By Chris Vellacott
LONDON Feb 27 Troubled British insurer RSA
has begun a drive to raise up to 1.6 billion pounds
($2.7 billion) in capital, tapping shareholders for half and the
rest from disposals and money saved by scrapping its dividend.
The plan was announced on Thursday as the company unveiled a
244 million pound ($406 million) pre-tax loss for 2013 after it
suffered an accounting scandal at its Irish business and large
"RSA's 2013 results are poor and we need to grasp the
nettles of both underperformance and under-capitalisation," new
Chief Executive Stephen Hester said.
The capital target was higher than the 500 million to 1
billion pounds that analysts had expected and RSA shares dropped
One shareholder welcomed Hester's goal, however, arguing it
was preferable to not raising enough and then angering already
disgruntled investors by coming back later to ask for more.
"At least he isn't trying to scrimp on the capital. If
you're going to have a capital raising, make sure you do enough
first time around," said the shareholder.
RSA, best known in Britain for its More Than home and motor
insurance brand, said it planned to launch a rights issue aiming
to raise around 775 million pounds ($1.29 billion), details of
which will be announced next month.
Hester told journalists on a conference call he expected the
rights issue to conclude in April.
"In deciding how much capital we thought we needed, we
wanted to have enough cushion so that whatever banana skins show
up in the next couple of years, we can withstand them," he said.
The company also said it has already started making
disposals, targeting around 300 million pounds in 2014 and
Hester said more sales could follow in 2015.
The group said it would focus efforts on core businesses in
the UK and Ireland, Canada, Scandinavia and Latin America and
new initiatives to improve efficiency were already underway.
Former Royal Bank of Scotland boss Hester, who
started in his current role earlier this month, acknowledged the
turnaround would involve some job losses at the group.
The rest of the capital raised will come from retained
earnings and the company said that "the impact of 2013 results
means (a) final dividend cannot be justified."
Meanwhile, RSA also said it had secured a 550 million pounds
adverse development cover contract with Berkshire Hathaway,
allowing it to set aside less capital against the insurance it
RSA's difficulties emerged last year with a series of profit
warnings related to extreme weather in its Canadian and European
core markets and the uncovering of accounting irregularities at
the Irish business.
The ensuing scandal led to the departure of a number of
senior figures, including group chief executive Simon Lee, and
the company launched a strategic review of the business, as its
credit rating came under threat.