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RSA Ins Grp (RSA)

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Tuesday 25 March, 2014

RSA Ins Grp

Announcement re: Rights Issue

Announcement re: Rights Issue

RSA Insurance Group Plc

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES, CANADA OR SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

This is not a prospectus but an advertisement. Investors should not subscribe for the securities referred to in this advertisement except on the basis of information in the Prospectus. A prospectus will be published today and will be available at the offices of Equiniti Limited.

25 March 2014

RSA INSURANCE GROUP PLC

3 FOR 8 RIGHTS ISSUE AT 56 PENCE PER NEW ORDINARY SHARE

  • Further to the announcement on 27 February of its preliminary results for the year ended 31 December 2013, RSA Insurance Group plc ("RSA" or the “Company”) today announces the launch of a rights issue to raise £773 million in proceeds (£748 million net of expenses) (the “Rights Issue”). The Rights Issue is a fully underwritten 3 for 8 rights issue of 1,380,976,863 ordinary shares of 27.5 pence each in the capital of the Company at a price of 56 pence per New Ordinary Share.
  • The Issue Price of 56 pence per New Ordinary Share represents a discount of approximately 40% to the closing price of 93.4 pence on 24 March 2014 (being the last business day prior to the release of this announcement) and a 32.7% discount to the theoretical ex-rights price based on the closing price on 24 March 2014.
  • Following a comprehensive review of the options available to RSA, the Board believes that the Rights Issue will enable the Group to restore its capital position and keep ahead of anticipated industry capital trends, and that this will allow the business to carry out its action and improvement plans without undue risk of suboptimal decisions forced by capital shortage or instability.
  • The net proceeds of the Rights Issue will be held as cash or low-risk investments in order to improve the Group’s capital strength and surplus over its capital requirements.
  • RSA has arranged for the Rights Issue to be fully underwritten by BofA Merrill Lynch and J.P. Morgan Cazenove, to provide certainty as to the amount of capital to be raised.

Stephen Hester, CEO, RSA said;

"Following a comprehensive review of the options available to RSA, the Board believes that the Rights Issue will enable the Group to restore its capital position and keep ahead of anticipated industry capital trends, and that this will allow the business to carry out its action and improvement plans without undue risk of suboptimal decisions forced by capital shortage or instability. We thank shareholders for their ongoing support. We remain focussed on delivering the transformation programme we outlined at our preliminary results presentation in February and look forward to sharing more details on our plans in the coming months."

This summary should be read in conjunction with the full text of this announcement (which includes a summary of the expected timetable of events) and its Appendix. Defined terms used herein have the meanings given to them in the Appendix.

Enquiries:

Analysts & Investors   Press
 

Matt Hotson

Investor Relations Director

Tel: +44 (0) 20 7111 7212

Email: [email protected]

Louise Shield

Director of External Communications

Tel: +44 (0) 20 7111 7047

Email: [email protected]

 

Rupert Taylor Rea

Head of Equity Investor Relations

Tel: +44 (0) 20 7111 7140

Email: [email protected]

Jon Sellors

Head of Media Relations

Tel: +44 (0) 20 7111 7327

Email: [email protected]

 
Joint Global Coordinators, Joint Bookrunners and Joint Underwriters
 

BofA Merrill Lynch

Tel: +44 (0) 20 7174 4000

Fraser Allan

Tony White

J.P. Morgan Cazenove

Tel: +44 (0) 20 7134 4255

Greg Chamberlain

Mike Collar

IMPORTANT NOTICE

This announcement is for information purposes only and does not constitute or form part of an offer to sell or a solicitation of an offer to purchase any securities in any jurisdiction. Nothing in this announcement should be interpreted as a term or condition of the Rights Issue. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change.

This announcement is not a prospectus but an advertisement. Any offer to acquire the Company’s securities pursuant to the offering referred to in these materials will be made, and any investor should make his investment, solely on the basis of information that will be contained in the Prospectus to be made generally available in the United Kingdom in connection with such offering. When made generally available, copies of the Prospectus may be obtained at no cost from the Company or through the website of the Company at www.rsagroup.com, provided that the Prospectus will not, subject to certain exceptions, be available (whether through the website or otherwise) to Shareholders in the United States, South Africa and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law (collectively, the “Excluded Territories”). The Prospectus will give further details of the New Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights being offered pursuant to the Rights Issue.

The information contained herein is not for distribution or publication, whether directly or indirectly and whether in whole or in part, in or into the United States, Canada or South Africa or any other jurisdiction where to do so would constitute a violation of the securities laws of such jurisdiction. These materials do not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States, Canada or South Africa.

