(Reuters) — Troubled British insurer RSA Insurance Group P.L.C. has begun a drive to raise up to £1.6 billion ($2.66 billion) in capital, tapping shareholders for half and the rest from disposals and money saved by scrapping its dividend.
The plan was announced on Thursday as the company unveiled a £244 million ($405.6 million) pretax loss for 2013 after it suffered an accounting scandal at its Irish business and large weather-related claims.
"RSA's 2013 results are poor and we need to grasp the nettles of both underperformance and undercapitalisation," new Chief Executive Stephen Hester said.
The capital target was higher than the £500 million to £1 billion ($831.2 million to $1.66 billion) that analysts had expected, and RSA shares dropped 3%.
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.
RSA, best known in Britain for its More Than home and motor insurance brand, said it planned to launch a rights issue aiming to raise around £775 million ($1.29 billion), details of which will be announced next month.
Mr. Hester told journalists on a conference call 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 £300 million ($498.7 million) in 2014, and Mr. Hester said more sales could follow in 2015.
The group said it would focus efforts on core businesses in the U.K. and Ireland, Canada, Scandinavia and Latin America and new initiatives to improve efficiency were already underway.
Former Royal Bank of Scotland Group P.L.C. boss Mr. Hester, who started in his current role earlier this month, 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."
Meanwhile, RSA also said it had secured a £550 million ($914.3 million) adverse development cover contract with Berkshire Hathaway Inc., allowing it to set aside less capital against the insuranceit writes.
RSA's difficulties emerged last year with a series of profit warnings related to extreme weather in its Canadian and European core markets and the uncovering of accounting irregularities at the Irish business.
The ensuing scandal led to the departure of a number of senior figures, including group Chief Executive Simon Lee, and the company launched a strategic review of the business, as its credit rating came under threat.