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* To offer three new shares at 56p each for every eight
* Issue underwritten by BoA Merrill and JP Morgan Cazenove (Adds share price, shareholder and analyst comment)
By Chris Vellacott, Kate Holton and Huw Jones
LONDON, March 25 (Reuters) - Troubled British insurer RSA has detailed plans for a 773 million pounds ($1.3 billion) share issue designed to boost its finances in the wake of costly weather-related claims and accounting irregularities in its Irish business.
Under new Chief Executive Stephen Hester, RSA had in February set out plans to raise up to 1.6 billion pounds in capital, tapping shareholders for half and the rest from disposals and money saved by scrapping its dividend.
Hester said at the time he expected the rights issue to be concluded in April.
RSA, which had slumped to a 244 million pound pretax loss for 2013, said on Tuesday it would offer existing shareholders three new shares at 56 pence apiece for every eight existing. The issue is fully underwritten by two banks, ensuring it raises the cash even if existing investors don't take up their rights.
The price is a discount of around 40 percent to RSA's closing price on Monday and around 33 percent to the price taking into account the new shares as well as the existing.
Analysts at Bernstein Research said the move would raise more than enough money to restore RSA's capital strength.
However, one of RSA's institutional shareholders said the group could have targeted even more in order to rule out any possibility of needing to raise further capital in future.
"The rights are at a 33 percent discount ... which is reasonably standard for a rescue rights (issue). They've gone pretty large, although I had wondered if they might have been even closer to 1 billion pounds," the shareholder said.
RSA shares, which had plummeted to a more than eight-year low last December when Hester's predecessor Simon Lee quit after announcing a third profit warning in six weeks, rose 1.3 percent to 94.6 pence in morning trading.
RSA's troubles stem partly from accounting problems at its Irish business, which the insurer said in December needed another 130 million pounds to plug a capital hole on top of 70 million previously identified. The company also said it had received 25 million pounds in claims related to storms in Europe.
RSA said the rights issue would enable it to restore its capital position and keep ahead of anticipated industry capital trends, allowing the business to properly implement its improvement plan.
It said the proceeds of the issue would be held as cash or low-risk investments in order to improve its capital strength and surplus over its capital requirements.
The issue will be fully underwritten by Bank of America Merrill Lynch and JP Morgan Cazenove. ($1 = 0.6065 British Pounds) (Editing by Sophie Walker and David Holmes)