The distribution of this announcement and/or the Prospectus and/or the Provisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement and/or the Prospectus and/or the Provisional Allotment Letter comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, the Prospectus and the Provisional Allotment Letter should not be distributed, forwarded to or transmitted in or into the United States, Canada or South Africa.

None of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares have been, or will be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or under any securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into the United States absent registration under the Securities Act or an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with state securities laws.

There will be no public offering of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in the United States, Canada or South Africa, or any other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of such jurisdiction.

The offering of Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares is only being made in Canada pursuant to exemptions from the prospectus and registration requirements that otherwise apply to a distribution of securities under applicable Canadian securities legislation. Any offer or solicitation in Canada must be made through a dealer that is appropriately registered under the laws of the applicable province or territory of Canada, or pursuant to an exemption from that requirement. Any resale of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares in Canada must be made under available statutory exemptions.

Each of J.P. Morgan Securities plc and Merrill Lynch International is authorised and regulated in the United Kingdom by the FCA and the PRA and is acting for RSA and no one else in connection with the Rights Issue and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Rights Issue and will not be responsible to anyone other than RSA for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue or any matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on J.P. Morgan Securities plc or Merrill Lynch International by FSMA or the regulatory regime established thereunder or otherwise under law, J.P. Morgan Securities plc and Merrill Lynch International do not accept any responsibility whatsoever for the contents of this announcement, and no representation or warranty, express or implied, is made by J.P. Morgan Securities plc or Merrill Lynch International in relation to the contents of this announcement, including its accuracy, completeness or verification or regarding the legality of any investment in the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares by any person under the laws applicable to such person or for any other statement made or purported to be made by it, or on its behalf, in connection with RSA, the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Rights Issue, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. To the fullest extent permissible J.P. Morgan Securities plc and Merrill Lynch International accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this announcement or any such statement.

In connection with the Rights Issue, each of J.P. Morgan Securities plc, Merrill Lynch International and any of their respective affiliates, acting as an investor for its own account, may take up the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares and/or related instruments in the Rights Issue and in that capacity may retain, purchase or sell for its own account such securities and any New Ordinary Shares or related investments and may offer or sell such New Ordinary Shares or other investments otherwise than in connection with the Rights Issue. Accordingly, references in this announcement to New Ordinary Shares being offered or placed should be read as including any offering or placement of New Ordinary Shares to any of J.P. Morgan Securities plc, Merrill Lynch International or any of their respective affiliates acting in such capacity. Neither of J.P. Morgan Securities plc or Merrill Lynch International intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition J.P. Morgan Securities plc or Merrill Lynch International or their affiliates may enter into financing arrangements (including swaps) with investors in connection with which such J.P. Morgan Securities plc, Merrill Lynch International (or their affiliates) may from time to time acquire, hold or dispose of New Ordinary Shares.

No person has been authorised to give any information or make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied upon as having been authorised by RSA or by any of J.P. Morgan Securities plc and Merrill Lynch International. Neither the delivery of this announcement nor any acquisition or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of RSA since the date of this announcement or that the information in this announcement is correct as at any time after its date.

This announcement contains ‘forward-looking statements’ with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives, including in relation to the Rights Issue. Generally, words such as “may”, “could”, “will,” “expect,” “intend,” “estimate,” “anticipate,” “aim,” “outlook,” “pro forma,” “believe,” “plan,” “seek,” “continue” or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group’s control, including, among other things, the success of the strategic action plan described in the full text of the announcement; UK domestic and global economic business conditions; the frequency, severity and development of insured claim events; changes in financial strength and credit ratings; uncertainties affecting reserves; weather-related and other catastrophe events; fluctuations in interest rates and exchange rates; competition; tax audits, the ability to realize tax loss carry forwards and the ability to realize deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control); current, pending and future legislation and regulation, interpretations of legislation or regulations by regulators and discretionary action taken by regulators; legal actions or regulatory investigations, including those in respect of industry requirements or business conduct rules of general applicability; changes in accounting standards; and any further internal control failures. The Group’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the forward-looking statements. Any forward-looking statements contained in this announcement apply only as at the date of this announcement and are not intended to give any assurance as to future results. The Company will update this announcement as required by applicable law, including the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules, and any other applicable law or regulations, but otherwise expressly disclaims any obligation or undertaking to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

This announcement does not constitute a recommendation concerning the Rights Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business or tax advice. Each prospective investor should consult his or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.

