September 19, 2003

Insurer fears cash call backlash

JOHN COOMBER, chief executive of Swiss Re, the world’s second largest reinsurer, yesterday gave warning that capital markets could close to cash-starved insurers, amid a wave of new demands for funds.

Mr Coomber told The Times that investors were increasingly aggravated by demands for cash from the general insurance industry.

He said: “I am concerned that investors are saying to the industry ‘you’ve got legacy issues. We don’t want to fill holes in your reserves. We want to invest in new growth’.”

Mr Coomber’s comments could not have come at a worse time for Royal & SunAlliance which on Monday will ask shareholders to agree to a rights issue that would see existing investors part with 940 million to plug a 800 million hole in its reserves, largely due to losses in the US.

R&SA shareholders are furious that the insurer is seeking cash to fill holes because of inadequate reserving.

The warning also comes as Munich Re, the world’s largest reinsurer, is understood to be preparing to raise up to €4 billion (2.8 billion). Analysts believe that the reinsurer wants the capital to shore up its weakened balance sheet.

AXA, the French insurer, saw its shares rise 2 per cent as it announced a €1.4 billion rights issue. But analysts said investors welcomed the announcement because AXA plans to spend the cash on buying MONY Group, the US life insurer, in an attempt to expand its US business. The 1.5 billion bid price was condemned as excessively low by MONY shareholders.

Aviva, the UK’s largest insurer, is also expected to announce a larger than expected issue of subordinated debt, raising 1.6 billion rather than the 1.2 billion signalled last week.

Swiss Re is one of the healthier firms in the capital-depleted reinsurance sector, according to credit rating agencies. The group has avoided big capital raising since a $4.43 billion (2.7 billion) share placing in 2001, although it has cut its dividend by 60 per cent this year to preserve capital.

Global property and casualty insurers have lost $200 billion of their reserves over the past two years in the wake of falling stock markets and increased levels of claims. The erosion of capital has led to a wave of fundraising.