A.M. Best Lowers R&SA USA Rating
NU Online News Service, Nov. 26, 3:00 p.m. EST?A.M. Best Co. said it has lowered financial strength ratings for the insurance pool of Royal & SunAlliance USA, based in Charlotte, N.C., to "B" (Fair) from "B-plus" (Very Good).[@@]
Also affected by the downgrade is the financial strength rating for the Royal Surplus Lines Insurance Company, a wholly-owned subsidiary of Royal Insurance Company of America, which is a member of the pool. The ratings have now been removed from under review with "negative" implications and a "negative" outlook has been assigned, the OIdwick, N.J.-based insurance rater said.
A.M. Best explained that these ratings had been placed under review since late September, following an earlier announcement by Royal & SunAlliance USA's U.K. parent, Royal & Sun Alliance Insurance Group plc, that it will restructure its U.S. businesses.
This restructuring, A.M. Best said, includes a substantial third-quarter charge for loss reserves. Also included in the restructuring is the ongoing sell-off of big parts of Royal USA's mid-market commercial and personal lines business.
A.M. Best also cited there has been "significant erosion to the capital position and financial flexibility" of Royal & SunAlliance U.S. insurance units, which precludes a secure A.M. Best rating.
"In A.M. Best's opinion, there is potential for additional reserve development in light of the significant and lengthy history of reserve deficiencies experienced by the U.S. entities," the ratings agency said.
Making the matter worse is a significant lawsuit with MBIA over fraudulent student loans, the ratings firm noted. The eventual outcome of this lawsuit won't be known for another year and, if adverse to Royal USA, could further hurt the U.S. surplus level.
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