Accounting switch costs RSA £400m

Shares in Royal & SunAlliance, the UK insurer, fell almost 3.5 per cent yesterday, after the group announced that the implementation of new international accounting rules would cause it to reduce its net assets by around £400m.

Shares in Royal & SunAlliance, the UK insurer, fell almost 3.5 per cent yesterday, after the group announced that the implementation of new international accounting rules would cause it to reduce its net assets by around £400m.

In a Stock Exchange announcement, the group said the reduction was mainly owing to a rule which required it to account for its full pension deficit - of £525m - on its balance sheet.

However, it added that some £100m of the writedowns came as a result of its reclassification of certain insurance contracts as derivatives.

Dylan Ball, an analyst from Credit Suisse First Boston, said that the changes had been well flagged previously. However, he conceded that the size of the derivative reclassification was new news, which may have contributed to the fall in share price. "To be honest, I think the only difference between today and the day before is the absence of buyers in the market. There's been some large buyers in the market supporting the share price over the past couple of weeks."

RSA shares have risen more than 10 per cent since the end of December, reaching a 12-month high of almost 91p last week. Bid rumours have surrounded the company over the past few weeks, with American International Group (AIG) having been touted as a potential buyer for the group. As yet, however, there have been no Stock Exchange announcements revealing any significant stake-building.

Shares in the company recovered slightly to close at 84p yesterday, giving the group a market value of £2.4bn. RSA is due to announce its 2004 results next month. A subsequent presentation is scheduled for April, when the company will restate its results according to the new International Financial Reporting Standards.