The group, Britain's second largest insurer, also revealed a pension fund deficit of �406m at the end of 2002.

Royal & Sun made operating profits of �226m in the year to December 2002, up from just �16m the year before when it was hit hard by September 11 and costly asbestos-related claims.

But the figures were at the lower end of analysts' expectations and despite the increase in profits, the group cut its dividend from 16p to just 6p per share.

Disappointment

The dividend cut came as no surprise but was harsher than many analysts had been expecting.

"The dividend cut was worse than expected. At around 60%, that's a lot," said David Buik of Cantor Index.

Royal & Sun said it was also making provisions for a shortfall in its own pension fund.

The insurer said it would top up the fund by about �30m a year for the next 10 years.

Revamp

RSA was hit hard by September 11 and, more recently, by the floods and bad weather across Europe.

When including charges for these events and for the reduced value of different units, RSA's losses widened by 6% in 2002 to �940m.

The insurer now in the process of re-organising its business to focus on general insurance policies.

It has already revealed plans to float its Australian and New Zealand insurance business and said it expects to complete this by the middle of 2003.

The group was forced to close its core UK life and pensions business to new customers last year after failing to find a buyer for the division.

Further cuts?

RSA's new chief executive Andy Haste will take up his post in April, replacing the ousted Bob Mendelson.

His stand-in Bob Gunn told reporters on Thursday that any future dividend payments would depend on decisions made by new leadership.

"We expect it (the dividend) to evolve as our actions come into effect, the changing company size and structure and profitability."