Arrowpoint Seeks Control of Royal Indemnity
By Mark Steckbeck
Arrowpoint Capital Corp. and its subsidiary Arrowpoint Capital LLC (“Arrowpoint”) , a newly formed organization owned by Royal & SunAlliance USA senior management and outside directors, entered into a purchase agreement to acquire control of all Royal & SunAlliance business currently owned by Royal & SunAlliance Insurance Group plc.
Royal Indemnity, a company now in runoff, is part of the Royal & SunAlliance Insurance Group plc.
As consideration for the acquisition, Arrowpoint, which reports a total of $10 in capital, will issue a subordinated promissory note in the face amount of $300 million. Royal & Sun Alliance plc, however, would make a new capital infusion into Royal & Sun Alliance’s US insurance entities in the amount of $287.5 million.
Arrowpoint has filed its application for change of control with the Delaware Department of Insurance, and a Change of Control Hearing was held in Delaware on January 19, 2007.
Royal Indemnity and its US affiliates have been in runoff since 2003. The formation of Arrowpoint and the sale of Royal & SunAlliance is part of the parent company’s plan to withdraw from the US market.
Linda Watters, Commissioner of Insurance for the state of Michigan, filed an objection to the transaction, noting that Royal Indemnity has reported significant loss reserve deficiencies over the past five years, which has required continued financial support from its parent company.
During this time, the parent company infused capital of over $1 billion. In 2005, the company reported a one-year reserve deficiency of $101 million and a two year deficiency of $308 million, raising questions over the adequacy of its reserves and its ability to meet its obligations to policyholders, particularly in consideration of the long tail nature of some of its business.
The Commissioner questioned whether the purchasers had the financial resources to provide adequate additional capital that may be necessary to allow the continued runoff of Royal & Sun Alliance, and expressed concern that the companies’ liabilities might be shifted to the state guaranty associations, policyholders, and other creditors.
NCIGF is monitoring the proceedings.
