L&G steals a march with £786m rights

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Legal & General, the UK's third-largest insurer, yesterday stole a march on its rivals with a £786m rights issue that it said would let it "get in early" on investor capital before other insurers launched their own fund-raising plans.

Analysts said the move by its chief executive, David Prosser, was "opportunistic", given the raft of rights issues believed to be on the cards in the insurance sector. The company plans to use the fresh funds to grow the business.

Hiscox, a Lloyd's of London property and casualty insurer, also announced plans to raise £110.5m through a rights issue after unveiling pre-tax profits that more than doubled to £3.9m in the first half and revealing that its underwriting capacity had been reached.

The speedy move to market by the financially strong L&G may now stall a widely anticipated rights issue at Royal & SunAlliance. The troubled insurer ­ which has not yet revealed how it will raise the £800m it needs to support the business ­ is now expected to hold off on launching a rights issue.

It is thought RSA will want to wait until it can supply the market with some good news, such as the disposal of a business or a change in management, to get a favourable reaction to a call for cash.

Mr Prosser, who is well liked by City investors and has made L&G's balance sheet one of the strongest in the sector, said the company's rights issue was to help it build on its position of strength. The money raised will support further organic growth in the company.

"We knew we would have to launch an equity issuance at some time, and we felt it was better just to get on with it. Analysts reach the same conclusions, and some companies find their shares might not stay on the same status. We thought, 'let's go for it early'. And according to efficient asset allocation theory, a good company should get investors," said Mr Prosser, who began planning the rights issue three weeks ago. Shares in L&G yesterday closed up 1.7 per cent at 115p.

L&G will issue 13 new shares at 60p per share for every existing 50 shares held, a discount of nearly 47 per cent. The issue has been fully underwritten by UBS Warburg and Dresdner Kleinwort Wasserstein. City sources believe the substantial discount will put pressure on Royal & SunAlliance to price any issue it makes at an even higher discount.

Gordon Aitken, an analyst at Credit Suisse First Boston, said Mr Prosser had made a "shrewd move", and that L&G had, in effect, "stolen" some of the capital needed by rival insurers.

"There are two types of rights issue ­ one where the money is required to finance new business growth, as in L&G's case. The other is an issue to repair a damaged balance sheet. We would put RSA into this category. Investors should obviously prefer the former," Mr Aitken said.

Shares in insurers fell yesterday amid fears more companies are lining up to come to market. Richard Harvey, the chief executive of Aviva, yesterday ruled out external capital raising. Zurich Financial Services has already revealed plans for a rescue rights issue of $2bn (£1.4bn).

Hiscox, meanwhile, said it would issue one share for every two in issue at 120p per share, a discount of 21.3 per cent. ING Barings is underwriting the issue. With recent rises in premiums, Hiscox's chairman, Robert Hiscox, said he had not seen such good trading conditions in his 38 years' experience in the sector, and the company wanted to increase the amount it was underwriting.