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Royal & Sun management buyout approval expected

A state hearing officer recommended that Delaware’s insurance commissioner approve the proposed management buyout and eventual dissolution of Royal & Sun Alliance Insurance Group’s U.S. operations. Insurance Commissioner Matt Denn is expected to make a decision soon.

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 and put in place a plan to leave 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 that it may owe to the developer of the World Trade Center site in New York City. 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 in asbestos and environmental claims.

Royal & Sun’s U.K. parent has agreed to provide $287.5 million in financing for the buyout, but opponents contend that amount is insufficient to ensure that obligations are met.

But in his report, 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 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.

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