Supplemental IE Report RSAI Sun & Marine - Royal and Sun Alliance
Supplemental IE Report RSAI Sun & Marine - Royal and Sun Alliance 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
Milliman Client Report 4.7 The RSA Group has provided me with updated ICA and ECA surplus figures as at 30 September 2011. Both the ICA surplus and the ECA surplus fell over the 9 month period to 30 September 2011, by approximately 20% and 30% respectively. In both cases falling yields were the primary driver behind the reduction. As at 30 September 2011, the ECA surplus stood at £0.7 billion. 4.8 RSAI has also provided me with an updated estimate of RSAI’s solvency capital requirement based on QIS5. The original QIS5 exercise was undertaken as at 31 December 2009; the revised draft figures are as at 31 December 2010. The capital available remained comfortably in excess of the requirement, albeit by a lower margin than the 2009 estimates. Again, I note that the standard formula under Solvency II has yet to be finalised, and as such the QIS5 figures only illustrate the likely standard formula SCR amounts under the new solvency regime. 4.9 RSAI has also provided me with projections of the capital requirements and surpluses, on both a Solvency I and QIS5 basis, for each of RSA Re, Marine and Sun after the transfers and post-transfer reinsurance arrangements have been effected, at 1 January 2012, 31 December 2012 and 31 December 2013. The results show very comfortable surpluses in each entity on both bases. The MCR surplus in Sun is projected to improve significantly over time as the full allowance for the reinsurance cover is accounted for in the calculation. 4.10 Recent developments in the eurozone have caused yields on peripheral European government debt to increase with subsequent falls in market value, in particular on Greek bonds. The RSA Group’s direct holdings in peripheral European government debt (as at 30 September 2011) amount to £146m or around 1% of the total investment portfolio. Of this amount around £75m was in respect of Irish sovereign debt and £43m Italian. In addition, the RSA Group has exposure to bank debt in peripheral European countries that amounted to £115m as at 30 September 2011. 4.11 While the degree of uncertainty surrounding these investments has increased as a result of the ongoing situation in the eurozone, they remain small in relation to the RSA Group’s overall investment holdings. 4.12 Overall, I am satisfied that the level of capital within the RSA Group, and within the individual entities party to the transfers, continues to be adequate and I do not have reason to change the conclusions set out in the Reports as to the effect of the transfers on the levels of financial security of policyholders affected by the Schemes. 4.13 Tables 4.2 to 4.4 below show the effect on the balance sheets of RSAI, Marine and Sun of the Schemes, based on financial data as at 30 June 2011. Table 4.2 Simplified Balance Sheets for RSAI as at 30 June 2011 £m Pre-transfers Post-transfers (before RI) Post-transfers (after RI) Assets Investments 15,176 15,435 15,464 Reinsurers' share of technical provisions 1,027 1,033 1,033 Debtors 20,946 20,938 20,938 Other Assets 1,180 1,313 1,342 Withheld RI premiums from Sun and Marine 511 38,329 38,719 39,288 Liabilities Capital & Reserves 4,819 4,814 4,844 Dated Loan Capital 864 864 864 Technical provisions 6,962 7,111 7,650 Creditors 24,809 24,873 24,873 Other liabilities 876 1,057 1,057 38,329 38,719 39,288 Supplemental Report of the Independent Expert 9 November 30, 2011
- Page 1 and 2: Milliman Client Report Supplemental
- Page 3 and 4: Milliman Client Report 1. INTRODUCT
- Page 5 and 6: Milliman Client Report 2. BUSINESS
- Page 7: Milliman Client Report 3.12 The mot
- Page 11 and 12: Milliman Client Report 4.16 The maj
- Page 13 and 14: Milliman Client Report 6. POST-TRAN
- Page 15 and 16: Milliman Client Report 7. OTHER CON
- Page 17 and 18: Milliman Client Report 8. CONCLUSIO
- Page 19: Milliman Client Report APPENDIX B.
