Aviva, the UK's largest insurer, is under pressure to raise its bid for Prudential or start hostile takeover action.

Prudential rejected Aviva's 700p-a-share proposal and recently beat City forecasts with a 33% rise in operating profits.

Aviva had proposed a £16.8bn all-share deal for Prudential under which it would have issued new Aviva shares in exchange for Prudential shares, leaving the target company's shareholders with about 45% of the enlarged company.

The merger would create a £37bn mega-business with a strong presence in Asia, the US and continental Europe.

AIG and AXA are the other insurers in the frame, since both are looking to boost their presence in the UK life market. Allianz has also been mooted as a possible buyer.

Meanwhile, ratings analyst Fitch said a ratings change could take place if the merger between Aviva and Prudential were to go ahead.

' St Paul Travelers has denied rumours of a potential merger with Zurich Financial Services.

Last week, reports said that St Paul Travelers was in preliminary talks to merge with the Swiss insurer.

In a statement, St Paul said it wanted to clarify that the reports were false because of the "factual and definitive manner in which these reports were made, both nationally and internationally".