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

Milliman Client Report
4. CHANGES IN CAPITAL AND SOLVENCY
4.1 Table 4.1 below shows the solvency positions, measured on a Solvency I basis, of all the entities involved in the
transfers (except PAGI) as at 30 September 2011, together with the position as at 31 December 2010, as shown in
my earlier Reports.
Table 4.1
Solvency Positions as at 31 December 2010 and 30 September 2011
Position as at 31/12/2010 Position as at 30/9/2011
Transferor
Capital
Resources
(£'000)
MCR (£'000)
Free Assets
(£'000)
Solvency I
Cover Ratio
Capital
Resources
(£'000)
MCR (£'000)
Free Assets
(£'000)
Solvency I
Cover Ratio
Alliance Assurance Co Ltd 4,626 3,040 1,586 1.5 4,750 3,040 1,710 1.6
Liverpool Marine & General Insurance Co Ltd 5,570 3,040 2,530 1.8 5,731 3,040 2,691 1.9
London Guarantee & Reinsurance Co Ltd 9,497 3,040 6,457 3.1 9,762 3,040 6,722 3.2
National Vulcan Engineering Insurance Group Ltd 13,376 3,040 10,336 4.4 13,955 3,040 10,915 4.6
Royal & Sun Alliance Insurance (Global) Ltd 99,401 9,667 89,734 10.3 102,575 9,667 92,908 10.6
Royal Insurance (UK) Ltd 4,601 3,040 1,561 1.5 4,756 3,040 1,716 1.6
Royal International Insurance Holdings Ltd 2,176,618 663,976 1,512,642 3.3 1,973,839 721,271 1,252,568 2.7
Royal & Sun Alliance Reinsurance Ltd 70,386 29,337 41,049 2.4 79,437 25,388 54,049 3.1
Sun Alliance & London Insurance plc 58,144 27,360 30,784 2.1 73,741 27,360 46,381 2.7
Sun Alliance Insurance International Ltd 19,666 6,080 13,586 3.2 20,546 6,080 14,466 3.4
Sun Alliance Insurance UK Ltd 6,423 3,040 3,383 2.1 6,640 3,040 3,600 2.2
Sun Insurance Office Ltd 84,465 53,998 30,467 1.6 57,365 53,998 3,367 1.1
The British & Foreign Marine Insurance Co Ltd 8,326 3,040 5,286 2.7 8,577 3,040 5,537 2.8
The Century Insurance Co Ltd 5,006 3,040 1,966 1.6 5,104 3,040 2,064 1.7
The Globe Insurance Co Ltd 2,118,458 638,410 1,480,048 3.3 1,938,255 692,256 1,245,999 2.8
The London Assurance 15,382 6,080 9,302 2.5 15,323 6,080 9,243 2.5
The Marine Insurance Co Ltd 70,435 3,040 67,395 23.2 71,271 3,040 68,231 23.4
The Northern Maritime Insurance Co Ltd 4,230 3,040 1,190 1.4 4,353 3,040 1,313 1.4
The Sea Insurance Co Ltd 9,075 3,040 6,035 3.0 9,661 3,040 6,621 3.2
The Union Marine & General Insurance Co Ltd 3,872 3,040 832 1.3 4,011 3,040 971 1.3
RSAI (consolidated) 2,990,523 1,475,617 1,514,906 2.0 2,893,928 1,671,162 1,222,766 1.7
4.2 The Solvency I cover ratios (i.e. the ratio of capital resources to minimum capital requirement or “MCR”) have
remained broadly unchanged for most entities over the period. The cover ratio of Sun has, however, reduced
significantly, and as at 30 September 2011 the capital resources in Sun were only around 6% higher than the MCR.
As discussed in paragraph 3.11 above, on-going poor performance on the Sun’s Italian motor business led RSAI to
inject £17.5m of additional capital into Sun in September 2011 in order to ensure the company continues to maintain
an adequate level of capital for Solvency I purposes. RSAI also injected a further £30m of capital into Sun in
November 2011.
4.3 The RSA Group has provided me with a final copy of its 2011 ICA report (based on 31 December 2010 data). I have
reviewed the report and have discussed the results of the ICA and methodology used with internal RSAI staff. I
continue to consider the methodology and modelling techniques used by RSAI to be appropriate and in line with
current market practice and my judgement is that the results provided appear reasonable, but recognise that other
results could have been generated using different sets of assumptions that are within the bounds of reasonableness.
4.4 Due to limitations on the degree of disclosure permitted by the FSA, I am not able to give details of the ICA in this
Supplemental Report. However, the ICA report does show that, over the period since the previous ICA review, the
ICA increased and the level of capital resources in the RSA Group available to meet the requirement decreased.
Therefore the surplus capital reduced. This reduction in surplus was attributed principally to reducing investment
yields, acquisitions and increased intangible software asset spend, combined with greater business volumes
increasing the amount of risk.
4.5 Despite this reduction in surplus, the capital resources in the RSA Group remained comfortably in excess of the ICA
as at 31 December 2010.
4.6 The ICA report also details the RSA Group’s own economic capital assessment (“ECA”). The conclusions of this
assessment are similar to those of the ICA, with the surplus falling, but available assets remaining comfortably in
excess of the ECA.
Supplemental Report of the Independent Expert 8
November 30, 2011