Royal & Sun Management Team Completes Buyout of U.S. Businesses

March 5, 2007

Arrowpoint Capital Corp. has completed the acquisition of all Royal & SunAlliance USA businesses formerly owned by Royal & Sun Alliance Insurance Group plc of London. Arrowpoint Capital Corp. was formed in June 2006 by the senior management and outside directors of Royal & SunAlliance USA.

Under the terms of the transaction approved February 20 by Delaware Insurance Commissioner Matthew Denn, Arrowpoint Capital said it will focus on meeting policyholder obligations through a continuation of current operational, financial and governance guidelines.

The company is led by former R&SA USA President and CEO John Tighe and his senior management team, who have headed Royal’s U.S. operation since 2003.

Under the terms of the transaction, Arrowpoint Capital management purchased 100 percent of the interests of Arrowpoint General Partnership, the U.S. holding entity which owned the R&SA USA businesses, for $300 million of deferred consideration. At the close of the transaction, the London group contributed $287.5 million of additional capital to the U.S.-regulated entities.

In addition to members of the management team, the Arrowpoint board will include Michael Crall, formerly CEO of Equitas and president and chief executive of Argonaut Insurance Co., who serves as chairman; Edward Muhl, former New York superintendent of insurance, Maryland insurance commissioner and past president of the National Association of Insurance Commissioners; and Larry Simmons, former president and CEO of Royal & Sun Alliance Insurance Company of Canada and Western Assurance Company.

Delaware Insurance Commissioner Matthew Denn had conditionally approved the management buyout of Royal & Sun Alliance Insurance Group’s U.S. operations.

Denn ruled that there is essentially no legal or financial basis upon which he could reject the buyout; although he stressed that he finds the British parent’s spinning off of its U.S. operations unfair.

Before it could proceed with the buyout, Royal UK had to agree to certain conditions. Denn required that the British parent company submit to the jurisdiction of his department and Delaware state courts for any policyholder disputes. He also wanted the company to obtain state approval for certain payouts to management and to pay for an entity to monitor its reserves and claims practices.

While Royal & Sun’s British parent has agreed to put $287.5 million into the buyout of its four U.S. subsidiaries, the British firmhas said it will not supply any additional funds for the U.S. operations in the future.

Some policyholders, including World Trade Center lessees, had opposed the buyout, contending that $287.5 million might not be sufficient to cover outstanding World Trade Center, asbestos and other potential claims.

But Denn upheld the previous findings of his hearing officer that the $287.5 million should be sufficient to pay unresolved claims and that there is no legal basis for disapproving the buyout.

Denn said his conditions are intended to “ensure that every dime intended for policyholders actually reaches the policyholders.” His conditions included:

The company is barred from paying any dividends or other distributions to the holding company until the Delaware department had determined that all reasonable claims have been covered.

No management personnel will be allowed to receive any compensation beyond a base salary until all claims are paid.

All management compensation will have to be approved by the Delaware Insurance Department.

Arrowpoint Capital Corp. is headquartered in Charlotte, N.C.

Topics USA Policyholder

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