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Threat to R&SA life arm sale as GAR liabilities top £1bn

Royal & Sun Alliance&#39s 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&#39s 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&#39s exp-osure to GAR proportionately worse

than Equitable&#39s, which is setting aside £2.6bn out of its £34bn

fund.

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

adequately capitalised.”

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