Troubled British insurer Royal & Sun Alliance has edged out its chief executive Bob Mendelsohn ahead of a possible new stock issue aimed at overcoming a cash shortage.

"Bob Mendelsohn has led the Group through difficult times for the insurance industry," RSA Chairman Sir Patrick Gillam said in a statement on Thursday.

"However, in order to exploit the work done to date it is the Board's view that the interests of the Group will be best served by a change in the top management."

RSA chief operating officer Bob Gunn will stand in as chief executive until a permanent replacement is appointed, the company said.

Investors riled

There has been speculation that investors, unhappy over RSA's recent performance, demanded that Mr Mendelsohn resign as a condition of any new rights issue.

RSA, hit by plunging stockmarkets and rising flood and asbestos claims, last month disappointed the City with weaker than expected results for the second time this year.

RSA's deteriorating financial position weighed on its stock price and fuelled speculation that it was planning to raise cash by selling new shares, a move which would dilute the value of investors' existing holdings.

The company said on Thursday that it would decide whether or not to go ahead with a stock issue by 7 November.

But analysts, citing recent similar moves from other cash-strapped insurers, including Legal & General, said Mr Mendelsohn's exit makes a rights issue by RSA a near-certainty.

"This looks like step one...I think in this market a rights issue is almost inevitable," said Roman Cizdyn, analyst at Commerzbank in London.

City reaction

The company is already planning to raise £800m by selling off parts of its business before the end of the year.

In the City, RSA shares were down one penny at 120p.

The company's share price, which hit a peak of nearly 800p in March 1998, has fallen by two thirds since the beginning of the year.