Royal & Sun Alliance's guaranteed annuity liabilities have rocketed to
more than £1.5bn, putting it in the same league as Equitable Life and
jeopardising a potential sale of its life business.
Money Marketing can rev-eal that its 2000 Treasury returns show reserves
for guaranteed annuity options rose on the back of R&SA's Sun Alliance &
London £10bn fund. Its reserves were hiked to £1.1bn from
£616m in 1999. The rest of the group has liabilities of £400m.
This makes Sun Alliance & London's exp-osure to GAR proportionately worse
than Equitable's, which is setting aside £2.6bn out of its £34bn
SA&L has also dumped £413m of liabilities with three reinsurers,
Cologne Re, Mun-ich Re and GE Capital subsidiary Irish European. Experts
say this deal only just pushed S&AL over solvency limits.
These liabilities, which experts say could rise further, are thought
likely to prove a massive stumbling block to potential buyers.
R&SA put its life business up for review earlier this year and says a
decision on its future will not be made until the year end. The size of its
liabilities means only seriously cash-rich bidders will be interested.
Aegon is understood to have been in intensive discussions with R&SA but
talks appear to have reached a stumbling block. Insiders believe this could
be due to the critical situation within the life funds.
GE Capital, however, is thought likely to scupper any exclusive talks. Its
reinsurance division, which is already helping out R&SA, could easily
provide the financial strength the fund needs.
Cazalet Financial Consul-ting principal Ned Cazalet says: “The SA&L fund
has been struggling with thin solvency and highly volatile liabilities,
making it slightly less unstable than Equitable. This is a major factor to
anyone who wants to buy the life funds.”
R&SA spokesman Jay Aitkin says: “New industry regulations meant some
further increases in reserves were required. We have also made prudent
assumptions on the longevity of annuitants. The S&AL fund remains