Neither the content of the Group’s website nor any website accessible by hyperlinks on the Group’s website is incorporated in, or forms part of, this announcement.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO, THE UNITED STATES, CANADA OR SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

This is not a prospectus but an advertisement. Investors should not subscribe for the securities referred to in this advertisement except on the basis of information in the Prospectus. A prospectus will be published today and investors will be able to obtain it from the offices of Equiniti Limited.

3 FOR 8 RIGHTS ISSUE AT 56 PENCE PER NEW ORDINARY SHARE

1 Introduction

Further to RSA’s 2013 Preliminary Results Announcement, RSA Insurance Group plc today announces the launch of a rights issue to raise £773 million in proceeds (£748 million net of expenses) (the “Rights Issue”). The Rights Issue is a fully underwritten 3 for 8 rights issue of 1,380,976,863 ordinary shares of 27.5 pence each in the capital of the Company at a price of 56 pence per New Ordinary Share.

The Issue Price of 56 pence per New Ordinary Share represents a discount of approximately 40% to the closing price of 93.4 pence on 24 March 2014 (being the last business day prior to the release of this announcement) and a 32.7% discount to the theoretical ex-rights price based on the closing price on 24 March 2014.

Following a comprehensive review of the options available to the Company, the Board believes that the Rights Issue will enable the Group to restore its capital position and keep ahead of anticipated industry capital trends, and this will allow the business to carry out its action and improvement plans without undue risk of suboptimal decisions forced by capital shortage or instability.

The Board considers the Rights Issue to be in the best interests of the Company and its Shareholders as a whole.

2 Background to and reasons for the Rights Issue

RSA operates in a capital intensive, regulated industry and needs a strong capital position in order to prevent business and strategic decisions from becoming constrained by the need to maintain sufficient capital.

Setbacks during 2013

On 27 February 2014, RSA’s 2013 Preliminary Results Announcement noted that the Group’s operating results were poor overall and that the Group’s capital position was significantly impacted as a result of events which occurred during 2013.

On 8 November 2013, the Group announced that it had identified issues in its Irish claims and finance functions during a routine internal audit (the terms of which were informed by the outcome of a Central Bank of Ireland review). In connection with these claims and financial irregularities and the resulting reserves review in Ireland, the Group recognised losses of £72 million arising from irregularities within the Irish claims and finance functions (including as a result of inappropriate collaboration of certain senior individuals on large loss and claims accounting) and a further £128 million arising from the completion of an internal reserve review of the Irish business. The Group has taken action to clarify the extent of the problems and to address them where necessary.

Poor weather across various countries in which the Group operates also had an adverse effect on the Group’s results. In the year ended 31 December 2013, weather-related events comprised 3.5% of the Group’s net earned premiums in the year ended 31 December 2013 (compared to 2.2% in the year ended 31 December 2012). This was a result of, amongst other events, flooding in the UK and Ireland, heavy rainfall and flooding in Calgary, Toronto and surrounding areas, severe ice storms in Eastern Canada and Toronto and windstorms in Scandinavia. Adverse weather conditions have continued into the first quarter of 2014.

The Group also recognised some significant non-cash charges for the year ended 31 December 2013. This included the write-down of goodwill from past acquisitions and partial write-down of (capitalised) technology in which the UK business invested heavily between 2006 and 2011 and which has not produced the scale of improvement targeted.

In addition, the Group has lowered the discount rate on certain long-tail liabilities and increased the reserve margin on the book of the UK and Western Europe business to bring both to a more prudent level.

Strong underlying businesses

In spite of the 2013 results, the Board believes that RSA’s core businesses are competitively strong and capable of good performance and, with the right focus and strategy, can achieve their potential.

At a normalised level, the Board believes that the 2013 results showed the capabilities and potential of the Group’s core businesses. On £8.7 billion of net written premiums, the Group reported a combined operating ratio of 99.6% with an underwriting profit of £57 million, which would have translated to profit after tax for the year ended 31 December 2013 of £304 million on a normalised basis (i.e. excluding the impact of the issues in Ireland, above-trend weather, reorganisation costs and reserving actions undertaken in the year, as well as the tax impact thereof).

The Group’s businesses in Canada, Scandinavia and Latin America have leading positions in their respective markets and the Board believes that these businesses offer the potential for good returns and premium growth. In the UK, the Board believes that RSA needs, and has the opportunity, to improve its performance, and it has already started to do so, although there is more to be done and the UK businesses face tough competitive markets. Challenges also remain for the Group’s business as a whole; in particular, low interest rates are set to constrain investment income for some time and the Group’s current spread of smaller market activities distracts resources and management effort from the Group’s core businesses.

