Asbestos claim disrupts RSA plan for £1bn cash call

Royal & SunAlliance's plans for a £1bn cash call on its investors suffered a setback yesterday after it emerged the insurer was facing a new asbestos liability claim.

The insurers' shares fell 10% to 104p on concern about a court filing made on behalf of former employees of Turner & Newall, the engineering group which itself collapsed from the weight of its asbestos liabilities.

Anxiety about the exposure of RSA to asbestos claims is regarded as one of the main stumbling blocks in winning the support of its investors for a crucial rights issue to bolster its balance sheet. Even though the claim by Turner & Newall is unlikely to leave RSA with a liability of anything more than £10m, the nervousness about the financial position of the insurer prompted the sharp decline in its shares.

RSA paid out £40m in asbestos-related claims last year and the company has made a £680m provision for such claims.

The insurer has pledged to update the City on Thursday about its plans to find £725m to bolster its financial position and allow it to continue selling new policies.

It has been sounding out investors about supporting a rights issue to raise funds and has already ousted its chief executive, Bob Mendelsohn, to help win the backing of investors for any capital raising exercise.

It is understood that the financial services authority, the City regulator, is keeping in close contact with RSA about its attempts to boost its financial position.

Some City sources remain sceptical that the insurer will pursue the rights issue. Instead, analysts such as Roman Cizdyn at Commerzbank believe the insurer will be looking for disposals and the possibility of taking out reinsurance against policies it has already written.

Investors are hoping for news on the sale of the company's operations in Canada, Scandinavia and Latin America next week, as well as information about its search for new blood for its boardroom to replace the already departed Mr Mendelsohn and the chairman, Sir Patrick Gillam, who is expected to retire shortly.

RSA said yesterday that claims such as the one being brought by Turner & Newall were "normal in a commercial insurance business".

"We take our responsibilities as an insurer extremely seriously and have a great deal of sympathy for any affected employee of Turner & Newall," RSA said.

Claims gather momentum

Worries over asbestos-related claims have hit a whole series of European companies.

Swiss-Swedish engineering group ABB has seen its share price plummet and its debt downgraded to junk status over potential liabilities facing its Combustion Engineering subsidiary in the US.

Yesterday Sweden's Alfa Laval saw its shares plunge 28%. Other Swedish groups hit include Atlas Copco whose shares fell almost 9% and Trelleborg, which fell 10%.

In the US more than 50 companies have filed for bankrupcy under the weight of cases. Some estimates put the final bill at over $65bn.

There has been talk of legislation to limit claims as well as criticism that only about a third of the money paid out reaches claimants; also that many of those who are seeking damages are not actually ill. Next week the Supreme Court is due to hear a case involving six railway workers, awarded $5.8m in compensation because of concern that they might become ill.