Worries grow over insurance giant

Rating agency Moody's said it had placed the company under review for a possible debt downgrade, which makes it more expensive for the firm to raise cash and could hurt its share price.

RSA is currently in the process of moving away from life insurance and focusing on the general insurance market instead - covering items such as cars and houses.

But Moody's said it was concerned that RSA might struggle to raise sufficient money to expand the general insurance business.

Rights issue ahead?

Last week, shares in RSA tumbled more than 20% after it announced lower profits, raised its provisions for 11 September losses and cut 1,200 jobs.

The company has been selling off assets and making cost savings in an attempt to raise £800m to help expand its general insurance interests.

But analysts have been worried that the company would be forced into a rights issue on order to raise extra cash.

Moody's noted the measures being taken by RSA should allow it to reach its fund-raising target.

But it added that the firm may need more money to cover potential losses stemming from the volatile equity markets, and the cost of expanding business levels next year.

As a result Moody's said it expected RSA "to require additional capital in the short-term to ensure business growth".

It also said that the recent turmoil on the world's financial markets could limit "amount and accessibility" of extra funds.

RSA debt is currently rated A1 by Moody's.

Shares in RSA closed down 2.5 pence at 105p on Friday.