Takeover activity kicked off again this week, after Insurance Australia Group (IAG) agreed to buy UK motor insurer Equity Insurance in a massive £570m deal.

Speculation that the insurance industry is due for a bout of consolidation has been rife for months, and with some real corporate activity finally taking place, the rumour mill was set alight.

Traders focused on the usual possible takeover candidates such as Legal & General and Prudential. As Insurance Times went to press, the pair were trading at 149p and 661p respectively.

Another notable trend developing is that there has been very heavy trading in insurance stocks recently.

Chaucer Holdings, the Lloyd's underwriter, which last week unveiled plans to revamp its dividend policy and create a new syndicate, was one such example. On a normal day of trading, only 1.5 million shares change hands, but last Friday this number swelled to 5.1million shares. Chaucer also hit an all-time high of 92.5p.

Earlier this week, Novae, the renamed SVB insurance group, was in focus for the same reason. A hefty 4.5 million shares were traded, twice the usual daily average. Novae is trading at a seven-month high of 33p. IT

Yvette Essen is stock market reporter for the Daily Telegraph