Royal & Sun Alliance is selling its R&SA Life closed life assurance business to consolidator Resolution Life Group in a £830m cash and shares deal that has barely made a dent in the company's share price.
£750m will be paid as cash once the deal is completed following regulatory and shareholder approval, which will come by September at the earliest.
The non-cash part of the deal comes in the form of preference shares in RLG, which is expected to list within the next couple of years as it seeks to ratchet up financing of its acquisition activities.
The price represents a slight premium on the declared net asset value of the business being sold, which as of 31 March stood at £829m on a pro-forma basis.
R&SA will retain a liability of up to £76m to cover any future misselling costs, with any payments due under this contract to be made in cash.
Some 120 R&SA Life staff will be transferred to RLG, and no redundancies are expected as a result of the deal, according to documents lodged with the Regulatory News Service.
RLG’s business plan is to consolidate closed books and run them over the long term. The objective is to offer policyholders trapped in closed funds greater stability, while offering investors a place to park their money over similarly long periods of time in income shares.
RLG chief executive Clive Chowdrey confirms the company is actively looking at several other of the roughly 15 closed life funds in the UK market.
Currently a private company, RLG is backed by a number of UK institutions, including mutual and listed life and pensions groups Standard Life, Royal London, Prudential, as well as Foreign & Colonial Investment Trust.
Consolidation of closed life funds has been supported by the Treasury Select Committee in its most recent report into the UK’s long-term savings industry.
The Committee says this is a logical step forward, and would help those trapped in such funds as operating and administration costs should fall through economies of scale, helping reduce expense ratios and helping stem any losses suffered by policyholders.
Shareholders in R&SA are not benefiting to any great extent by today’s news. Shares were trading up about 0.5p at 78.25p this morning.
Although up substantially on their March 2003 low of about 45p each, shares are still well below the December 28, 2001 peak of some 466p.IFAonline
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