Standard & Poor's has lowered its insurer, counterparty credit and financial strength ratings on Royal & Sun Alliance Insurance Group's US insurance operations (RSA USA) to 'BB' from 'BB+'.
"The downgrade reflects the reduced appetite of RSA USA's parent to provide the US operations with additional capital should the need arise," said S&P's credit analyst Tom E Thun.
RSA USA effectively went into run-off in 2005 following the sale of its non-standard auto business.
Standard & Poor's expects RSA USA to continue to meet its policyholder obligations over the near term.
The companies' statutory surplus at year-end 2005 totalled $834m (E696m), supporting net loss reserves of $3.4bn (E2.8bn).
Of these reserves, approximately $540m (E451m) is related to asbestos & environmental exposures, which are long tail and notoriously volatile.
The negative outlook continues to reflect the extent of the residual reserving risk at RSA USA and the companies' weak prospective financial flexibility.
Because of the complexities associated with the run-off of RSA USA's book of business, Standard & Poor's believes that management will continue to be faced with challenges.
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