Stockwatch

The week's losers

The tide may have turned for insurers struggling against low investor confidence and a stockmarket downturn.

The FTSE All-Share Insurance Sector index, which tracks the performance of eight companies' shares, closed at its highest point for a month on Friday 26 October.

Despite dips early in October, the trend is upwards as the sector recovers from the aftermath of the 11 September attacks. Some analysts are tipping the sector as a good buy as the realisation dawns that, despite large losses resulting from the attacks, strong insurers are not only well placed to profit from rising demand for their products, but are also underpriced.

Analysts at Salomon Smith Barney are picking out property insurance in general and some of the industry's biggest names as warranting a closer look.

Salomen is currently advising investors in the financial service sector to back companies with the guts to expose themselves to yet more risks.

It says: "The history of previous periods of stress suggests acceptance of risk, at the right time, can be well rewarded - and often well before the fundamental picture brightens."

AIG, Munich Re and Swiss Re are all selected for favourable mention, despite having some of the largest exposures to the loss resulting from the attacks.

The bank believes Munich Re's share price was driven down too low by the announcement of its estimated $2.1bn (£1.4bn) losses resulting from 11 September. Similarly, it says Swiss Re has "one of the industry's strongest balance sheets" and picks out AIG as having a "rare consistency" that "fully deserves a premium valuation".

And it would seem such confidence is spreading.

Royal & SunAlliance (R&SA) announces its third quarter financial results next week, ahead of which analysts are predicting a cut in dividends and moves to raise capital.

R&SA's share price has spent most of October between 360p and 380p, while some experts say it could reach levels of 425p or more. Analysts Barrie Cornes of Chevreux and Chris Rathbone of Williams de Broë both recommend the stock.

There has been growing speculation that the group may consider selling new shares early next year in order to raise money for new underwriting.

This would fit in with existing strategies. Chief executive Bob Mendelsohn said in August he favoured natural growth rather than buying new businesses.

For firms needing to raise capital to profit from rocketing rates, greater confidence in the industry could not come at a better time.