RSA shares fall after dividend cut Shares in RSA tumbled on Wednesday morning after the FTSE 100 general insurer cut its final dividend by a third. The company blamed the low returns currently offered by bond investments for the move, which is expected to be followed by a similar cut to its 2013 interim dividend. Simon Lee, chief executive, described the move as a prudent way of ensuring that the group could still afford to invest in growth opportunities. "It is absolutely the right thing to do for the business given the prospect of prolonged low bond yields," he said. Shares in RSA fell 10 per cent to 122.4p in early morning trading in London on Wednesday, making it the biggest faller by far in the FTSE 100. Analysts at Oriel Securities said the stock market had not been expecting the dividend cut. Insurers are accustomed to getting some of their profit from investing the cash they hold for policyholders, as well as from underwriting risks. However, the returns available from investing in bonds - a favourite asset for insurers - have fallen amid a general decline in interest rates, putting this business model under pressure. RSA made a pre-tax profit of £479m in 2012, down 22 per cent from the £613m it had achieved a year earlier. Operating profit was £684m, down from £727m a year earlier. This decline reflected the cost of meeting claims related to earthquakes in Italy and extreme wet weather in the UK in the first half of the year, as well as falling bond yields. Its investment income fell 11 per cent to £515m. The combined ratio - a measure of underwriting profitability - weakened slightly from 94.9 per cent to 95.4 per cent. A final dividend of 3.9p per share has been proposed, down 33 per cent from 5.82p a year earlier. The total dividend for the year is 7.31p, down 20 per cent. RSA said it intended its dividends to start growing again after the 2013 interim payment, increasing the distribution in line with the anticipated underlying growth in earnings. The group also confirmed that it would ask shareholders to ratify a change in auditor, saying it wanted KPMG to replace Deloitte, which has vetted RSA's accounts since 2007. It said the move reflected a desire to use Deloitte for consultancy work in Scandinavia that could have compromised the perception of its independence. A regulatory push to encourage companies to switch auditor more often is also understood to have been a factor in RSA's decision. Deloitte said it would have preferred to remain in place as auditor rather than doing the additional consulting work but had followed the wishes of its client.