RSA ousts Mendelsohn with £1m pay-off ahead of cash call

The axe finally fell on Royal & SunAlliance's embattled chief executive, Bob Mendelsohn, yesterday when he was ousted from the board with a £1m pay-off in an effort to improve investor confidence in the company's management ahead of a possible rights issue.

Shareholders have been waiting for an announcement from the insurance group about its capital-raising plans, and a rights issue had widely been expected to cost Mr Mendelsohn his job.

He announced in August, when posting a six months' loss of £319m and 1,200 job cuts, that RSA would need to raise about £800m. A decision on how the money is to be raised will be announced by 7 November, when its third-quarter results are due.

Support for Mr Mendelsohn on RSA's board has been waning after a year of bad news relating to asbestosis claims, £275m of World Trade Centre losses and soaring liabilities in its life insurance businesses.

Only two weeks after the latest grim results were posted, Sir Patrick Gillam, the company chairman, began informally instructing headhunters to sound out possible replacements for the chief executive. After a meeting on Wednesday afternoon, the board decided "that the interests of the group will be best served by a change in the top management".

Likely candidates to replace Mr Mendelsohn include Patrick Snowball, head of property and casualty insurance at Aviva, Patrick O'Sullivan, chief executive and chairman of Zurich Financial Services in the UK, and Clive Cowdery, chief executive of GE Capital's European insurance division. Mark Wood, the chief executive of Prudential's UK division, is also thought likely to be approached.

Bob Gunn, the chief operating officer of RSA, has temporarily taken charge.

Some analysts believe Mr Gunn, who is seen as a safe pair of hands, may well take over on a permanent basis. He has been running operations at RSA since September last year, but has been part of the group since 1973. "We want the best person for the job. You could assume I would be a candidate," Mr Gunn said.

RSA is now fighting for a place in the queue for a rights issue, after announcements from its rivals Zurich and Legal & General that they plan to call on investors for cash. Any rights issue from RSA is likely to be deeply discounted.

Mr Mendelsohn will leave the group with immediate effect and will have to return the house and car that came with the job. Described yesterday by one City source as "more of a brash management consultant" than a UK insurance chief executive, Mr Mendelsohn has been criticised for failing to act aggressively enough to exit unprofitable business and shore up the group's capital reserves. Since he took over in 1997, RSA's share price has fallen from a high of 773p to as low as 95p. Shares in RSA fell 1.7 per cent to 120p yesterday.