Brit was tipped as a key stock purchase by analysts Numis and KBC Peel Hunt this week.

The insurer’s share price has experienced hard times of late, suffering a sharp fall following the release of its third quarter results at the end of last year – despite receiving a favourable reception from analysts at the time.

But in notes released this week, both analysts agreed that Brit's potential sub-prime losses had been overstated and that shares were trading at a discount, with KBC estimating that a 20% upside exists.

KBC said the market’s reactions was a “bit Cartesian”, noting that Catlin had a $75m write down around the time Brit released its Q3 update, yet both stocks suffered.

Numis said the stock does carry a degree of risk but holds potential for high gains over 12 months, adding that sentiment regarding “overstated” sub-prime losses should improve.

KBC upgraded the stock from ‘hold’ to ‘add’, while Numis – which acts as broker to Brit – reiterated its ‘buy’ recommendation.

Brit shares, which were hovering at around 340p at the beginning of October last year, were trading at 224p as Insurance Times went to press.

Numis also recommended Hiscox stock for a New Year purchase. The analyst said Hiscox’s diversified underwriting will allow for superior management of the cycle downturn, and pointed to increasing rates in the insurer’s UK homeowners business.

Numis also has confidence in the company’s reserving policy and management team, as well as the Hiscox brand itself – which could “attract corporate interest in the current climate of heightened M&A activity”.

On the bid front, however, one should take note of points raised (although perhaps already known) in the Bank of England’s credit conditions survey: large corporate loans are harder to come by, and will remain harder to come by, until banks are happy that the credit crunch has ended.

This is likely to affect, and probably reduce, M&A activity in this and all financial sectors.

Reiterating its ‘buy’ recommendation, Numis increased Hiscox’s target price by 10p to 340p, and improved its earnings per share forecasts for both 2007 and 2008.

Hiscox shares were trading at 277.5p as Insurance Times went to press.