Pressure mounts as RSA Group's credit rating is downgraded
THE parent company of troubled RSA Insurance Ireland has come under more pressure after its credit rating was downgraded and competition tsars in Britain said motor insurance costs were too high.
Standard & Poor's cut its credit rating on RSA Group to its lowest level in more than a decade, and now there are fears of more downgrades, threatening its ability to retain commercial clients.
S&P lowered RSA one notch to A-, the lowest since 2002, and said the company could be downgraded up to two more levels in the next 90 days.
RSA issued three profit warnings in less than six weeks amid a capital shortfall at its Irish unit, developments S&P said reflect "a weakening in RSA management".
Most of the problems stem from the Irish operation which had to be shored up with an extra €235m in capital.
More downgrades may push RSA into low investment-grade ratings that could make it too risky for insurance brokers to recommend its products to commercial clients, according to Marcus Rivaldi, a London-based analyst at Morgan Stanley.
And Britain's Competition Commission found that UK drivers are paying too much for car insurance every year due to the inflated cost of settling not-at-fault claims.
It called for a reduction in premiums, a move likely to hit the RSA Group.
There are fears that the financial turmoil engulfing RSA Insurance is to cost families in Ireland around €100 in higher premiums.
This is because RSA will be forced to hike premiums after its parent company had to shore it up again.
And other insurers will now seize the opportunity from the hobbling of RSA to charge more for home and motor policies, analyst Eamonn Hughes of Goodbody Stockbrokers said.
The largest insurer of homes and motors in this market, RSA also operates the popular 123.ie brand, which it bought for €83m in 2010.
Mr Hughes noted: "The capital injection by RSA and additional reserving is also likely to require a return to higher premiums as well."
The ongoing debacle at RSA Ireland led last week to the resignation of its group chief executive Simon Lee.
The move follows the resignation last month of RSA Ireland chief executive Philip Smith after financial irregularities were discovered in the Irish arm. RSA said its Irish division had not put enough funds aside to meet likely claims, especially for those involving injuries to drivers insured with it.
RSA said it had completed a review of its Irish business and its reserves -- the money set aside to cover future insurance claims.