RSA Insurance shares plunge after it warns over payouts

RSA Insurance has spooked investors by cutting its dividend for the first time in 10 years. The FTSE 100 insurer, best known for its More Than brand, blamed falling investment income as its shares tumbled by 14 per cent. The company said its final dividend would be 3.9p this year, 33 per cent down on last year.

RSA is traditionally one of the best dividend payers on the London Stock Exchange, with its shares yielding about 7 per cent before the announcement.

Simon Lee, the company's chief executive, said the cut was necessary because low bond yields threatened its ability to invest.

"It is absolutely the right thing to do for the business," he added. "The board's decision to rebase the dividend is a prudent move that will enable us to invest in the opportunities we see for growth.

"I look at it a bit like an operation – it might hurt a bit at the time but it will be worth it in the long run."

Pre-tax profits fell to £479m last year from £613m a year earlier.

The results were hurt by wet-weather claims in the UK although the company's overseas businesses continued to grow.

RSA's combined ratio hit 95.4 per cent, meaning that it effectively paid out 95p in claims for each £1 it took in premiums.

However, analysts focused on the dividend cut, warning that other insurers – such as Aviva, whose shares fell 4 per cent – could now be forced to follow suit.

Barrie Cornes, an analyst at Panmure, downgraded the company from hold to sell. He said: "Whilst the 2012 results were in line with expectations, the 33 per cent cut in the final dividend, together with guidance for a similar cut in the 2013 interim, in our view removes a key prop to the share price.

"Based on our revised 2013 dividend of 6.1p per share, RSA will be yielding 4.5 per cent compared to the 7.1 per cent that we were previously anticipating. Sell."

Aviva reports its full-year results next week.