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Hybrid capital: Resolution found in life closed business

Resolution becomes a new type of insurance participant in the Tier 1 hybrid insurance capital sector.

Resolution last month issued the largest Tier 1 deal ever from a UK insurance company, highly impressive for a debut name, but it is the distinctive nature of Resolution’s business model that sets it apart from other insurance capital transactions.

JPMorgan and Lehman Brothers structured the deal and jointly acted as bookrunners alongside RBS. “The £500 million proceeds will be used to refinance loans taken on for the Royal Sun Alliance Life and Swiss Life UK acquisitions made by Resolution Life Group last year,” says Tom Keatinge, head of insurance DCM at JPMorgan.

“Resolution is a new animal, a genuinely unique idea,” says Keatinge. Resolution operates almost like a workout firm. It goes around buying up all closed life insurance funds from forced sellers in the UK. Cashflows to service bond coupons and principal payments will only be forthcoming if the company manages to extract value from the closed life business it has purchased.

“These businesses do throw off pretty material cashflows over time,” says Eamonn Price, head of European debt capital markets at Lehman Brothers.

According to the FSA, there is around £160 billion worth of assets under management backing closed life businesses.

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