Hester unveils fundraising to revive struggling RSA

Mr Hester, who joined the company less than a month ago, revealed the extent of RSA’s difficulties by announcing that operating profits for 2013 had slumped to £286m from £601m a year earlier.

He scrapped the company’s dividend and asked shareholders to stump up £775m in a rights issue – equivalent to 20 per cent of RSA’s market value – in order to repair the insurer’s balance sheet.

The company, which has operations in the UK, Scandinavia and Canada, has been hit by a series of profit warnings, an accounting scandal at its Irish subsidiary and a surge in flood claims following the wettest winter on record.

Mr Hester said yesterday: “RSA’s 2013 results are poor and we need to grasp the nettles of both under performance and under capitalisation.”

The capital target was higher than many analysts had expected, and RSA’s shares dropped yesterday.

One shareholder welcomed Mr Hester’s goal, however, arguing it was preferable to not raising enough, and then angering already disgruntled investors by coming back later to ask for more.

“At least he isn’t trying to scrimp on the capital. If you’re going to have a capital raising, make sure you do enough first time around,” said the shareholder.

Mr Hester told journalists on a conference call that he expected the rights issue to conclude in April.

“In deciding how much capital we thought we needed, we wanted to have enough cushion so that whatever banana skins show up in the next couple of years, we can withstand them,” he said.

The company also said it has already started making disposals, targeting around £300m in 2014 and Mr Hester said more sales could follow in 2015.

The group said it would focus efforts on core businesses in the UK and Ireland, Canada, Scandinavia and Latin America and new initiatives to improve efficiency were already underway.

Mr Hester acknowledged the turnaround would involve some job losses at the group.

The rest of the capital raised will come from retained earnings and the company said that “the impact of 2013 results means (a) final dividend cannot be justified”.

The recent weather has continued to hamper the company’s recovery plans, with flooding in the UK and Ireland and ice storms in Canada likely to result in a claims hit of between £75m and £100m.

This is on top of the £41m incurred by its UK and Europe division in the final quarter of last year, including claims linked to the impact of the Xaver storm.

In the UK, RSA made an underwriting profit of £36m as a result of a good performance in its property and household books, offset by losses in personal motor insurance.

In Ireland, the underwriting loss was £220m, reflecting the need for reserves strengthening and the impact of the irregularities within the Irish claims and finance functions.

RSA recently sought to draw a line under its Irish scandal after an independent investigation found “inappropriate collaboration” among the division’s managers led to a £200m black hole.

Mr Hester is being paid an annual salary of £950,000, with the potential for long-term incentive scheme shares worth up to £2.9m this year on top of a potential annual bonus. He received praise for leading the rescue of RBS.

Mr Hester, who grew up in the village of Crayke in North Yorkshire, left RBS at the end of September after five years at the helm.

In November, Mr Hester urged the Government to privatise RBS as soon as possible to get the best possible return for the UK taxpayer.

He made the comments at the Yorkshire Post Excellence in Business Awards at the Queens Hotel in Leeds, where he received the Individual Award for Excellence, for doing the toughest job in UK financial services.

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