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R&SA in move to use orphan assets to fund GARs

Royal & Sun Alliance is meeting the FSA to discuss using its orphan estate to mitigate its £1.1bn guaranteed annuity rate liabilities following its closure to new life, pension and unit-linked business last week.

Chief actuary Mike Kipling says the firm is likely to hit the funds of with-profits policyholders in its ailing Sun Alliance & London fund, where most of the liabilities reside, by about 2-3 per cent of their asset share. The move has prompted IFAs to question why policyholders should once again bear the brunt of mistakes by a life office.

Advisers say R&SA policyholders face a similar dilemma to Equitable Life members over whether to quit and be hit by a big transfer penalty or stay and face dwindling returns.

Kipling claims its decision will not affect the running of the with-profits funds which closed to new business in December.

He says the group will ensure the closed life company always meets it solvency requirements by at least £50m and confirms that the Sun Alliance fund has 17 per cent in equities and that market value reductions are unchanged at up to 25 per cent.

The company refuses to disclose the current value of its orphan assets.

Annuity Bureau director Ronnie Lymburn says: “R&SA are in for a battle and a bloody nose. Why should with-profits policyholders bear the brunt when there are shareholders? IFAs are going to go through the same thought processes as with Equitable – is it better for the individual to take the hit and get out or hope it gets better?”

Kipling says: “Equitable did not have a parent or a free estate from which it could meet its GAR costs. Most of the costs will come from the estate but some will come from policyholders&#39 asset shares.

•Comment, p25

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