Royal & Sun sets the seal on South African insurer

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The Independent Online

Royal & SunAlliance sold its stake in a South African insurer for £100m yesterday to its rival Old Mutual, another shareholder in the company.

The sale of RSA's 37 per cent stake in Mutual & Federal represents a £20m profit for the troubled insurance company, which had to raise nearly £1bn last year to plug holes in its reserves. It has been disposing of assets for some time, shedding up to 12,000 jobs world-wide and shrinking the amount of business it writes to conserve capital.

Old Mutual said buying the stake would not dent its much-vaunted ambitions to expand in the UK. Shares in Old Mutual ended up 2.25p at 97p. "This deal does not have any impact on our internationalisation strategy," Julian Roberts, the company's finance director, said.

The company, which is listed in the UK and owns a fund management business here, has been scouring the UK market for a deal to bump up its assets. It is keen to buy a closed life insurance business and run off the funds on a cheap administration basis in South Africa. It has spent some time looking at the Britannic Group, which closed to new business last year. It is also thought to have considered HHG, the demerged arm of the Australian financial services giant HHG.

RSA has a block of life insurance funds that it closed to new business in 2002. These are also up for sale, but it is not thought that Old Mutual is, as yet, involved in the bidding for them. The RSA life funds are riddled with guarantees, which are the subject of discussions with the Financial Services Authority and are reliant on a web of loans from the parent company.

"The proceeds from the sale of Mutual Federal will be used to support the further growth of Royal & SunAlliance's core general insurance business, which is its primary strategic focus," a spokesman for the company said. He said that Old Mutual's approach for Mutual & Federal had been an opportunistic offer that RSA could not turn down for its shareholders. Old Mutual has paid for the stake in sterling. RSA shares ended down 1.25p at 97.25p.

The purchase takes Old Mutual's stake in Mutual & Federal up to 88 per cent. It will buy out the remaining 12 per cent and delist the company.