R&SA to Sell U.S. Surplus Lines to Alleghany

June 9, 2003

The U.K.’s Royal & SunAlliance announced today that it has agreed to sell Royal Specialty Underwriting, Inc. (RSUI), its U.S. surplus lines division, to Alleghany Insurance Holdings LLC for “around £72 million ($115 million), payable in cash and subject to post-completion adjustment.”

R&SA explained that “profits for the first half of the year will be retained by the Group. The operating profit of the business underwritten by RSUI for the first quarter of 2003 was around £51m ($83m).” It observed that the group’s “results are subject to extreme seasonality,” and added that as of the end of December 2002 its net assets were £2 million ($3 million).

“RSUI operates as a managing general agency, underwriting specialty insurance coverage on behalf of certain Royal & SunAlliance insurance carriers,” the bulletin noted. The company had net written premiums of around £320 million ($515 million) in 2002. R&SA said the transaction is expected to release risk-based capital of around £198 million [$318 million], and that it expects the deal to be completed in July 2003, subject to appropriate government approvals.

R&SA CEO Andy Haste commented: “This transaction significantly reduces the volatility and catastrophe exposure of our U.S. business and is an important part of our capital release programme. Taken in combination with the recent IPO of the Australian and New Zealand businesses and sale of our UK healthcare & assistance business, it means that our risk based capital position has substantially improved.”

Alleghany issued a bulletin indicating that the acquisition of the renewal rights to the ongoing business underwritten by RSUI and the related unearned premium reserve will be made through its wholly owned subsidiary, Alleghany Insurance Holdings LLC. It added that it is “not acquiring any loss reserves of RSUI as part of the transaction,” and that “to support future business to be underwritten by RSUI, Alleghany will capitalize newly acquired insurance subsidiaries at approximately $500.0 million.”

Alleghany President and CEO John J. Burns, Jr. stated: “Our agreement to acquire RSUI marks an important milestone in Alleghany’s ongoing program to redeploy its liquid assets into well-managed operating businesses. RSUI has achieved a record of strong profitability and high returns on capital while building one of the leading specialty insurance franchises. We look forward to welcoming RSUI and its fine management to the Alleghany family of companies.”

The bulletin noted that “RSUI underwritten business ranks in the top 11 excess & surplus underwriters based on 2001 net premiums written and has consistently generated underwriting profits since its inception in 1988. Premiums related to RSUI underwritten business are evenly split between the admitted and non-admitted insurance markets, with approximately 68.0 percent of total premiums written for specialty property coverages.”

RSUI Chairman James Dixon stated: “Alleghany’s investment will assure the marketplace of RSUI’s long-term stability and permit RSUI to continue its established record of growth and profitability. We welcome the prospect of becoming one of Alleghany’s outstanding operating units and look forward to a long and rewarding relationship.”

The company indicated that RSUI “management and the approximately 280 employees of RSUI, based in Atlanta and Sherman Oaks, California, are expected to continue with the newly formed RSUI Group, Inc. James Dixon will continue to serve as the Chairman of RSUI, E.G. Lassiter will continue as the President and Chief Executive Officer and Dave Leonard will continue as Executive Vice President.”

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