RSA’s capital position

The 2013 Preliminary Results Announcement noted that, across the various rating agency, internal and regulatory capital measures, RSA did not have sufficient capital (as measured by tangible equity (i.e. shareholders’ equity less goodwill, intangible assets and Preference Share capital)) to support its business adequately. This was partly due to the developments in 2013 described above and partly due to stricter regulatory standards. It also reflected a business that over some years had become gradually undercapitalised and overleveraged and whose capital (as measured by tangible equity) had been weakened by acquired goodwill, software expenditure and high dividends relative to profits earned.

Improving RSA’s capital position

The Group has taken, and continues to take, decisive action to address its capital position, including taking out a £550 million adverse development cover (which protects against any deterioration in the Group’s total reserves position as at 31 December 2012, should relevant paid claims become greater than £11.0 billion, and under which RSA retains 20% of the exposure), agreeing the sale and leaseback of RSA’s Swedish headquarters (yielding approximately £30 million in net gain, realised in the month ended 28 February 2014) and the sale of most of the ordinary equity securities in the Group’s investment portfolio. Selected business disposals are underway, through which the Group plans to reduce the geographical spread of its operations and focus on its core businesses in the UK and Ireland, Scandinavia, Canada and Latin America; the Group has a target for the year ending 31 December 2014 of raising approximately £300 million of proceeds from this disposal programme and aims for all such disposals to be substantially complete by the end of 2015. These disposal processes are at various stages of progression and the precise timing for, terms of and proceeds to be raised from each potential disposal have yet to be determined. The Group will also undertake additional, smaller disposals of non-core businesses thereafter. In addition, the Group will seek to maintain a tougher regime of capital discipline throughout the Group, including by reducing its non-strategic portfolios significantly in areas where target risk / return metrics are not reached. The Group is also increasing its focus on expenses and aims to improve expense ratios across the business (though implementation of expense reduction will, of course, necessitate associated restructuring costs).

However, the Board believes that the initiatives detailed above, while extensive, will not be sufficient on their own. Further disposals at this time would take too long and be uncertain as to value. As such, RSA has concluded it should raise additional capital of approximately £748 million (net of expenses) through the Rights Issue to supplement the actions already taken and underway. The Rights Issue represents approximately 22.5% of the Group’s market capitalisation as at 24 March 2014 (being the last business day prior to the publication of this announcement). The proceeds of the Rights Issue are needed to enable the Group to restore its capital position and keep ahead of anticipated industry capital trends, and this will allow the business to carry out its action and improvement plans without undue risk of suboptimal decisions forced by capital shortage or instability.

As at 31 December 2013, the Company had an IGD surplus of approximately £0.2 billion (equating to a coverage ratio of 1.1 times) and an ECA surplus of approximately £0.7 billion (equating to a coverage ratio of 1.3 times). At 27 February 2014, including an allowance for the proceeds of the Rights Issue, the Board estimated the Company’s IGD surplus to be £1.3 billion (equating to a coverage ratio of 1.8 times), with the proceeds of the Rights Issue accounting for 68% of the increase in IGD surplus compared to 31 December 2013, and its ECA surplus to be £1.4 billion (equating to a coverage ratio of 1.6 times).

RSA’s action plan

The key elements of the Group’s action plan are to:

  • Tighten the strategic focus of the Group so that it can concentrate more effectively on performing well in core businesses. This will take place through the disposal programme and portfolio action described above and will enable the Group to concentrate its resources and management effort on a coherent core of businesses which the Board believes has the potential to perform well.
  • Reset the quantity and quality of the Group’s capital strength and the disciplines that will sustain it. This requires focus and transparency on risk profile as well as the capital that supports it. The Rights Issue will strengthen the Group’s capital (as measured by tangible equity) and (together with the portfolio review, disposals and passing of the 2013 final dividend) bring the Group’s capital position to what the Board considers to be an appropriate level.
  • Improve sustainable business performance. This may require the Group to take actions in connection with its underwriting strategy, portfolio, expenses and distribution strategy, where necessary. It may also require investment in technology in order to drive the Group’s competitive advantage. The Group will also seek to invest further in the development of employees. Any investment (in IT or otherwise) and spending in line with the Group’s strategy and action and investment plans will be financed from the proceeds of any disposals undertaken by the Group, together with any retained earnings.

