Royal & Sunalliance is preparing to cut its dividend while looking at ways to raise up to £2bn in order to finance expansion in the property and casualty insurance market.
The insurance group would consider a massive rights issue to fund the move but its first option is to raise the cash from the disposal of non-core and underperforming businesses.
It will use Thursday's announcement of nine-month figures to signal that it aims to grow aggressively in general insurance. The company will say that its strategy of moving away from life business in favour of areas such as property insurance has been vindicated by the development of the market. It now needs more money to exploit its position.
"A rights issue has been thought about," said an industry source. "But a lot of other things will be explored first."
Royal & Sun, led by chief executive Robert Mendelsohn since 1997, was criticised in the City for moving away from life assurance. However, over the past 18 months, the general insurance market has seen premiums take off, while the life sector has suffered from the introduction of stakeholder pensions, the mis-selling scandal and increased competition.
The aftermath of 11 September has improved the general insurance market further still, as premiums have risen further and the value of insurance has been highlighted.
"Royal & Sun believes we are looking at the best environment for general insurance for over a decade. Its decision to concentrate on this area looks smart," an insider said.
However, the quantity of insurance business a company can write is constrained by its level of capital. This is why Royal & Sun quickly needs to raise fresh funds. The company has already started a review of its life business but in the current market, a sale of this division is difficult. Accelerating the disposal programme for a range of smaller UK and overseas non-core business, which could unlock £1.5bn to £2bn, is an option.
It is thought it will signal on Thursday that its £350m annual dividend payout is to be cut.Reuse content