Royal & Sun Alliance is to cut 1,200 jobs following a decision to close its UK life operations to new business, the struggling insurer said today.

The company announced it would cut 970 jobs across three sites - Bristol, Liverpool and Horsham, in Sussex. In addition, it is cutting 230 jobs from its sales force across the UK, bringing total job cuts in its UK life business to 1,200. A spokesman said 520 jobs would go in Bristol, 250 in Liverpool and 200 in Horsham.

News of the jobs cuts capped a dismal day for RSA as it slashed its dividend and said it planned to raise fresh capital through new shares to shore up its finances. The firm, hit by claims for asbestos and floods and a heavy fall in the value of its equities holdings, also made an unexpected provision against losses from the September 11 attacks in the US.

The bleak news sent RSA shares plummeting 28% to its lowest level for at least 10 years - before recovering a little to fetch just over 110p in lunchtime trade. As RSA shares tumbled, there will be renewed speculation on the future of its chief executive, Bob Mendelsohn, who admitted to "acute frustration and unhappiness".

Until now, Mr Mendelsohn has persistently argued that RSA did not need to raise new cash although he has been doing his utmost to save money. He has chopped the dividend to save £150m a year and has embarked on a disposal programme to raise £800m by the end of this year. So far he is only half way to the target.

"Royal & Sun has been on the sick list for some time," Brewin Dolphin fund manager Stuart Fraser, told Reuters.

"I think we clearly have shown we can raise the capital internally, but we also can't rule out going to the market if the growth opportunities aren't as significant as they look to be and the internal methods don't work," Mr Mendelsohn told reporters.

First half operating profits fell to £301m for the six months to June 30 from £366m last year. RSA also made a new £66m provision to cover for claims resulting from the World Trade Centre attacks. Analysts had forecast on average operating profits of around £362m.

The insurer also slashed its interim dividend by 55% to 4p, below analysts' forecasts of around 5p.

News of RSA's retrenchment will come as a severe blow to Mr Mendelsohn, who for the last year or so has been talking up the insurance business. He had been saying opportunities for insurers like RSA have never been better. Premiums would rise after September 11, he argued, and the likes of RSA, with balance sheets to shoulder the increased risks, would write the bulk of the business.

Guardian

-- Anonymous, August 10, 2002

Answers

Shares dive as 1,200 jobs go at Royal & SunAlliance

SunAlliance saw its shares fall more than 20% to their lowest level for 17 years yesterday as it cut 1,200 jobs and warned that its cost-saving measures may not be enough to stave off the need to raise new capital, probably via a rights issue.

The group also revealed that its bill from the attacks on New York's World Trade Centre has risen by £66m to £275m and reported an interim dividend of only 4p, a long way below City expectations.

The string of bad news will intensify pressure on Bob Mendelsohn, the Smart car-driving American chief executive who was installed in 1997 to restore effective management after the post-merger squabbling between the former heads of Royal Insurance and Sun Alliance. The shares peaked at over 800p shortly after Mr Mendelsohn's arrival but yesterday's 30.75p fall took them to 112p.

"Management credibility is at an all-time low; there is a serious issue here," said Eamonn Flanagan of broker ING Charterhouse. In addition, Royal Sun will face extra scrutiny from the credit rating agencies. Both Standard & Poor's and Fitch said they would be reviewing their ratings in the next few days.

Mr Mendelsohn said: "There is no explanation within our business fundamentals that tells you the shares should be trading where they are." He argued that hedge funds and short-sellers - betting that the company will be forced into a cash-call - were partly responsible for the 72% plunge since the start of this year.

Mr Mendelsohn said he was "as unhappy as the shareholders" about the share price but could not afford to worry about it. "I can't control the share price. If I thought I could I would probably have committed suicide by now," he said.

"I worry about making sound, strong decisions and whether we are doing the right thing for shareholders. I can't control things like the World Trade Centre event or the stock market."

The job losses will fall mainly in Bristol, Liverpool and Horsham as Royal Sun closes its life assurance business to new customers. Two with-profits funds closed to new business last December and now unit-linked and protection products will be barred to new customers. Only 1,300 of the 2,500 staff in the life division will remain to service existing investors.

Royal Sun's aim is to release capital into its general insurance business - comprising business cover for large corporations and motor and home insurance - where it thinks prospects are good.

Closing the life funds will release £350m of capital, putting the group close to its target of £800m, but even this may not be enough because of the impact of the falling stock market on Royal Sun's investment portfolio. "Accordingly we are actively considering the raising of external capital," it said.

Mr Mendelsohn said a rights issue was one of five options and added: "If the FTSE 100 stays around 4000, and we think we want to grow the business by 15%, I'm not going to be able to do that without growing the capital base."

The £66m increase in provision for the World Trade Centre attack came as companies made claims for disruption to their business. The charge meant group operating profits for the first half fell from £366m to £301m.

Guardian

-- Anonymous, August 10, 2002

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