Summary

The Board believes that RSA’s core businesses remain competitively strong and capable of good performance, but the Group has experienced a number of challenges in the past years resulting in poor operating results in 2013 and insufficient capital (as measured by tangible equity) to support its business. The Group is therefore taking decisive action to improve its capital position, tighten its strategic focus and improve sustainable business performance. The Board believes that RSA needs to raise additional capital through the Rights Issue to enable the Group to restore its capital position and keep ahead of anticipated industry trends, and that this will allow the business to carry out its action and improvement plans without undue risk of suboptimal decisions forced by capital shortage or instability. Accordingly, the Board believes the Rights Issue to be in the best interests of the Company and of shareholders as a whole.

3 Use of proceeds

The Company is seeking to raise additional capital of approximately £748 million (£773 million gross proceeds before deduction of expenses of approximately £25 million) through the Rights Issue in order to meet its strategic needs while restoring the Group to what the Board believes to be an appropriate capital position.

The net proceeds of the Rights Issue will be held as cash or low-risk investments in order to improve the Group’s capital strength and surplus over its capital requirements.

4 Intentions of Directors

The Directors, who hold in aggregate 2,223,659 ordinary shares, representing 0.06% of the issued ordinary share capital, intend to take up, or procure that their nominees take up, their rights in full in respect of the New Ordinary Shares to which they are entitled.

5 Current Trading and Prospects

The needs of customers are constantly changing and the Group continues to seek to respond to this with an evolving range of products. The volume of online sales is growing and the demand for online services continues to increase, in both mature and emerging markets. In mature markets customers demand lower prices, more tailored products and a high level of customer service. In emerging markets, insurance is becoming increasingly popular with simplicity of service and ease of access underpinning growth.

The occurrence of adverse weather conditions is increasing globally and a number of weather-related events in 2013 have affected the industry in the Group’s markets and the Group. The Group has increased its assumptions for weather losses to 3% of net earned premiums per annum (from 2.2% in 2012). Given the difficult weather in the UK, Ireland and Canada in the first two months of 2014, weather losses in 2014 may exceed the Group’s planning assumptions. As part of the 2013 Preliminary Results Announcement, the Group announced that it expects its net losses from weather events from 1 January 2014 to 28 February 2014 to be in the range of £75-100 million, of which £45-60 million is attributable to the weather in the UK, £20-25 million to the floods in Ireland and Italy and £10-15 million to the winter weather in Canada. These estimated losses are approximately £50 million above the Group’s expectations for the first two months of 2014 (based on the mid-point of the current range).

The global financial crisis has resulted in a low interest rate environment in many markets which means lower investment income, thereby exerting pressure on underwriting returns. The Group expects its investment income to be approximately £430 million in 2014 (compared to £493 million in 2013). At the same time, the regulatory burden on insurance companies is increasing.

6 Dividends

As stated in the 2013 Preliminary Results Announcement, the impact of the 2013 results has been that a final dividend in respect of the year ended 31 December 2013 cannot be justified.

The Board recognises that dividends are an important component of shareholder return for companies in the general insurance industry and the Board intends to manage the Company with that in mind. Looked at in the context of the early stages of the Group’s recovery actions, the Board has concluded that a medium-term goal of paying out 40-50% of earnings in dividends is appropriate. Should unused surplus capital develop, this may be returned to shareholders through other means. The time by which dividends reach this target range will be determined by the pace and success of execution of the Group’s recovery plans. In addition, in determining any proposed dividend, the Board will consider, amongst other factors, the Group’s current and expected future financial performance, the Group’s financial position (including the availability of sufficient distributable reserves), the economic environment and applicable capital and other regulatory requirements from ratings agencies and regulators. Any 2014 interim dividend is likely to be modest.

The New Ordinary Shares will be entitled to participate in any dividend or distribution with a record date after the date of issue and allotment of the New Ordinary Shares.

7 Summary of the principal terms of the Rights Issue

RSA is offering the New Ordinary Shares by way of rights to all Qualifying Shareholders (other than, subject to certain exceptions, Qualifying Shareholders with a registered address in Excluded Territories) on the following basis:

3 New Ordinary Shares at 56 pence each for every 8 Existing Ordinary Shares

held and registered in their name at the close of business on the Record Date. The Issue Price of 56 pence per New Ordinary Share represents a 40% discount to the Closing Price of an Existing Ordinary Share of 93.4 pence on 24 March 2014 (being the last business day prior to the release of this announcement) and at a 32.7% discount to the theoretical ex-rights price based on that Closing Price. Qualifying Shareholders who take up their pro rata entitlements to New Ordinary Shares in full will suffer no dilution to their shareholdings in the Company as a result of the Rights Issue. However, if a Qualifying Shareholder does not take up the offer of New Ordinary Shares in full, his/her proportionate shareholding will be diluted by up to approximately 27.3%. The New Ordinary Shares will rank for all dividends declared, made or paid after the date of allotment and issue of the New Ordinary Shares and otherwise pari passu with the Existing Ordinary Shares.

