Jan 9 (The following statement was released by the rating agency)
Fitch Ratings views positively the findings of the external review of Royal & Sun Alliance Plc's (RSA) Irish business by PwC, which confirm that financial and claims irregularities identified in late 2013 were isolated to Ireland.
In addition, assurance testing carried out by the current auditor, KPMG, reinforces the agency's view that underwriting controls and management of operations at the wider group level remain solid. Confirmation that additional reserving requirements related to the Irish business remain unchanged at GBP200m is also viewed favourably.
A key driver for the resolution of the Rating Watch Negative (RWN) on RSA's ratings remains its weakened capital position, which is below the level expected for the insurer's current Insurer Financial Strength Rating (IFS) of 'A'. Findings from a separate internal review into ways for the insurer to improve the group's capital position are expected to be reported at the full year results presentation in February 2014. For the rating to be affirmed Fitch would expect to see a reversal of the trend of declining capitalisation. If Insurance Group Directive capital coverage looks set to remain below 1.7x during 2014, RSA's ratings are likely to be downgraded.
During 2013, RSA's capital position worsened as a result of resolving the issues in the Irish division as well as due to significant catastrophe losses incurred in key markets. Fitch considers RSA's capital position to be weaker than similarly rated peers, although this has historically been offset by the group's solid operating profile and ability to maintain strong underwriting profitability through the cycle.