RSA in talks with regulator over solvency of life arm
Friday 07 March 2003
Royal & SunAlliance, the insurer struggling to fill a £700m shortfall in its capital requirements, revealed yesterday it was locked in negotiations with the Financial Services Authority (FSA) over the solvency of its life insurance businesses.
The news came as RSA reported annual results and confirmed a widely anticipated dividend cut. Its operating profits for the year came in at the bottom end of expectations at £226m, and the dividend was reduced by 63 per cent to 6p a share.
RSA admitted yesterday the FSA had concerns over the re-insurance deals and future profits used to meet the solvency requirements of its life funds, which were closed in November. The insurer said the discussions may result in the need for additional funding from the group.
The company may also be in line for a fine and compensation payouts for mis-selling mortgage endowments. RSA was slapped with a record fine of £1.35m for mis-selling personal pensions last year.
Further regulatory costs are possible from its significant book of guaranteed annuity options. The company has failed to reach a settlement with the FSA on these contracts, which amount to liabilities of more than £1bn, after months of talks.
Similar liabilities crippled Equitable Life, and RSA may have to compensate policyholders. The company said these "discussions could result in significant financial consequences for the group, including the provision of further financial support for subsidiaries".
The company's two with-profits funds already have a loan facility of up to £1bn from the group to help it meet its solvency margins. Bob Gunn, the acting chief executive of the company, said RSA had provisions in place to cover any regulatory costs arising in the life funds.
RSA's capital shortfall has arisen from losses on the World Trade Centre attacks, flooding and asbestosis. Adding to the group's capital problems is its staff pension fund, which was revealed as having a £400m deficit yesterday. Staff are being asked to start contributing to the scheme, and RSA is planning a £70m injection this year.
The group is in the middle of a disposal programme, announced in November, that will see 12,000 jobs shed and the company focus on general insurance.
Mr Gunn yesterday said disposal plans were progressing well, including the float of its Australian business, but said the company "still had work to do". He added: "We have steadied the ship, although we are not in a safe harbour yet."
Andy Haste, the chief executive of Axa Sun Life, is taking over from Mr Gunn in April.
Insurers across Europe have been hit by similar problems. Aegon reported a 35 per cent drop in profits for the year, and cut its dividend by 11 per cent. Swiss Life, which staged a 1.2bn Swiss francs (£560m) rescue rights issue last year, posted a record loss of Sfr1.7bn for 2002 yesterday.
- 3 The enemy within: People who hear voices in their heads are being encouraged to talk back
- 4 Phil Neville backtracks on Tomas Rosicky 'I'd smash him' comments from Match of the Day 2
- 5 British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Paris attacks: Do not call Charlie Hebdo killers 'terrorists', BBC says
UK weather: Snow to fall in the coming week with sub-zero temperatures to last until early February
Asteroid narrowly scrapes past Earth: how to watch the closest space rock for decades as it flies by
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Prince Philip set to be knighted by Australia: Celebrate by reading his greatest gaffes
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...