Speculation is growing that Royal and Sunalliance (RSA) is considering splitting its life and general business, as it confirms it has begun a wide-ranging review of its life division ahead of its quarterly results on Thursday.

The review is to concentrate on the future capital requirements of RSA's life business and ways in which its existing life funds can be used more effectively.

Spokesman Paul Atkinson said: “We are analysing the capital needs of our life business with the aim of realising more capital from the business.”

He added: “Our primary focus is on general insurance, but we have also made it clear that we see a continuing role for our life business in specific local markets where we can make good returns.” Last year RSA took the decisive step of placing its £40bn asset management business into a separate company.

Atkinson said the move was aimed at creating a distinct identity for its asset management business to aid its potential in attracting third-party funds. It follows a similar arrangement put in place by insurer Standard Life.

Commerzbank insurance analyst Chris Hitchings said RSA's life business was fairly highly rated by investors, but believed it was too small to be as efficient as that of larger companies.

According to its report and accounts for 2000, net premium income from life was £3.4bn, compared to £8.3bn for RSA's general business. Hitchings said: “RSA would like to remain a player in the UK life insurance market but this business can absorb an awful lot of capital and does not achieve good returns.

“RSA sees itself primarily as a property and casualty insurer and wants to achieve adequate returns for its investors.” He suggested that RSA may ideally wish to hive off the manufacture, including the underwriting, of its life insurance products.

However, Hitchings said a more likely outcome was for RSA to seek to sell that part of its life insurance business that had not yet been subject to insurance claims, so-called in-force business. RSA chief executive Bob Mendelsohn missed out on a performance bonus last month after the insurer's shares failed to perform in line with forecasts for the year 2000.