Milliman Client <strong>Report</strong><br />
4.7 The RSA Group has provided me with updated ICA <strong>and</strong> ECA surplus figures as at 30 September 2011. Both the ICA<br />
surplus <strong>and</strong> the ECA surplus fell over the 9 month period to 30 September 2011, by approximately 20% <strong>and</strong> 30%<br />
respectively. In both cases falling yields were the primary driver behind the reduction. As at 30 September 2011, the<br />
ECA surplus stood at £0.7 billion.<br />
4.8 <strong>RSAI</strong> has also provided me with an updated estimate of <strong>RSAI</strong>’s solvency capital requirement based on QIS5. The<br />
original QIS5 exercise was undertaken as at 31 December 2009; the revised draft figures are as at 31 December<br />
2010. The capital available remained comfortably in excess of the requirement, albeit by a lower margin than the 2009<br />
estimates. Again, I note that the st<strong>and</strong>ard formula under Solvency II has yet to be finalised, <strong>and</strong> as such the QIS5<br />
figures only illustrate the likely st<strong>and</strong>ard formula SCR amounts under the new solvency regime.<br />
4.9 <strong>RSAI</strong> has also provided me with projections of the capital requirements <strong>and</strong> surpluses, on both a Solvency I <strong>and</strong> QIS5<br />
basis, for each of RSA Re, <strong>Marine</strong> <strong>and</strong> <strong>Sun</strong> after the transfers <strong>and</strong> post-transfer reinsurance arrangements have been<br />
effected, at 1 January 2012, 31 December 2012 <strong>and</strong> 31 December 2013. The results show very comfortable<br />
surpluses in each entity on both bases. The MCR surplus in <strong>Sun</strong> is projected to improve significantly over time as the<br />
full allowance for the reinsurance cover is accounted for in the calculation.<br />
4.10 Recent developments in the eurozone have caused yields on peripheral European government debt to increase with<br />
subsequent falls in market value, in particular on Greek bonds. The RSA Group’s direct holdings in peripheral<br />
European government debt (as at 30 September 2011) amount to £146m or around 1% of the total investment<br />
portfolio. Of this amount around £75m was in respect of Irish sovereign debt <strong>and</strong> £43m Italian. In addition, the RSA<br />
Group has exposure to bank debt in peripheral European countries that amounted to £115m as at 30 September<br />
2011.<br />
4.11 While the degree of uncertainty surrounding these investments has increased as a result of the ongoing situation in<br />
the eurozone, they remain small in relation to the RSA Group’s overall investment holdings.<br />
4.12 Overall, I am satisfied that the level of capital within the RSA Group, <strong>and</strong> within the individual entities party to the<br />
transfers, continues to be adequate <strong>and</strong> I do not have reason to change the conclusions set out in the <strong>Report</strong>s as to<br />
the effect of the transfers on the levels of financial security of policyholders affected by the Schemes.<br />
4.13 Tables 4.2 to 4.4 below show the effect on the balance sheets of <strong>RSAI</strong>, <strong>Marine</strong> <strong>and</strong> <strong>Sun</strong> of the Schemes, based on<br />
financial data as at 30 June 2011.<br />
Table 4.2<br />
Simplified Balance Sheets for <strong>RSAI</strong> as at 30 June 2011<br />
£m Pre-transfers<br />
Post-transfers<br />
(before RI)<br />
Post-transfers<br />
(after RI)<br />
Assets<br />
Investments 15,176 15,435 15,464<br />
Reinsurers' share of technical provisions 1,027 1,033 1,033<br />
Debtors 20,946 20,938 20,938<br />
Other Assets 1,180 1,313 1,342<br />
Withheld RI premiums from <strong>Sun</strong> <strong>and</strong> <strong>Marine</strong> 511<br />
38,329 38,719 39,288<br />
Liabilities<br />
Capital & Reserves 4,819 4,814 4,844<br />
Dated Loan Capital 864 864 864<br />
Technical provisions 6,962 7,111 7,650<br />
Creditors 24,809 24,873 24,873<br />
Other liabilities 876 1,057 1,057<br />
38,329 38,719 39,288<br />
<strong>Supplemental</strong> <strong>Report</strong> of the Independent Expert 9<br />
November 30, 2011
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