Holdings of Existing Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Entitlements to New Ordinary Shares have been rounded down to the nearest whole number. Fractions of New Ordinary Shares will not be allotted to any Qualifying Shareholders but will be aggregated and, if possible, sold in the market or otherwise acquired by the Joint Global Coordinators as principals (or sub-underwriters or placees procured by the Joint Global Coordinators), ultimately for the benefit of the Company. Qualifying Shareholders with fewer than 3 Existing Ordinary Shares are not entitled to any New Ordinary Shares.

RSA has arranged for the Rights Issue to be underwritten by BofA Merrill Lynch and J.P. Morgan Cazenove, acting as Joint Global Coordinators, Joint Bookrunners and Joint Underwriters, to provide certainty as to the amount of capital to be raised, pursuant to the Underwriting Agreement. The Underwriting Agreement is not subject to any right of termination after Admission (including in respect of any statutory withdrawal rights).

The Rights Issue is conditional on, amongst other things, (i) Admission becoming effective by not later than 8.00 a.m. on 26 March 2014 (or such later time and/or date (not later than 2 April 2014) as the parties to the Underwriting Agreement may agree); and (ii) the Underwriting Agreement becoming unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

Application has been made to the UK Listing Authority and to the London Stock Exchange for the New Ordinary Shares (nil and fully paid) to be admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange’s Main Market for listed securities. It is expected that Admission of the New Ordinary Shares will become effective, and that dealings in the New Ordinary Shares, nil paid, will commence at 8.00 a.m. on 26 March 2014.

RSA will make an appropriate announcement or announcements to a Regulatory Information Service giving details of the results of the Rights Issue.

8 Share sub-division and consolidation

As announced today, RSA is seeking authority from Shareholders at its Annual General Meeting to be held on 9 May 2014 to undertake a share sub-division and consolidation, further details of which are set out in the circular to Shareholders accompanying the notice of the Annual General Meeting. If approved, the record date for the share sub-division and consolidation will fall after the date of issue of the New Ordinary Shares under the Rights Issue, and the Rights Issue is therefore being undertaken on the basis of the Company’s share capital prior to any such share sub-division and consolidation.

9 Action to be taken

On the basis that dealings in New Ordinary Shares (nil paid) commence on 26 March 2014, the latest time for acceptance by Qualifying Shareholders under the Rights Issue will be 11.00 a.m. on 9 April 2014. The procedure for acceptance and payment is set out in Part V of the Prospectus. Further details will also be set out in the Provisional Allotment Letter which will also be sent to all Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, Qualifying Non-CREST Shareholders with a registered address in an Excluded Territory).

If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other independent financial adviser authorised under the FSMA if you are in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.

10 Summary expected timetable

Each of the times and dates in the table below is indicative only and may be subject to change. A more detailed summary will be available in the Prospectus and other shareholder documentation which is expected to be made available as set out below.

    2014
Record Date for entitlements under the Rights Issue 5.00 p.m. 21 March
Announcement of the Rights Issue, and publication of the Prospectus and despatch of Provisional Allotment Letters. 25 March
Admission 8.00 a.m. on 26 March
Dealings in New Ordinary Shares, nil paid, commence on the London Stock Exchange 8.00 a.m. on 26 March
Ordinary Shares marked “ex-rights” by the London Stock Exchange 8.00 a.m. on 26 March
Nil Paid Rights credited to stock accounts in CREST (Qualifying Shareholders holding ordinary shares in uncertificated form only) as soon as practicable after 8.00 a.m. on 26 March
Nil Paid Rights and Fully Paid Rights enabled in CREST as soon as practicable after 8.00 a.m. on 26 March
Latest time and date for acceptance, payment in full and registration of renounced Provisional Allotment Letters 11.00 a.m. on 9 April

IMPORTANT NOTICE

This announcement is for information purposes only and does not constitute or form part of an offer to sell or a solicitation of an offer to purchase any securities in any jurisdiction. Nothing in this announcement should be interpreted as a term or condition of the Rights Issue. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change.

