Lloyd's insurers could be due for further takeover activity, stockbroker Bridgewell said in a bullish note on Tuesday.

Reflecting on a trading update from Chaucer Holdings, it said the insurer had acted as a reminder of the current benign insurance market conditions "and the very profitable business that has been written in the past two years by the integrated Lloyd's vehicles (ILVs)".

But the broker said the real driver going forward was the prospect of merger and acquisition activity in the sector "that is likely to expand valuations further within the small-and mid-cap ILVs".

It envisages predators coming from both inside Lloyd's, as well as outside the market.

Bridgewell said its favoured stock was Atrium Underwriting, which it acts as broker to.

It described Novae, as "a recovery play". It also likes Kiln on valuation grounds. "Income investors may also look at the high and growing dividend from Chaucer."

As Insurance Times went to press, Chaucer was trading at 102p, Atrium at 253p, Kiln at 110.75p and Novae at 37p.

On the subject of takeover speculation, dealers envisaged there could be further activity coming from Europe. Italy's biggest insurer Generali is thought to be keen to expand further. IT

Yvette Essen is stock market reporter for The Daily Telegraph