With Angelique Ruzicka

Investors got spooked last week after analysts at Morgan Stanley expressed fears that US insurer Aflac could be hit by its investment in tier one capital bonds. “We believe the company’s exposure to European hybrid securities could remain a dark cloud over it for some time,” the analysts said.

Aviva, which has 60% of its assets invested in corporate bonds, offered reassurances this week that its exposure to bank bonds was sound. Charles Barrows, investor relations director, said: “Aviva holds a diverse portfolio of assets and we don’t have concentration in any one type of risk.”

British insurers were affected by the fears, however. Shares in Aviva plunged 11.29% to 282.75p, while Pru dropped 3.71% over the week.

Tier one capital is made up of equity capital and cash reserves, but can also include irredeemable non-cumulative preferred stock. Investors are worried banks could suspend coupons paid on these types of bonds.