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

Milliman Client Report
3. CHANGES IN LIABILITIES UP TO THE EFFECTIVE DATE
3.1 I have reviewed actual changes in liabilities (as reported to me by RSAI) for the nine month period to 30 September
2011 and have considered the extent to which they have been in line with expectations.
3.2 I have not attempted to review in detail the calculations performed by RSAI’s internal actuaries. Instead I have
reviewed the reports produced by the internal actuaries, the approach followed by the internal actuaries, the process
by which reserves are set, the key areas of reserve uncertainty and the apparent strength of the reserves. In my view,
the actuarial methods used by RSAI continue to be in line with normal actuarial practice.
RSAI AND THE TRANSFERORS
3.3 I have reviewed the actuarial analysis, prepared by the RSAI internal actuaries, of the UK managed business as at 30
September 2011, in order to satisfy myself that it is reasonable for me to rely on their work. The analysis is based on
data as at 30 June 2011. RSAI has also provided me with a separate roll-forward analysis for the three month period
to 30 September 2011. As well as reviewing these documents I have also discussed the processes and key issues
arising from my review with the internal actuaries.
3.4 The actuarial analysis is concerned with the UK managed business (including the Risk Solutions Europe business
written by the European branches of Royal and Sun Alliance Insurance (Global) Limited and Royal International
Insurance Holdings Limited, but excluding the Italian business written by Sun, National Vulcan and Sea). This
includes business written by RSAI, and that hived-up to it from the transferors. While the analysis includes legacy
business (which forms the majority of the business transferring under the Schemes and the PAGI Schemes), the
ultimate value of claims for the asbestos account (the most significant part of the legacy book) has been left
unchanged pending the results of an external review of these claims that will not be completed until the end of the
year. RSAI has however provided me with some statistics concerning the actual versus expected development of the
asbestos liabilities and a qualitative assessment of how reserves are likely to change following the completion of the
external review.
3.5 I have reviewed the actuarial analysis of the UK managed business for the 9 month period to 30 September 2011 as
prepared by RSAI. Overall, my review indicates that the claim development has been within expectations.
3.6 For the asbestos claims, I have reviewed the actual versus expected analysis for the 9 month period to 30 September
2011 as prepared by RSAI and considered the qualitative information regarding the actual development of asbestos
claims. Overall, my review indicates that there is unlikely to be a significant revision to the estimated ultimate
asbestos claims as a result of the external review mentioned in paragraph 3.4 above.
3.7 Notwithstanding the uncertainty relating to the asbestos liabilities I am satisfied that reserving levels in RSAI continue
to be reasonable.
SUN, SEA AND NATIONAL VULCAN
3.8 I have been provided with papers from the Italy Reserve Committee meeting showing the development of reserves to
30 June 2011. This covers the “live” Italian branch business of Sun, Sea and National Vulcan. As well as reviewing
these documents I have also discussed the processes and key issues arising from my review with the internal
actuaries.
3.9 The papers show that there has been significant reserve deterioration. Across all lines of business there was €24.8m
of deterioration on 2010 and prior accident years. €22.5m of the deterioration relates to Sun, €1.4m to National
Vulcan and €0.9m to Sea. Much of the deterioration on Sun is attributable to third party motor liability claims.
3.10 I am informed by RSAI/Sun that the deterioration of motor third party liability claims was attributable to reserve
strengthening in respect of large losses, particularly on the 2010 accident year, as well as changes to the “Milan
Tables” (settlement tables used for bodily injury claims in Italy). The 2011 accident year has been reserved on the
basis that large losses will revert to pre-2010 levels. I am further informed by RSAI/Sun that experience on the 2011
accident year to date is said to be tracking to expected levels.
3.11 As a result of the continuing adverse development on Sun, RSAI injected an additional £17.5m of capital into Sun in
September 2011. RSAI injected a further £30m of capital into Sun in November 2011.
Supplemental Report of the Independent Expert 6
November 30, 2011