PDF version of this press release - Royal and Sun Alliance

3. INFORMATION ON THE US OPERATION
The Group has had businesses in the US for 155 years writing property and casualty business for both
personal and commercial customers. At its largest, the US Operation wrote premiums of over
US$3 billion across a number of product lines including personal auto and household, commercial
property, packages, auto and workers compensation as well as some specialist products such as
financial enhancement products including collateralised debt obligations, credit enhancement products
and residual value contracts. The US Operation also wrote excess and surplus lines liability risks. The
US Operation has consistently delivered poor financial results and over the last ten years has made
cumulative underwriting losses of £2.7 billion with the losses predominantly driven by adverse claims
development.
As noted above, in 2003 the US Operation was identified as strategically non core and a clear objective
was set of bringing certainty and finality to the Group’s exposure to the US Operation. A new US senior
management team was appointed with a combination of insurance knowledge and run off expertise.
This team has successfully stabilised this business through a range of actions including:
s reducing headcount from 6,300 to under 700 and cutting operating expenses by 76%;
s
s
settling 130,000 open claims and reducing claims liabilities by nearly US$2 billion to just
under US$3 billion; and
negotiating the number of regulated entities from 27 down to four and reducing the number of
domicile regulators from 12 to one.
The Group has continually reported that risks and uncertainties remain in the US. These risks include
exposure to asbestos and workers compensation claims and a number of ongoing litigation cases.
Details of these risks and exposures, as reported in the Group’s interim report for the six months ended
30 June 2006, are set out in the estimation techniques, uncertainties and contingencies in Part V of this
document.
The US Operation currently employs 692 people (as at 30 June 2006) who will transfer to Arrowpoint
Capital as part of this transaction. The US Operation is principally based at the head office in Charlotte,
North Carolina with smaller offices in Farmington, Connecticut and other locations throughout the
United States.
An unaudited consolidated income statement analysed between the Core Group and the US Operation
for the six months ended 30 June 2006 is set out in Part II of this document.
The US Operation made a loss after tax of £17 million for the six months ended 30 June 2006. This
compares with a loss after tax of £30 million for the 12 months ended 31 December 2005 and a loss
after tax of £392 million for the 12 months ended 31 December 2004. The unaudited operating loss
information has been extracted from the unaudited results of the Company without material adjustment.
The net assets of the US Operation being sold were £322 million as at 30 June 2006 and £433 million as
at 31 December 2005. The gross assets were £4,528 million as at 30 June 2006 and £5,594 million as at
31 December 2005. The gross and net asset information has been extracted from the Group’s
consolidation schedules without material adjustment.
4. INFORMATION ON THE PURCHASER
Arrowpoint Capital Corp. is a company newly formed and owned by R&SA US senior management
(including the US Directors) and outside directors. Arrowpoint Capital will be led by John Tighe, CEO
and President, who has 25 years of experience in the insurance business.
5. TERMS OF THE DISPOSAL
Under the terms of the Purchase Agreement, the Group has agreed to dispose of the US Operation to the
Purchaser for deferred consideration in the form of non-interest bearing subordinate notes with an
aggregate principal amount of US$300 million (£160 million) (the ‘‘Notes’’). It is intended that the
7