Royal's move follows Commercial Union's pounds 428m cash call in February and raised fears that the other composite insurers, General Accident, GRE and Sun Alliance, would follow suit.
Royal insisted that the money would not be used to pay off its pounds 491m borrowings but would instead be ploughed into new business so that it could take advantage of firming premium rates in the UK and Europe. It forecast a dividend for the year of 6.5p, up from 5p in 1992.
Richard Gamble, Royal's chief executive, said the company had returned to the black for the first quarter of 1993, turning in a profit of pounds 2m compared with a loss of pounds 48m a year ago. This was despite a pounds 22m rise in weather losses in the US.
Mr Gamble said the company had to rebuild its capital base following losses totalling pounds 679m in 1990, 1991 and 1992. During those years the balance sheet had suffered to the tune of pounds 1.2bn.
'We felt the time was right to take advantage of the market upturn,' he continued. 'We have made management changes and cut out loss-making activities. Now, with rates firming, we feel the time is right to take the business forward.'
The City was caught on the hop by the timing of the cash call but generally supportive.
Derek Elias, an analyst with Paribas, said the company was now out of the serious problems it faced 12 months ago but he remained cautious on the shares, especially because of Royal's view that mortgage indemnity claims will fall with a pick-up in the housing market.
Mr Elias and other analysts fear that repossessions may rise, leading to more mortgage indemnity losses.Reuse content