Fitch Affirms Royal & Sun Alliance at IFS 'A'; Outlook Stable
KEY RATING DRIVERS
The ratings reflect RSA's strong business franchise in the group's core markets despite the difficulties it has faced, particularly in its Irish business. They also reflect its improved earnings and capital position since its strategic review announced in February 2014.
RSA has achieved a significant increase in capital resources as a result of management actions taken since the strategic review. This includes the announcement in September of the sale of its Latin American operations for GBP403m, bringing total agreed disposal proceeds to GBP1.2bn to date.
Fitch views RSA's end-3Q15 Insurance Groups Directive (IGD) coverage and Prism Factor Based Model (FBM) score as commensurate with the ratings. RSA's risk-adjusted capitalisation is 'Strong' as measured by Fitch's Prism FBM. At end-3Q15 RSA reported IGD coverage of 2.2x, which was unchanged from end-1H15.
Fitch expects RSA's performance to continue to improve as the group's cost reduction programme and rebalancing of the underwriting portfolio continue. RSA reported continued progress against cost reduction targets and its underwriting results in 3Q15 were ahead of plan in the core markets of the UK, Canada and Scandinavia.
RATING SENSITIVITIES
Failure to maintain a combined ratio of better than 97% (1H15: 96.9%, 2014: 99.5%) could lead to a downgrade. The ratings could also be downgraded if the return on equity falls below 10% (1H15: 9.7%).
Furthermore, if IGD coverage falls below 1.7x or the Prism FBM score falls to 'Adequate', this could lead to a downgrade.
Sustained improvement in capital strength as evidenced by a Prism FBM score of 'Very Strong' combined with continued improvements in operating performance could lead to an upgrade.
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