Royal & Sun announces rights issue

Thursday, 4 September 2003 12:00 AM

Royal & Sun Alliance announced a major shake-up today, causing its share price to plummet by the close of trading.

The insurer has offered current investors half-price shares in a rights issue that it hopes will raise £960m.

And as a further measure to balance its books RSA has announced that 1,000 jobs will be axed in the UK. That follows the loss of 1,200 jobs last year, although the company has stressed that the latest casualties will not be made redundant, but will be "outsourced" to other companies.

Like other insurance groups, analysts have noted that RSA has been affected by the poor stock market performance over the last three years because of its high level of equity-based assets.

And it has also been hit by a barrage of claims, particularly those regarding to asbestos-related illnesses.

RSA shares fell by 13% over the course of the day, despite its announcement of a half-year profit of over £350m.

Henk Potts, an analyst with Barclays Stockbrokers, echoed others in the City by expressing his fear that the group's rights issue was more to do with covering its past liabilities rather than investing in the future.

He said: 'The big problem for Royal & Sun Alliance is that they totally underestimated the potential liability when writing insurance policies for companies. That has meant they have had to pay out huge amounts of money to meet those claims and that has really affected their capital reserves.'

Mr. Potts added: 'If your capital reserves are under pressure, you cannot go out and ride new business."

He also suggested that the £800m ring-fenced by the group to cover its existing liabilities was not enough, and that there was a risk that it could make the same mistakes again.

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