This announcement is not a prospectus but an advertisement. Any offer to acquire the Company’s securities pursuant to the offering referred to in these materials will be made, and any investor should make his investment, solely on the basis of information that will be contained in the Prospectus to be made generally available in the United Kingdom in connection with such offering. When made generally available, copies of the Prospectus may be obtained at no cost from the Company or through the website of the Company at www.rsagroup.com, provided that the Prospectus will not, subject to certain exceptions, be available (whether through the website or otherwise) to Shareholders in the United States, South Africa and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law (collectively, the “Excluded Territories”). The Prospectus will give further details of the New Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights being offered pursuant to the Rights Issue.

The information contained herein is not for distribution or publication, whether directly or indirectly and whether in whole or in part, in or into the United States, Canada or South Africa or any other jurisdiction where to do so would constitute a violation of the securities laws of such jurisdiction. These materials do not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States, Canada or South Africa.

The distribution of this announcement and/or the Prospectus and/or the Provisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement and/or the Prospectus and/or the Provisional Allotment Letter comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, the Prospectus and the Provisional Allotment Letter should not be distributed, forwarded to or transmitted in or into the United States, Canada or South Africa.

None of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares have been, or will be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or under any securities laws of any state or other jurisdiction of the United States, and may not be offered, sold, resold, delivered or distributed, directly or indirectly, in or into the United States absent registration under the Securities Act or an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with state securities laws.

There will be no public offering of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in the United States, Canada or South Africa, or any other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of such jurisdiction.

The offering of Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares is only being made in Canada pursuant to exemptions from the prospectus and registration requirements that otherwise apply to a distribution of securities under applicable Canadian securities legislation. Any offer or solicitation in Canada must be made through a dealer that is appropriately registered under the laws of the applicable province or territory of Canada, or pursuant to an exemption from that requirement. Any resale of the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares in Canada must be made under available statutory exemptions.

Each of J.P. Morgan Securities plc and Merrill Lynch International is authorised and regulated in the United Kingdom by the FCA and the PRA and is acting for RSA and no one else in connection with the Rights Issue and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Rights Issue and will not be responsible to anyone other than RSA for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue or any matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on J.P. Morgan Securities plc or Merrill Lynch International by FSMA or the regulatory regime established thereunder or otherwise under law, J.P. Morgan Securities plc and Merrill Lynch International do not accept any responsibility whatsoever for the contents of this announcement, and no representation or warranty, express or implied, is made by J.P. Morgan Securities plc or Merrill Lynch International in relation to the contents of this announcement, including its accuracy, completeness or verification or regarding the legality of any investment in the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares by any person under the laws applicable to such person or for any other statement made or purported to be made by it, or on its behalf, in connection with RSA, the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Rights Issue, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. To the fullest extent permissible J.P. Morgan Securities plc and Merrill Lynch International accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this announcement or any such statement.

In connection with the Rights Issue, each of J.P. Morgan Securities plc, Merrill Lynch International and any of their respective affiliates, acting as an investor for its own account, may take up the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares and/or related instruments in the Rights Issue and in that capacity may retain, purchase or sell for its own account such securities and any New Ordinary Shares or related investments and may offer or sell such New Ordinary Shares or other investments otherwise than in connection with the Rights Issue. Accordingly, references in this announcement to New Ordinary Shares being offered or placed should be read as including any offering or placement of New Ordinary Shares to any of J.P. Morgan Securities plc, Merrill Lynch International or any of their respective affiliates acting in such capacity. Neither of J.P. Morgan Securities plc or Merrill Lynch International intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition J.P. Morgan Securities plc or Merrill Lynch International or their affiliates may enter into financing arrangements (including swaps) with investors in connection with which such J.P. Morgan Securities plc, Merrill Lynch International (or their affiliates) may from time to time acquire, hold or dispose of New Ordinary Shares.

No person has been authorised to give any information or make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied upon as having been authorised by RSA or by any of J.P. Morgan Securities plc and Merrill Lynch International. Neither the delivery of this announcement nor any acquisition or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of RSA since the date of this announcement or that the information in this announcement is correct as at any time after its date.

