British insurer Royal & Sun Alliance Plc (RSA) has agreed to sell its UK life business for £850 million as it looks to focus on general insurance and bolster its capital position.

Britain's second-largest general insurer said yesterday that the sale of the business, which stopped selling life insurance in 2002, to Resolution Life Group would fetch it £750 million in cash, and £100 million in preference shares of the privately-owned Resolution. In addition, a loan facility currently being provided by RSA to the business, of which £146 million had been used as of December 31st would be repaid on completion of the deal, it said.

"The transaction represents a clean exit from the UK life business and provides certainty for our shareholders," RSA chief executive Mr Andy Haste said.

Debt rating agencies Moody's and Standard and Poor's both viewed the deal as positive for RSA, with Moody's considering removing its negative outlook on the company.

Standard and Poor's said the deal was not sufficient to remove the negative outlook, although it was positive for ratings.

Once a group with global ambitions, RSA has radically shrunk its business to focus on general insurance.

It shed over 20,000 jobs and issued new shares to shore up its balance sheet in the face of tighter funding rules in Britain, mounting claims in the US and a recent prolonged stock market slump.

RSA, which put the life business up for sale last month, said the deal would release £650 million in statutory capital and around £500 million in risk-based capital.

"This disposal has only a marginal impact on earnings, and after transaction and sale costs, there will be a loss on completion," RSA said. Resolution, set up earlier this year to buy up life assurers that closed to new business following a three-year bear market, called the deal "an ideal" first purchase.

The acquisition gives it access to a business that had some £24 billion under management and 2.4 million policies, giving Resolution's fledgling business instant scale.

Its business model is to buy closed funds at discounts to their embedded values and using the returns they generate to provide a secure long-term yield for its shareholders.

Resolution, set up by the former head of GE Insurance Holdings Mr Clive Cowdery, is getting RSA's life business at 64.5 per cent of its £1.3 billion pound embedded value - a key measure for insurers that includes the present value of future profits from policies.