Michael Faulkner looks at the key stock market news.

With fevered speculation about the future of Royal Bank of Scotland’s insurance business, shares in the banking giant recovered slightly during the course of the week. With the City still reeling from the bank’s plans for a record-breaking £12bn rights issue to plug the hole in its balance sheet, the share price rose over 6% from 328p to 350p. The last six months have seen RBS’s stock price tumble from over 500p a share.

Australian insurer IAG’s share price fell this week as the company published a gloomy trading update. The insurer, which is facing a takeover bid from larger rival QBE, saw its stock price fall from just under A$4.40 a share to A$4.21. IAG, which owns Equity and Hastings Direct in the UK, had lowered its full-year insurance margin guidance by three points, due to the impact of high storm costs and widening credit spreads. It also warned of a deteriorating claims experience in the UK due to tough conditions in the private motor market.

Listed motor insurer Highway also warned of tough trading conditions this year. In an interim statement in advance of its annual general meeting, the personal lines insurance group said that its 2008 earnings were likely to be disappointing unless investment returns improved.

The company said that competitive trading conditions had returned in the first quarter of the year, with some direct writers cutting rates. However, it expected conditions to improve into 2009. Highway’s stock fell to 66.75p on the news, down 3.26% for the week.

Fellow motor insurance specialist Admiral has seen its share price fall over the last two months. Earlier in the year its chief executive, Henry Engelhardt, had voiced concerns about the slow recovery of the private motor market. Describing their “sloth-like” recovery Engelhardt warned that rates may not go up at all. At the end of 2007, Admiral’s stock was trading at over 1100p, but has since tumbled to under 750p. This week saw it creep up by nearly 3% to 813.50p, buoyed by an upbeat trading statement.

The latest AA British Premium Index showed a slight decline in private motor rates during the first quarter of the year. Admiral, Highway and other motor players will be keeping a close eye on whether the AA’s findings are just a blip or evidence of rates increases stalling.