The credit rating of Royal & SunAlliance was downgraded by Standard & Poor's this week and rival rating agency Moody's is also reviewing the company with a view to lowering its rating.

S&P says the downgrade from "A+" to "A" reflects a decline in RSA's capital base amid the downturn in stock markets.

"The downgrades reflect the decline in RSA's capital adequacy and the expectation that the group's capital base will not be rebuilt to levels in line with Standard & Poor's previous expectations," S&P credit analyst Mark Button says.

Over the past week RSA said 1,200 jobs were to go in the United Kingdom, it confirmed it was short of capital and announced it was considering a rights issue.

One of the problems RSA, along with other UK insurance companies face, is that their capital adequacy ratios have been harmed by share market falls as much of their capital is invested in equities.

S&P expects RSA will need to strengthen its capital adequacy in order to meet its growth aspirations.

However the agency is warning that RSA's rating could be lowered another notch if there isn't an improvement in the next six months.

Moody's yesterday placed the A2 insurance financial strength rating of RSA's Lenders Mortgage Insurance Limited (RSA LMI) on review for possible downgrade, following its announcement that it has put the ratings of RSA LMI's ultimate parent Royal & Sun Alliance Insurance Group Plc (RSA Group) and its operating subsidiary, Royal & Sun Alliance Insurance Plc on review for possible downgrade.