Royal investors face dividend cut

ROYAL & Sun Alliance shareholders should be braced for a dividend cut this year. The insurer has been forced to review its payouts because of a need to raise more capital to help fund the expansion of its general insurance arm.

RSA wants to accelerate disposals of poorly performing assets, particularly in life insurance. But it may be forced to issue of new shares if buyers cannot be found. Reports at the weekend suggested it could seek up to £2bn through a rights issue.

Chief executive Bob Mendelsohn is keen to take advantage of the rise in policy premium rates since 11 September, but needs higher reserves in order to take on the new business. The group has estimated that it faces losses of £200m from the terror attacks in the US, but analysts reckon they could be higher.

At the group's nine-month results this Thursday, Mendelsohn will outline a strategy to press ahead with disposals, but is likely to flag up the possibility of a share issue. Some fund managers may call for his resignation if a rights issue becomes necessary.

RSA has already sold its Canadian and Spanish life insurance businesses but has so far failed to find a buyer for its UK life arm.

The group dubbed talk of a rights issue 'just speculation...We will update the market on Thursday as to how we will position the group for business going forward.'