Shares in several Lloyd's vehicles are on their way up, tips HSBC.

After years spent in the doldrums of a soft market, the bank believes the Lloyd's Market is “well on the road to recovery”.

Insurance rates are continuing to harden, earnings prospects are improving significantly and share price will gain momentum.

“Lloyd's Vehicles”, a sector report by HSBC last month, believes the outlook is “increasingly positive” for the insurance market.

It said: “The rating environment continues to improve as reinsurance rates harden, putting further pressure on direct rates to follow suit. Investment returns are likely to be lower, adding to the need for underwriting profits.

“Consolidation is also likely to be a feature of activity in the next couple of years.”

The report added that insurance stocks should attract attention as a “safe haven for investors looking for potential earnings upgrades”.

HSBC was so confident that existing share prices were low and destined to improve that it has now upgraded the majority of its 2001 to 2002 forecasts.

It has recommended buying shares in Atrium, Chaucer and Kiln as they “look particularly undervalued” and Amlin and Brit Insurance Holdings, which it believes will “reap the benefits of restructuring”.

The report said: “Apart from Hiscox, where the Chubb bid boosted the share price, the whole sector is a good buy.”

It added: “The outlook is improving markedly. Those insurers capable of capitalising on the opportunities being thrown up by the disarray in the global insurance markets should do very well indeed over the next few years.”