R&SA gets US sale approval as Commissioner backs down

Insurance Commissioner for Delaware Matthew Denn has granted Royal & SunAlliance approval to sell its US operations, but has stipulated that the group satisfy a number of conditions designed to protect policyholders.

The transaction will see Royal & SunAlliance sever its legal relationship with its US subsidiaries while providing an infusion of some $287.5m to pay unresolved claims.

Denn was however scathing in terms of the actions taken by the UK-based insurer. “The actions of Royal UK [Royal & Sun Alliance Insurance Group], though legal, are unfortunate and not the actions of fair businesspeople”.

Royal & SunAlliance had stated previously that were the transaction not to be approved the group would not continue to infuse capital into its US subsidiaries, which it was not legally obliged to do.

“Therefore a primary issue in this case is whether Royal UK is being candid when it claims that it will not continue to subsidise the American companies,” said Denn.

After reviewing this issue he concluded that approval of the application was in the nest interests of policyholders with “sufficient conditions”, which he said were “designed to ensure that the applicant's managers have no financial incentive to handle claims improperly, and to ensure that those policyholders who believe that their claims are being improperly handled with a swift, effective and inexpensive way to have the Delaware Insurance Department address their concerns.”

These conditions include that the no dividends be paid to the holding company until the Delaware Insurance Department has determined that all claims “reasonably capable of resolution” have been paid, with additional funds available to pay an additional claims that cannot be resolved “in a timely fashion”.

Furthermore, no management will receive compensation on top of their salary until the insurance department is satisfied regarding the payment of claims. Also, a claims moderator will be appointed to monitor claims and reserves.

“The imposition of these conditions will ensure that the applicants treat the claims of current Royal USA policyholders in a fair, prompt fashion,” said Denn.

While larger objectors to the sale of the US operations, including General Motors and businesses leasing the World Trade Center sites, had called for Royal & SunAlliance's application to be rejected, Denn concluded that were he to “ ‘roll the dice' and end up being wrong” it could severely harm the smaller policyholders, which it was his duty to protect.

The approval of the allotted $287.5m infusion was described by Denn as a “close call”. General Motors had launched a lawsuit against Royal USA for $1bn, but this was recently dismissed by a Michigan Trial Court.

Denn concluded: “Although I am approving this transaction with conditions because doing so is in the best interest of policyholders in the face of the existing facts and law, my approval should not be mistaken for an endorsement of the business practices of the British parent company.”