Insurer issued two profit warnings last week

Standard & Poor’s has downgraded its rating of RSA, warning the insurer is likely to miss its expectations of capital strengthening.

It downgraded its rating for financial strength and credit from A+ to A after RSA issued two profit warnings last week.

On Tuesday it warned storm losses would push its group return on equity below 10% and on Friday it lowered its operating profit forecast after injecting £70m to its Irish business after it discovered claims and accounting irregulatories.

S&P continues to assess RSA’s risk management as “very strong” and its management and governance as “satisfactory”.

“Nevertheless, recent events in Ireland imply that there could be deficiencies within RSA’s ERM [enterprise risk management] or management and governance frameworks.

“If the issues identified in Ireland reveal serious weaknesses in group-wide financial controls, we may lower our assessment of these factors,” it warned.

The stock market was not phased by the downgrade – RSA’s share price has not shifted from yesterday’s closing opening price of 104p.

RSA group CFO Richard Houghton pointed out that rival ratings agencies Moody’s and Fitch reaffirmed their A ratings this week.

“We have already made clear that our 2013 profits will be impacted by the St Jude storm and the issues that we have identified in our Irish claims and finance function, but that these will not impact on earnings on 2014 and 2015 and we expect to be back on track soon. The financial impact of this rating is not material to our trading,” he said.

“We are pleased S&P has acknowledged the strength of RSA’s ERM, business risk profile and its management and governance framework. We remain confident in the value of our global franchise, based on a number of very strong businesses in attractive markets around the world.”