On the go: Trustees of defined benefit schemes belonging to UK insurer RSA have accepted a proposal to split the company’s parent group in two, in exchange for new offers of covenant enhancement.
The 300-year-old insurance company announced on Wednesday that its board has reached an agreement to sell its UK and Canada operations to Canadian group Intact for £3bn, while Danish company Tryg will pay £4.2bn for the Scandinavian businesses.
In order for the deal to progress, Intact has reached an agreement over support for each of RSA’s three UK DB schemes.
A parent company guarantee will be put in place for each scheme, covering all present and future contributions. The guarantee will only be dissolved if a replacement guarantee is provided by another buyer in future, or “if Intact takes over direct sponsorship of the UK pension schemes where buyout funding might otherwise become payable”.
That means a continuation of the current schedule of contributions amounting to around £75m a year, to be continued until the Sal Pension Scheme and Royal Insurance Group Pension Scheme are fully funded on a long-term target basis. A further £75m will be contributed to the schemes on a one-off basis, when the deal completes.
Provisions have also been put in place to ensure that mitigation will be offered if Intact makes distributions to shareholders at a point when its shareholder equity has dropped below C$6bn (£3.5bn), and the company has committed to maintaining “ongoing information sharing and constructive engagement with the UK pension trustees”.
Controlling its own exposure to risk, Intact stated in the RSA announcement: “Intact understands that the UK pension schemes are closed to the future accrual of benefits. Intact has no intention of reopening the UK pension schemes to benefit accrual or new entrants.”
