A.M. Best Places Ratings of Royal & Sun Alliance Under Review With Positive Implications

Business Wire, Sept 28, 2006

OLDWICK, N.J. -- A.M. Best Co. has placed the financial strength rating (FSR) of A- (Excellent) and the issuer credit ratings (ICR) of "a-" of Royal & Sun Alliance Insurance Group plc (R&SA) (United Kingdom) and its rated subsidiaries under review with positive implications. At the same time, the ratings of R&SA's debt instruments and preferred stock have also been placed under review with positive implications. (See link below for a detailed list of ratings.)

These rating actions have been taken pending completion of the proposed sale of R&SA's U.S. operation to Arrowpoint Capital, a new company formed by R&SA's U.S. management team. A.M. Best will review the impact of the transaction on R&SA's risk adjusted capitalisation, particularly the impact of the removal of the U.S. technical reserves from its balance sheet. A.M. Best anticipates that this will result in a reduction in potential volatility, although prior to 2004 the company suffered shortfalls in its non-U.S. reserves (as well as it U.S. reserves).

A.M. Best believes that after completion of the sale, R&SA's continuing exposure to the U.S. operation will be largely limited to timing risk relating to an adverse development cover and the maintenance of existing letter of credit facilities. (The U.S. operation has a USD 150 million letter of credit from its UK parent.). If the U.S. business were to draw down on this facility then repayment would have priority before any distribution could be made, subject to a limit of USD 100 million.

The under review status of the ratings has positive implications, reflecting A.M. Best's view that the review will most likely result in an affirmation or upgrade of R&SA's existing ratings. A.M. Best anticipates finalising its review in line with R&SA's timeframe for completion of the sale which is expected by year-end 2006.

For a complete list of Royal & Sun Alliance Insurance Group plc's FSRs, ICRs and debt ratings, please visit www.ambest.com/press/092801rsa.pdf.> For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.> A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.