RSA in talks with regulator over solvency of life arm

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.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?