Moody’s Puts Royal & Sun Alliance Units Under Review For Possible Downgrade

London, April 11 - Moody's Investors Service today placed under review for possible downgrade the ratings of Royal & Sun Alliance Insurance Group (RSA) and its subsidiaries. Moody's commented that the review will focus particularly on the capital position of the group, which weakened significantly in 2002. Results were adversely affected by a number of factors including a high combined ratio, the development in the underwriting loss attributable to prior years, large goodwill impairment charges, and equity market related losses. These lead to a retained loss of GBP 1.6 billion, which was at the high end of expectations and depleted shareholder funds. The review will focus on the strength of the capital position in different geographical regions where RSA conducts its business and will assess the potential need for further capital support from the UK. In particular Moody's has concern about the capital position in the USA. Moody's notes that RSA has demonstrated tangible support for overseas operations in the past and believes that it will continue to do so. However, any future capital injections that may be required would strain the already fragile capital position. The review will also focus on a number of areas including the adequacy of loss reserves, underwriting leverage, reliance on reinsurance and a high level of reinsurance recoverables, group liquidity, and the potential outcome of current litigation issues facing the group.

Published on April 11, 2003

Moody's commented that the restructuring program announced in November last year has made positive progress, with a number of small asset sales having been concluded successfully, planned expense reductions achieved on schedule, and the recent announcement of the imminent sale of the UK Healthcare and Assistance business. However, Moody's regards the IPO of the Australian business as vital and, along with the sale of RSUI in the USA, is at a crucial stage of progress. Successful outcomes of these two transactions would go some way towards moderating concerns about the group's capital position. Moody's would view negatively any significant difference between indicative prices and those achieved, or if the transactions were not to proceed.

Separately, Moody's announced today that it has withdrawn the Baa2 insurance financial strength ratings on three former members of the Royal & SunAlliance USA intercompany pool (the "RSA USA Pool"). The three companies involved, Design Professionals Insurance Company, EBI Indemnity Company and Employee Benefits Insurance Company, have been merged into their affiliate, Security Insurance Company of Hartford, which continues to maintain a 10% participation in the RSA USA Pool (insurance financial strength ratings of intercompany pool members at Baa2, on review for possible downgrade).