Former Royal Bank of Scotland boss Stephen Hester announced his arrival at insurer RSA by axing its dividend and launching a £775 million rights issue.
In a wide-ranging overhaul of the group’s strategy, Hester said he also planned to sell £300 million worth of assets to plug a gaping capital shortfall he believes has been growing over the past 4-5 years.
RSA shares have fallen heavily since the discovery of a £200 million black hole in its Irish business last year, which led to the departure of former boss Simon Lee in December.
The More Than owner will now focus on the UK and Ireland, Canada, Scandinavia and Latin America, suggesting disposals in other parts of Europe and Asian are on the cards.
“It’s never fun delivering disappointing news but we want to make sure this business is cleaned up properly,” Hester said. “I have done this kind of thing a lot in my career.”
As well as the planned fundraising, the company said it had also taken out a £550 million reinsurance contract with Warren Buffett’s Berkshire Hathaway to cover its liabilities.
It also plans to sell property and parts of its investment portfolio to boost its regulatory capital buffer by over £1 billion.
RSA posted a pre-tax loss of £244 million in 2013, compared to a £448 million profit last year and said it could not justify paying a dividend in light of the performance. It said its interim payout was likely to be “modest”.
Hester added: “RSA’s 2013 results are poor and we need to grasp the nettles of both underperformance and under-capitalisation. Together with a series of significant self-help measures, we believe this will put the group’s capital in the right place for the future.”
Barrie Cornes, analyst at Panmure, said: “We view the capital raise as an inevitable consequence of over distributing its dividend for the last few years in addition to the problems in Ireland.”
RSA shares fell almost 3 per cent to 99.2p.