DCR Okays 'A' Ratings of Royal & SunAlliance Subsidiaries
Duff & Phelps Credit Rating Co. reaffirmed the 'A' (Single-A) claims paying ability ratings of Royal Maccabees Life Insurance Company (RMLIC) and its wholly owned subsidiary, Royal Life Insurance Company of New York (RLNY). The companies are consolidated under the Royal & SunAlliance Financial Services (RSA-FS) brand, in an insurance holding company structure, and carry the same rating because they are managed as a single enterprise, share a common management team and have complementary business operations.
The rating reflects RSA-FS's capital strength, improving profitability and high-quality, liquid investment portfolio. In addition, the company's strategic position within Royal & SunAlliance Insurance Group PLC (RSA) was taken into consideration when assigning the rating. Balanced against these strengths were stagnant sales in the individual life business, losses in the discontinued disability insurance line of business, exposure to interest rate and disintermediation risk and limited brand recognition. The rating outlook is stable.
RSA-FS's ultimate parent, RSA, is one of the top-10 multi-line insurance companies in the world and reported $100 billion in assets, shareholder surplus of $12 billion and operations in more than 120 countries at year end 1997.
Recent developments at RSA-FS include the merging of RMLIC with former subsidiary company, Royal Life of America (RLA), and subsequent selling of the RLA corporate shell at a modest gain. Also during 1997, the company took the claims administration of its discontinued disability insurance business in-house and successfully reduced the number of outstanding claims. This line of business reported a net operating loss of $2.9 million in 1997, which was an improvement from 1996's loss of $4.9 million. Continued losses of decreasing magnitude are expected from the disability insurance line over the next several years.
RSA-FS has been challenged over the past few years to gain marketing momentum and the company took several steps in 1997 to improve the situation. The company hired a new national sales vice president with considerable industry experience, began a major promotional campaign and started a national sales desk. The individual life insurance line of products was being redesigned during 1997 and sales suffered as a result. However, a new annuity product with a seven-year guarantee was quite popular and had a significant effect on annuity sales during the year.
The combination of improved margins, favorable mortality and reduced operating expenses resulted in a third consecutive year of record earnings at RSA-FS. Consolidated net operating gain in 1997 reached $19.9 million, up from $15.1 million in 1996 and translated to a solid return on average adjusted surplus of over 10 percent.