This announcement contains ‘forward-looking statements’ with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives, including in relation to the Rights Issue. Generally, words such as “may”, “could”, “will,” “expect,” “intend,” “estimate,” “anticipate,” “aim,” “outlook,” “pro forma,” “believe,” “plan,” “seek,” “continue” or similar expressions identify forward-looking statements. These forward-looking statements are not guarantees of future performance. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group’s control, including, among other things, the success of the strategic action plan described above; UK domestic and global economic business conditions; the frequency, severity and development of insured claim events; changes in financial strength and credit ratings; uncertainties affecting reserves; weather-related and other catastrophe events; fluctuations in interest rates and exchange rates; competition; tax audits, the ability to realize tax loss carry forwards and the ability to realize deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control); current, pending and future legislation and regulation, interpretations of legislation or regulations by regulators and discretionary action taken by regulators; legal actions or regulatory investigations, including those in respect of industry requirements or business conduct rules of general applicability; changes in accounting standards; and any further internal control failures. The Group’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in the forward-looking statements. Any forward-looking statements contained in this announcement apply only as at the date of this announcement and are not intended to give any assurance as to future results. The Company will update this announcement as required by applicable law, including the Prospectus Rules, the Listing Rules, the Disclosure and Transparency Rules, and any other applicable law or regulations, but otherwise expressly disclaims any obligation or undertaking to update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

This announcement does not constitute a recommendation concerning the Rights Issue. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business or tax advice. Each prospective investor should consult his or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.

Neither the content of the Group’s website nor any website accessible by hyperlinks on the Group’s website is incorporated in, or forms part of, this announcement.

APPENDIX

Definitions

The following definitions apply throughout this announcement unless the context otherwise requires:

“2013 Preliminary Results Announcement”   the Company’s announcement on 27 February 2014 of its preliminary results for the year ended 31 December 2013
 
“Admission” admission of the New Ordinary Shares, nil paid, to the premium listing of the Official List and to trading on the main market for listed securities of the London Stock Exchange
 
“Board” the board of directors of the Company
 
“BofA Merrill Lynch” Merrill Lynch International
 
“Closing Price” the closing, middle market quotation of an Existing Ordinary Share, as published in the daily official list of the London Stock Exchange
 
“Company” or “RSA” RSA Insurance Group plc
 
“Directors” the directors of the Company
 
“EEA State” a state which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2 May 1992, as it has effect for the time being
 
“Excluded Territories” the United States, South Africa and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law
 
“Existing Ordinary Shares” the Ordinary Shares existing at the date of this announcement
 
“Financial Conduct Authority” or “FCA” the Financial Conduct Authority of the United Kingdom, or any successor entity
 
“Fully Paid Rights” rights to acquire New Ordinary Shares, fully paid
 
“FSMA” the Financial Services and Markets Act 2000, as amended
 
“Group” the Company together with its subsidiaries and subsidiary undertakings
 
“Issue Price” 56 pence per New Ordinary Share
 
“Joint Global Coordinators”, “Joint Bookrunners” and “Joint Underwriters” BofA Merrill Lynch and J.P. Morgan Cazenove
 
“J.P. Morgan Cazenove” J.P. Morgan Securities plc
 
“London Stock Exchange” London Stock Exchange plc or its successor(s)
 
“New Ordinary Shares” 1,380,976,863 Ordinary Shares to be issued by the Company pursuant to the Rights Issue
 
“Nil Paid Rights” New Ordinary Shares in nil paid form provisionally allotted to Qualifying Shareholders pursuant to the Rights Issue
 
“Official List” the list maintained by the UK Listing Authority in accordance with section 74(1) of FSMA for the purposes of Part VI of FSMA, or any corresponding list maintained by a competent authority for listing in another EEA State
 
“Ordinary Shares” the ordinary shares of 27.5 pence each in the capital of the Company
 
“Prospectus” the prospectus to be published today relating to the Company for the purpose of the Rights Issue and the listing of the New Ordinary Shares on the London Stock Exchange
 
“Provisional Allotment Letter” the provisional allotment letter issued to Qualifying Non-CREST Shareholders
 
“Qualifying Non-CREST Shareholders” Qualifying Shareholders holding Existing Ordinary Shares in certificated form
 
“Qualifying Shareholders” holders of Existing Ordinary Shares on the register of members of the Company on the Record Date
 
“Record Date” 5.00 p.m. on 21 March 2014
 
“Rights Issue” the fully underwritten 3 for 8 rights issue of 1,380,976,863 ordinary shares of 27.5 pence each in the capital of the Company
 
“UK Listing Authority” or “UKLA” the Financial Conduct Authority acting in its capacity as the competent authority for the purposes of FSMA
 
“Underwriting Agreement” the conditional underwriting agreement dated 25 March 2014 between the Company, BofA Merrill Lynch and J.P. Morgan Cazenove


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