Report R&SA to Post Good 1st Half Profits; May Revive Rights Offer

September 3, 2003

According to reports from British news services and financial journals, Royal & Sun Alliance, the U.K.’s second largest P/C insurer, is set to announce a significant increase in its first half 2003 profits tomorrow. The news has also fueled widespread speculation that the insurer will revive plans for a billion dollar rights issue that were shelved last year as the company’s share value plunged.

According to a Reuters report, analysts consensus estimates put R&SA’s first half net profit at between £327 million and £386 million ($517 million and $610 million), approximately a 17 percent increase over the same period last year. The insurer posted a net profit of £175 million ($277 million) in the first quarter.

A recent company bulletin said only that it was continuing to review its operations and capitalization. So far it has spun off its Australia and New Zealand operations, holding an initial public offering last May, which raised $1.2 billion; has restructured its U.S. subsidiaries, and has closed its U.K. life operations to new business. Nevertheless, it could still use a capital injection to shore up its balance sheet, which has been hit by a combination of falling equity values and reserve increases, linked mainly to potential asbestos claims.

A rights issue was in the planning stages last year, but in view of financial conditions it was put on hold. The recent recovery in global stock markets has revived the possibility to the point that many analysts expect R&SA will announce the rights offering tomorrow, when it officially posts its first half results. It’s expected to involve raising around £900 million ($1.42 billion) on a two shares for three basis.

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