Eagle Star owner seeking £1.6bn

ZURICH Financial Services has confirmed it will join the queue of insurers going cap-in-hand to investors after striking an underwriting agreement for a planned $2.5bn (£1.6bn) rights issue.

The deal means cash-strapped Zurich, which owns Allied Dunbar and Eagle Star in Britain, will join the likes of Legal & General, Royal & SunAlliance, Swiss Life, Aegon and a string of smaller competitors in the race to raise fresh funds in a bear market.

The dire state of the market and the extent of Zurich's troubles were highlighted by the Swiss group's decision to set a minimum price for the issue of Swfr65 (£27.84), representing a 52% discount to the stock's closing price on Monday.

The raising has been underwritten by a syndicate of banks including Credit Suisse First Boston and Goldman Sachs. 'The capital increase is the cornerstone in our programme to increase risk-based capital by up to $5bn (£3.2bn),' said chief executive James Schiro. 'We believe this capital will enable us to generate sustainable and profitable growth.'

The announcement follows Legal & General's decision to raise almost £800m through a rights issue and indications from struggling Royal & SunAlliance that it is planning a similar-sized raising.

Zurich, which made a £1.3bn loss for the first half of this year, revealed earlier this month that it would cut 4,500 jobs and shut its internet bank in an attempt to get its balance sheet on track. Its fund-raising drive has also led to the sale of Gresham, the group's private equity arm, through a management buyout. It refused to reveal the price.

Swiss Life said on Monday that it planned to raise £400m through an equity issue. Details of the proposal are expected to be unveiled when the company releases its interim results on Wednesday.

The dash for cash has been driven by the impact of falling stock markets in the insurers' balance sheets and solvency ratios. Their appetites are being fuelled further by the desire to capitalise on rising insurance premiums and the opportunity for the bigger insurers to snatch market share at the expense of their smaller competitors while markets remain tough.

Analysts say most of the concerns about the solvency of Britain's big life insurers are overdone. However, they warn that a lack of confidence among consumers could damage premium sales and exacerbate Britain's savings crisis.