A state hearing officer recommended Friday that Delaware’s insurance commissioner approve the proposed management buyout and eventual dissolution of Royal & Sun Alliance Insurance Group’s U.S. operations.
The proposed buyout was the subject of a lengthy hearing last month, and Delaware insurance commissioner Matt Denn is expected to make a decision within about two weeks.
Royal & Sun announced in 2003 that it did not consider its struggling U.S. business central to its main operations, and it stopped writing new policies with the eventual goal of exiting the U.S. market after more than 150 years.
Among the four U.S. subsidiaries that are incorporated in Delaware and which managers of Royal & SunAlliance USA plan to “run off” is Royal Indemnity Co., which has been sued over more than $250 million (euro192 million) that it may owe to the developer of the World Trade Center site in New York City. Royal Indemnity and more than two dozen other insurers took out policies with developer Larry Silverstein weeks before the towers collapsed following the Sept. 11, 2001, terror attacks.
RSA USA also is involved in litigation over potentially costly asbestos and environmental claims, although a Michigan judge last month dismissed a lawsuit in which General Motors asserted more than $1 billion (euro770 million) in asbestos and environmental claims.
Royal & Sun’s U.K. parent has agreed to provide $287.5 million (euro220.81 million) in financing for the buyout, but opponents contend that amount is insufficient to ensure that obligations are met.
In a 72-page report submitted Friday, Widener University law professor Lawrence Hamermesh recommended that Denn approve the buyout, which critics, including New York Sens. Hillary Clinton and Charles Schumer and New York City Mayor Michael Bloomberg, fear may leave Royal Indemnity unable to meet its obligations, including helping to pay for the rebuilding of the World Trade Center site.
Hamermesh said the deal, supported by Delaware regulatory staff, meets all the requirements of Delaware law, and that there is no evidence that policyholders will be left holding the bag while RSA USA managers enrich themselves.
“In short, the evidence of record does not establish that the proposed transaction will adversely alter the treatment of insurers’ policyholders, and the commenters’ stated concerns in this regard are not persuasive,” he wrote.
Denn said he would accept comments on Hamermesh’s report from interested parties until Feb. 9, and that he will stay his decision for five business days after it is issued to allow opponents time to file a court appeal.
In a prepared statement, Janno Lieber, World Trade Center Project Director for the Silverstein group, decried Royal & Sun’s “blatant attempt to ditch its U.S. division,” calling it “an outrage that would result in its U.S. policyholders getting stiffed on their legitimate claims.”
“The Delaware hearing officer’s conclusion, in addition to being flat wrong, is only a recommendation,” Lieber noted while thanking Denn for the opportunity to rebut the report.
Charlotte, North Carolina-based RSA USA issued a statement describing the report as a positive step for policyholders.
“The recommendation is an important step forward for our policyholders who will be the primary beneficiaries of this transaction and the additional $287.5 million it provides,” the company said. “We now look forward to the commissioner’s final decision.”
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