REG-RSA Insurance Group Plc RSA announces next stage of UK defined benefit pension schemes de-risking

LONDON--(Business Wire)--

RSA announces next stage of UK defined benefit pension schemes de-risking

RSA Insurance Group plc (RSA) and its UK pension schemes` Trustees today
announce that they have taken significant action to reduce the schemes` exposure
to longevity and market risk. This has been achieved by insuring £1.9bn of the
schemes` liabilities with Goldman Sachs1. This action covers around one third of
the Group`s total UK pension schemes` liabilities, representing over 55% of the
liabilities relating to pensions in payment2.

In recent years, RSA, working in conjunction with the pension Trustees, has
taken significant action to de-risk its UK pension schemes, including:

* Closing the defined benefit schemes to new members and introducing employee
contributions,
* Closing out all final salary liabilities for past service and moving to
career-average revalued earnings (CARE) for future service,
* Hedging market exposure via an extensive programme of interest rate and
inflation swaps, and
* In 2007, reducing equity exposure from 46% to 24% by selling approximately
£900m of equities.

These actions have contributed to the strong position and high quality
investment portfolio of the UK schemes, enabling RSA and the UK pension Trustees
to implement this next stage of de-risking.

This transaction with Goldman Sachs International and Rothesay Life allows the
UK schemes to take advantage of market conditions to enhance returns and so
eliminate inflation, interest rate and longevity risk on around one third of the
schemes` liabilities. This has been secured without a change in the risk profile
of the schemes` assets. The schemes retain legal ownership of the assets, which
remain invested in a high quality, low risk portfolio of UK Gilts and other UK
Government guaranteed bonds. This transaction is similar to a bulk purchase
buy-in annuity contract but with significantly enhanced security.

The benefits of this arrangement for RSA and its UK pension schemes are:

For the Company:

* It provides an exact match of cashflows for over 55% of the pensions in
payment, eliminating any associated longevity, inflation and interest rate risk
* This protection removes the risk of increased cash funding for these
obligations
* It protects RSA`s balance sheet and capital positions by reducing the
volatility of the pension position to movements in corporate bond spreads,
longevity and inflation risk

For the UK pension schemes:

* The exact match of cashflows eliminates any associated longevity, inflation
and interest rate risk on over 55% of the pensions in payment
* It mitigates the sponsor covenant risk while retaining a very strong security
arrangement

In accordance with IFRS, the transaction has no impact on Group earnings in 2009
but is expected to generate a small profit from 2010. The transaction will
eliminate the IAS19 pension surplus included within shareholders` funds.

Andy Haste, Group CEO of RSA, commented:

"We are pleased to have worked with the Trustees to deliver a strong solution
which takes advantage of market conditions. Following the action taken in
previous years, the schemes were strongly positioned to achieve this next step
with such solid security. This transaction further de-risks the impact of the UK
pension schemes on the Group`s results and balance sheet."

Steve Broughton and Keith Greenfield, Trustee chairmen of the main UK pension
schemes, added:

"Both Trustee Boards support this transaction to protect a substantial
proportion of the liabilities against future longevity improvements and mitigate
the sponsor covenant risk while retaining a very strong security arrangement.
This action is consistent with our fundamental objective of ensuring the schemes
are able to meet their long term obligations."

-ENDS

For further information:

Analysts Press
Claire Cordell Jon Sellors
Tel: +44 (0) 20 7111 7212 Tel: +44 (0) 20 7111 7047

Suzannah Seddon Simon Kutner
Tel: +44 (0) 20 7111 7140 Tel: +44 (0) 20 7111 7327

Notes to editors:

1. RSA`s main UK pension schemes have entered into fully collateralised asset
swap and longevity insurance contracts with Goldman Sachs International and
Rothesay Life Limited, an FSA regulated life insurer and subsidiary of Goldman
Sachs covering a portion of the liability to pay future pensions.

2. The £1.9bn of liabilities covered by the insurance arrangement represents the
value on a funding basis. Under IFRS the present value of the liabilities
covered by the insurance arrangement is discounted at the AA corporate bond
yield as required under IAS19 and is £1.3bn. As at 31 March 2009, the present
value of the UK defined benefit obligations under IAS19 was £4.0bn. Following
the completion of this transaction the proforma present value of the obligations
not covered by the insurance arrangement as at 31 March was £2.7bn.

3. The proforma IAS19 position for the UK schemes as at 31 March 2009 reduces
from a surplus of £288m to a deficit of £73m, driven by the difference between
the AA corporate bond yield used in accordance with IFRS and the gilt discount
rate used to value the insured liabilities for the transaction.

4. The transaction utilises standard collateralised ISDA swap contracts with
Goldman Sachs International and full collateral arrangements between the schemes
and Rothesay Life.

5. The schemes retain full ownership of the underlying assets.

6. The transaction materially reduces the sensitivity of the Group`s balance
sheet. The following table sets out the impact of the key sensitivities on the
Group`s pension scheme net assets under IAS19 (post tax).

Market Movement Reduction in volatility
Reduction in corporate bond spreads Down 50%
Increase in longevity Down 33%
Increase in inflation Down 33%
Fall in equity markets (no change)

7. RSA was advised by Towers Perrin and Slaughter and May. Goldman Sachs
International and Rothesay Life were advised by Freshfields Bruckhaus Deringer.
The pension schemes were advised by Hewitt Associates, Watson Wyatt, Sackers &
Partners and DLA Piper.

About RSA

With an almost 300 year heritage, RSA is one of the world`s leading
multinational quoted insurance groups. It has the capability to write business
in over 130 countries, with major operations in the UK, Scandinavia, Canada,
Ireland, Asia and the Middle East and Latin America. Focusing on general
insurance, it has around 22,000 employees and, in 2008, its net written premiums
were £6.5bn.

Important Disclaimer

This press release may contain "forward-looking statements" (as defined in the
US Private Securities Litigation Reform Act of 1995) with respect to certain of
the Company`s plans and its current goals and expectations relating to its
future financial condition, performance and results. By their nature, all
forward-looking statements involve risk and uncertainty because they relate to
future events and circumstances which are beyond the Company`s control,
including amongst other things, UK domestic and global economic business
conditions, market-related risks such as fluctuations in interest rates and
exchange rates, the policies and actions of regulatory authorities, the impact
of competition, inflation, deflation, the timing impact and other uncertainties
of future acquisitions or combinations within relevant industries, as well as
the impact of tax and other legislation and other regulations in the
jurisdictions in which the Company and its affiliates operate. As a result, the
Company`s actual future financial condition, performance and results may differ
materially from the plans, goals and expectations set forth in the Company`s
forward-looking statements. The Company undertakes no obligation to update any
forward-looking statements, save in respect of any requirement under applicable
law or regulation. Nothing in this press release shall be construed as a profit
forecast.

RSA Insurance Group Plc

Copyright Business Wire 2009