RSA Insurance Group plc Considers Rights Issue

RSA Insurance Group plc (LON: RSA) is considering ways to plug hole in finances after £200m fraud in Ireland.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 24 February, 2014 9:16 am GMT

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The share price of RSA (LSE: RSA) (NASDAQOTH: RSANY.US) fell by nearly 2% to 100p shortly after the market opened this morning, after the insurer put out an unscheduled statement before its full-year results later this week, that confirmed it is considering raising capital through a possible rights issue.

The release of the statement is due to speculation in the press over how the group will repair its finances following the discovery of £200m worth of losses in its Irish business last year, which eventually led to the dismissal of two of the men who ran RSA Ireland — chief financial officer Rory O’Connor and claims director Peter Burke.

A review of the Irish business conducted by accountants PwC and KPMG found evidence of “inappropriate collaboration” among managers. The size of the irregularities led to three profit warnings toward the tail end of 2013, causing RSA’s chief executive Simon Lee to resign.

The group, which owns the More Than brand, is also likely to see a fall in full-year earnings due to bad weather.

RSA’s new chief executive, Simon Hester, could potentially launch an £800m rights issue, although a final decision is yet to be made. The firm could also reveal plans to sell of businesses in Eastern Europe, the Middle East and Asia.

The arrival of Mr Hester, formerly of RBS, helped restore confidence in the insurer, leading to a 6% increase to the share price on the day of his arrival.

No word was given on the dividend — which is expected to be scrapped as part of cost-cutting measures — in today’s statement.