REFILE-UPDATE 2-Resolution splits with management advisor

Mon Dec 10, 2012 12:33pm EST

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By Myles Neligan

LONDON Dec 10 (Reuters) - British insurer Resolution is to pay less than expected to end a management outsourcing deal, as it focuses on making its existing business more profitable rather than growing through acquisitions.

Resolution, which announced in August it was to end its relationship with Resolution Operations, said on Monday it was to pay 7.5 million pounds ($12 million) to cut its links.

The payment represents a saving on the 14.6 million pounds it would have paid to stay in the contract for another year.

Resolution was set up in 2008 by Cowdery to make money buying, merging and selling underperforming life insurers. It failed to complete as many takeovers as expected because falling share prices deterred owners from doing deals.

When it was focused on acquisitions, Resolution contracted out key management functions including planning and executing acquisitions to Resolution Operations, paying it an annual fee of about 20 million pounds.

Analysts at RBC Capital Markets said in a note the split had cost less than feared. "We view this as positive for Resolution as we had expected it would have to make the full payment (of 14.6 million pounds)."

Resolution shares were flat at 1225 GMT, outperforming a 1.2 percent lower European insurance sector index. The stock has fallen 2.3 percent this year, lagging a 30 percent rise for the sector as a whole.

The outsourcing arrangement drew criticism from Resolution shareholders after it completed fewer takeovers than hoped.

Financial regulator had also expressed concern that it made key decision-makers unaccountable to investors because Clive Cowdery, Resolution's founder and acquisition specialist, ran Resolution Operations but did not sit on the Resolution board.

Cowdery is to join Resolution's board as a non-executive director, the company said in October.

Resolution has spent 4.7 billion pounds buying three insurers including former mutual Friends Provident.

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