RSA ratings unchanged after Zurich deal falls through

Standard & Poor's (S&P) has removed the ratings of Royal & Sun Alliance Insurance (RSA) from credit watch with positive implications after its pending deal with Zurich fell through.

But it has reaffirmed the ratings at their previous levels, which was 'A' for its long-term counterparty credit and financial strength ratings. The outlook on all the ratings in the group is now stable.

On September 21, 2015, Zurich Insurance and RSA both announced that Zurich had ended its discussions with RSA about potentially acquiring the RSA group.

Zurich confirmed to RSA that it did not find anything outside of its expectations or anything that would have led it to change the terms of the transaction announced last month as a result of the due diligence process.

But the discussions between the two companies were at an early stage and no formal offer was made. Therefore, S&P said it believes that the distraction to RSA’s management team will have been minimal, and that business profile and strategy are unchanged.

“We expect RSA to continue to execute on its strategic plan as a stand-alone group, as demonstrated by the sale of its Latin American business unit, announced earlier this month.

We consider that RSA’s financial profile is largely unaffected by this week’s announcement. There is no impact on the group’s capital adequacy or risk position,” said S&P.

The firm also said that RSA’s financial flexibility is “largely unchanged from earlier in the year, prior to the deal speculation, as its share price has reversed all gains made since the Zurich approach became public in late July.”

S&P says it has factored an expectation of shareholders’ faith in management’s ability to execute the strategic plan into its ratings, as well as solidifying the balance sheet and earnings and defending the group’s competitive position. It believes these are “largely unchanged” from before the speculation of a deal became public in July.