Royal & SunAlliance (R&SA) is tipped to sell off its reinsurance business as part of an £800m cash-raising plan.

The company has ruled out selling its life business and is turning instead to a strategy of capital restructuring and selling off non-core operations. It needs the money to take advantage of rapidly rising rates in general insurance.

The reinsurance arm - which covers other insurance companies - wrote £180m of gross premium last year.

Morgan Stanley increased its price target on R&SA to 450p and concluded the company's shares would gain value even faster than the generally rising stockmarket.

Morgan Stanley analyst Jon Hocking said: "We believe R&SA has taken a sensible and pragmatic approach to its weak capital position and that it will outperform a rising equity market."

The company announced a slump in profits as it posted profits of £321m for the nine months to 30 September. It returned a profit of £502m in the same period of 2000.

The company braced investors for a cut in its full-year dividend to 16p a share and has effectively shelved the sale of its life business.

But ity outlined plans to release £800m in capital next year to allow it to write an extra £2bn in premiums.

The UK's second-largest insurer needs to fund an expansion of its general insurance operations to take advantage of rapidly rising rates. It had already been linked to a possible £2bn rights issue and a cut in dividends.

The company said it had identified parts of its business it could sell with premiums of £430m. It has already announced disposals that will yield £312m.

It is changing its solvency ratios to invest 40% of premiums in equities as reserves compared to a previous figure of 47% with the difference being used to write more business.

Morgan Stanley calculated this would free up about £660m. It will continue with a plan to sell shares that has already raised £2bn since 1999.

It outlined its strategy on 8 November at the same time as it revealed its third-quarter results.

The results included the £200m estimated net cost of the US terrorist attacks. The company's estimated gross loss is £750m.

R&SA said 96% of its reinsurers were rated A or higher for their financial security.

Its combined ratio - a measure of claims and costs as a percentage of premiums - deteriorated from 107.2% to 107.9% for its general business. Analysts expect the company to miss its target of 103%.

Group chief executive Bob Mendel-sohn said: "We have initiated a series of actions that will enable us to generate internally the capital necessary to support the significant organic growth we are seeking.

"We have identified parts of our business that will be sold or discontinued to free up capital for growth.

"It is expected that these disposals and discontinuances will lead to a release of £800m of capital during 2002 which would support additional premium levels of £2bn.

"We will ensure our UK life oper-ations continue to have the support necessary to maintain first-class service and products to our customers and policyholders."

A decision on the final dividend will be taken when the full-year results are available.