release programme - most importantly via the sale of its UK life operations - and through its reduction in premium writings.
It has to be said that RSA's operating performance over recent years has been poor. However, prospective underlying operating performance for continuing business on an accident-year basis is expected to be very strong, and will be enhanced by the expense-savings programme. These positive factors are partially offset by the group's financial flexibility (defined as the ability to source capital relative to capital requirements), which is considered only 'good' in ratings terms.RKGNTTE TU GA TA NA UG TwS