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£1bn loans prop up R&SA&#39s life funds

Royal & Sun Alliance has revealed contingent loans of £1bn to its ailing life funds but remains in discussion with the FSA over its solvency.

R&SA says it may have to find more money to support the funds if the FSA clamps down on the use of future profits and reinsurance contracts.

Under its new regime, the FSA is examining all financial engineering to see if they have genuine effect before comp-anies are allowed to use them.

In its 2002 results published last week, R&SA disclosed an effective overdraft of £500m available to each of its life funds as it admits recent conditions have heightened risks of breaching solvency. It has warned share- holders that the FSA could require further action.

The company has already called upon the contingent loan facility twice. The weaker Sun Alliance & London fund now has only 10 per cent held in equities.

R&SA UK life finance director Keith Greenfield says: “We have a good working relationship with the FSA. There is nothing we are doing that other companies are not also doing. The contingent loans are a signed legal agreement that the company cannot walk away from and should provide reassurance to policyholders and IFAs.”

Insurance analyst Ned Cazalet says: “It is one thing after another with these funds. I would be surprised if R&SA were granted a waiver because you need something in your bottom drawer to get one.”

Wentworth Rose marketing director Mark Chandler says: “It is reassuring to see R&SA at least doing something but we are concerned about future growth. We are looking at it on a case-by-case basis, and believe it is not a good idea to stay there if the penalties for leaving are not too high.”

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