Delaware commissioner makes right call on RSA

The Delaware Insurance Commissioner appears to have made the best of a bad job with his conditional approval of the sale of Royal & Sun Alliance USA Inc. to a group of the defunct insurer's former managers.

Although the process whereby insurers ring-fence liabilities and walk away seems to have become an accepted and legal practice, we share the skepticism of several large policyholders about the adequacy of the funding of the runoff insurer. By some estimates, the various long-tail liability claims will exceed RSA USA's surplus to the extent that even if the claims are only partially successful, the insurer would have great difficulty meeting its obligations.

Policyholders that paid for coverage from RSA USA might feel better about the deal if the insurer's U.K. parent, Royal & Sun Alliance Insurance Group P.L.C., bought more catastrophe coverage for its former unit. That way, they would have had some backup should it turn out that RSA USA is being optimistic in its view that some of the huge potential claims it faces are without merit.

Regardless of the rights and wrongs of the move, we welcome the decision by Delaware's authorities to impose conditions on the deal that would keep policyholder disputes in U.S. courts. The possibility of U.S. policyholders that bought coverage from an insurer incorporated in the United States having to go to London to pursue their claims should not be an option.