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 RSA said on Friday it needed to boost capital and may have to cut
its dividend following three profit warnings and a move to
strengthen reserves at its Irish business, where it suspects
accounting irregularities.
Some analysts estimate Britain's biggest non-life insurer, which
owns the More Than brand, may need to raise as much as 1 billion
pounds.
RSA Chairman Martin Scicluna is under pressure to outline a recovery
plan to avoid downgrades to the company's credit ratings, a move
that could deter insurance brokers from recommending its products
such as car and home insurance.
Ratings agency Fitch put RSA's Insurer Financial Strength (IFS)
rating of 'A' on Rating Watch Negative on Monday, indicating it is
considering a downgrade.
Standard & Poor's lowered its credit ratings on the insurer and its
core businesses to 'A-' from 'A' and revised its ratings to Credit
Watch Developing from Negative.
RSA's Chief Financial Officer Richard Houghton said S&P's decision
would have no material impact on the insurer's operations, its
customers or its ability to trade.
Selling trophy assets in overseas markets, where RSA makes two
thirds of its revenue, could be its least worst option.
Investors who have seen their shares fall 28 percent since the start
of this year look unlikely to back a rights issue and analysts say
the company is worth less than the sum of its constituent
businesses, making the prospect of a full takeover remote.
"The key thing is that if there is a capital shortfall, shareholders
will be unwilling to plug it with a rights issue," said one
institutional RSA shareholder on Monday.
BREAKUP VALUE
RSA shares have fallen by close to 12 percent since Thursday, the
day before its latest profit warning.
Scicluna, who has been running the insurer since chief executive
Simon Lee quit on Friday, told Reuters any part of the business
could be sold, but declined to say which were the most likely.
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If RSA were forced to divest trophy assets such as businesses in
Scandinavia, Canada or emerging markets in Asia or Latin America,
this would amount to 'selling the family silver," according to Shore
Capital Stockbrokers.
RSA would be left with a rump of slow-growth western European assets
such as its Irish business, where consultant PwC <PWC.UL> is due to
report on suspected accounting problems in January, and Britain,
where market conditions for insurance are tough.
Broker Canaccord Genuity estimated RSA would have an equity value on
disposal of up to 130 pence per share, assuming the individual
businesses are valued at between eight times forward earnings for
the British arm, and 15 times for the Canadian unit.
That compares with Canaccord's target price for the whole group of
85 pence, implying it is worth more broken up than as a whole. RSA
shares were trading at around 90 pence on Monday.
No bidder has yet come forward, an RSA source said on Monday. The
source said the firm is being advised by its corporate brokers JP
Morgan and Bank of America Merrill Lynch.
Scicluna and his team are scheduled for a routine meeting this week
with ratings agency analysts, the source said.
RSA has an implied rating of 'BBB', according to Thomson Reuters
data, compared with an average of 'BB+' for its peer group of UK
insurers that includes 'A' rated Aviva <AV.L>.
($1 = 0.6143 British pounds)
(Reporting by Chris Vellacott;
additional reporting by Richa Naidu; editing by Erica Billingham and
Tom Pfeiffer)
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