R&SA sells US operation, terminates Group SEC registration

Royal & Sun Alliance Insurance Group plc (R&SA) has sold its US operation to Arrowpoint Capital, a vehicle set up by the R&SA US management team.
R&SA also recently terminated its American Depositary Receipt program, its voluntary delisting from the New York Stock Exchange and action to terminate its US Securities and Exchange Commission registration.
In September 2003 the Group announced that its US operation was strategically non-core.
The Group closed its US operation to new business and instigated a restructuring plan with the objective of bringing certainty and finality to the Group’s US exposure. In the last three years the Group says it has taken significant action to deliver this objective.
The Group reports it is selling its US operation to Arrowpoint Capital for a deferred consideration of 158 million ($300 million), which will be funded from the future performance of the US operation. The transaction is conditional upon; inter alia, shareholder and regulatory approvals. On receipt of these approvals and with completion of the transaction, the Group says it will make a 151 million ($287.5 million) capital contribution into the US regulated entities. The net capital contribution, write off of US net assets and other related costs, will result in an estimated pre tax loss on disposal of 443 million (1).
Andy Haste, Group CEO says this is a significant step for the Group.
“The sale of the US operation is the right deal for our shareholders and US policyholders,” Haste says. “The transaction will bring certainty and finality and delivers on our objective of a clean exit from the US.
“Over the last three years we have dealt with a number of legacy issues and in the Core
Group built a high quality business focused on driving profitable growth and continuous operational improvement. We remain confident of continuing to deliver sustainable profitable performance.”
R&SA says two existing arrangements will remain in place: the Adverse Development Cover (ADC) and the Letter of Credit supporting certain third party reinsurance recoverables (LOC). The ADC is a reinsurance cover put in place in 2003. It is at its policy limit and therefore not subject to further insurance risk.
For the LOC of 79 million a methodology has been agreed to step it down commencing two years after the completion of the transaction conditional on the financial health of the US regulated entities.
In the event that the regulated entities are required to draw down on the LOC, a mechanism has been agreed for reimbursement to the Group.
R&SA says neither the ADC nor the LOC represent new exposures to the Group and the directors believe that they do not represent material risks to the Group given their nature, timing and likelihood.
With the completion of the transaction the Group says it will continue to be in a strong financial position with a pro forma IGD surplus of 1 billion and IGD coverage ratio of 1.9 times.
Subject to receipt of shareholder and regulatory approvals, R&SA is targeting completion of the transaction by the end of the year.
R&SA’s NYSE listing is expected to terminate on 30 October 2006. In order to terminate the SEC registration and suspend SEC reporting obligations, R&SA must certify that there are less than 300 US holders of each relevant class of security.
As R&SA currently has over 300 US holders, it will be proposing to amend its Articles of Association to include provisions conferring upon the Board the power to require any US holder to sell securities and restrict the number of US holders.
Deregistration from the SEC requires an amendment to R&SA’s Articles of Association requires shareholder approval and as such, the Group plans to send a formal notice of the meeting and the resolutions to shareholders on October 2.