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

Milliman Client Report
7. OTHER CONSIDERATIONS
ILU GUARANTEE
7.1 Under the Schemes, the transferring business includes some insurance business originally written through the
Institute of London Underwriters ("ILU"). Such business enjoys the benefit of guarantees in relation to the payment of
claims. These guarantees are provided by companies in the RSA Group, and in some cases by PAGI.
7.2 Subsequent to the Reports, RSAI has held discussions with representatives of the ILU regarding arrangements
between members of the RSA Group and the ILU in relation to the insurance business transferring in connection with
the Schemes. The outcome of those discussions is that a replacement guarantee is to be given in relation to the
relevant transferring policies following their transfer to Marine (I am informed by RSAI that all the relevant business
will be transferred to Marine under the MIC Scheme and PAGI (marine business) Scheme) and that the new
guarantor will be RSAI.
7.3
I have obtained independent legal advice that this new guarantee is a satisfactory replacement to the original
guarantees. Where the guarantee is currently provided by a company in the RSA Group, that company currently relies
on RSAI to provide its ultimate security through the DMG and so the security provided is essentially unchanged.
Where the guarantee has been provided by PAGI, although PAGI is an external company not party to the DMG, it is
wholly reinsured by RSAI and in the circumstances that the guarantee would be called upon would in all likelihood be
unable to provide support. The replacement ILU guarantee, to come into force from the Effective Date, will remove
this consideration as RSAI will be the only guarantor.
7.4 Therefore, in my view, transferring policyholders with policies written through the ILU will enjoy essentially the same
benefit both pre and post the proposed transfers.
PAGI SET-OFF RIGHTS
7.5 I am informed by RSAI that through the terms of the sale of the RSA Group UK life business (completed on 30
September 2004) whereby PAGI left the RSA Group, a financial true-up and final settlement took place 30 days after
completion, upon which it was agreed by the contracting parties that, as soon as practical after completion of that sale
and in any event within 12 months thereafter (30 September 2005), all rights of or against any Phoenix Group
Company (involving PAGI) or Member of the RSA Group respectively would be waived
7.6 In consequence, RSAI regards any rights, such as set off rights, which may have been in place as at 30 September
2004 (the completion date) to have fallen away from 30 September 2005 at the very latest.
7.7 It follows therefore that RSAI believes that no PAGI set off rights against any RSA Group company remain in place at
the date of this Supplemental Report, and in my view this conclusion is reasonable.
POLICYHOLDER CONCERNS
7.8 I have been informed by RSAI that Ms Mayda Balboa, a managing/sole member of Blue Seas Holding LLC ("Blue
Seas") has expressed concerns relating to the Schemes and the PAGI Schemes. These concerns relate to the MIC
Scheme and the PAGI (marine business) Scheme and are based, primarily, on the level of secur ity provided to
Marine's existing policyholders and policyholders transferring to Marine under the MIC Scheme and the PAGI (marine
business) Scheme. In particular, it is alleged that if the MIC Scheme and the PAGI (marine business) Scheme are
sanctioned by the Court, Marine is at risk of insolvency for the following reasons:
• The Reports and the PAGI Report are inaccurate as the information on which they are based comes directly
from RSAI, and RSAI “did not outline the major risks that are developing on a daily event that will seriously
affect [Marine’s] liquidity to settle outstanding claims [sic]”; and
• Marine “is a defendant in a $640 million dollar breech of agreement for failing to settle on an All Risk Policy
that they were a part of [sic]…”, and it has “other high financial liabilities of unsettled claims”.
7.9 I can confirm that RSAI has supplied me with all the relevant and requested information relating to Marine in order for
me to reach the conclusions in the Reports and the PAGI Report.
7.10 I am informed that RSAI/Marine has no knowledge of a $640 million breach of agreement.
Supplemental Report of the Independent Expert 15
November 30, 2011