RSA cuts divi as rights looms

INSURER Royal & SunAlliance today delivered a cocktail of bad news, saying provisions for the World Trade Centre disaster had soared, its dividend would be lower than expected and a rights issue might still be needed.

RSA shares fell a further 30 3/4p to 112p after the insurer admitted that its assets sales and restructuring programme may not be enough to fund the growth of its general insurance arm. Chief executive Bob Mendelsohn said a rights issue was one of five options being considered and that a decision would be taken at the end of the year.

'We are concerned about the prospects for them needing to raise more capital, particularly in this market,' said JP Morgan analyst Roger Doig.

The share price fall leaves RSA in danger of being culled from the FTSE 100 index. The group also said 1,200 jobs would be lost in the UK as a result of its decision to close its remaining life insurance operations. Concerns about a possible rights issue compounded the news that RSA had been forced to set aside a further £66m to cover business interruption losses relating to the WTC and that its interim dividend would be 4p compared with the 5.3p expected by many in the market.

A quarter of the additional £66m stems from claims it has already received while the rest has been set aside in expectation of a surge in fresh demand for compensation. RSA now has total WTC related provisions of £281m.

The increased provision cut RSA's interim group operating result to £301m compared with £366m previously. The result was in line with expectations before allowing for the WTC increase.

RSA also revealed it had released £350m of capital as part of a series of moves that would see the insurer close its remaining UK life funds to new business. The moves lift the total amount raised from asset sales and restructuring to £725m compared with the group's target of £800m.

The pre-tax line was slashed to a £319m loss, compared with a £423m deficit previously, after including a £371m charge in relation to poor investment returns.

But there was some comforting news from RSA's general insurance arm. It revealed that its combined operating ratio, which measures premium income against claims, had hit the group's target of 103% in the six months, including a result of 102.1% in the second quarter.