Supplemental IE Report RSAI Sun & Marine - Royal and Sun Alliance

Milliman Client Report
6.10 Final terms of these quota share reinsurance agreements have now been agreed. The agreements have been priced
on an “arm’s length” basis and ensure an adequate return on capital to RSAI. The premium and claims payments
under each quota share agreement will be subject to a quarterly
settlement mechanism and each quota share
agreement will be subject to annual renewal.
CONCLUSION
6.11 Each party to the DMG has undertaken to each other party to “guarantee and indemnify” that other party “in respect of
the due performance of all policies and contracts in respect of general insurance business” of that other party. In this
way, through the DMG each party currently benefits from the capital strength of RSAI and its UK insurance
subsidiaries (that are also party to the DMG) as a whole.
6.12 Following the implementation of the transfers, although the DMG will be terminated:
• The business transferred to RSAI will be merged with the existing business of RSAI;
• The existing business of and the business transferred to Marine and Sun (as the case may be) will be wholly
reinsured by RSAI through the aggregate excess of loss agreements thereby merging the financial interests
with those of RSAI; and
• To the extent that the existing (non-transferred) business of RSA Re is not already reinsured by RSAI,
Marine or Sun, the credit risk associated with the residual business reinsured externally from these
companies will be insured by RSAI, thereby merging the overall financial interests of RSA Re with those of
RSAI.
6.13 It therefore follows that the financial interests of all policyholders currently benefiting from the DMG will be bound
together with those of the policyholders of RSAI. RSAI is the ultimate parent of all the companies currently party to the
DMG, and the ultimate beneficiary of all surplus assets, therefore all parties will continue to benefit from the capital
strength of RSAI as a whole.
6.14 I have reviewed the aggregate excess of loss agreements, deeds of indemnity, quota share agreements and credit
risk insurance agreement and have taken independent legal advice that confirms the terms, conditions and operation
of these agreements.
6.15 I am satisfied that the post-transfers (re)insurance agreements, as outlined above, will provide policyholders with a
comparable level of security as provided by the DMG, and that no policyholders will be materially adversely affected
as a result of the termination of the DMG.
6.16 Furthermore, as the premium (excluding the margin) under the aggregate excess of loss agreements will be withheld,
I am satisfied that the policyholders of the business of Sun and Marine (as the case may be) reinsured under the
respective aggregate excess of loss agreements will not be materially adversely affected as a result of transferring
assets backing net Technical Provisions out of their respective companies.
6.17 I am satisfied that the conclusions I set out with regard to the post-transfers reinsurance arrangements in the
Reports are unchanged as a result of the agreed terms of the post-transfers reinsurance arrangements as set
out above, including the modified arrangements applicable to RSA Re.
Supplemental Report of the Independent Expert 14
November 30, 2011