With Angelique Ruzicka, finance editor

Hedge funds are smelling blood. Amid concerns over insurers’ financial health, funds are short-selling insurance stock and making millions – just as they did last year with banking stocks.

According to The Times, Lansdowne Partners, which bet against Northern Rock, has gambled tens of millions that the share prices of four big insurers – Pru, Aviva, Legal & General and Old Mutual – will plunge. So far, it has been right. Shares in Legal & General, Aviva and Pru are all down (see below).

Lansdowne is not the only fund short-selling insurance stocks. The Times said Odey Asset Management had a 0.35% (£7.1m) short position in Legal & General.

Insurers have assured investors that they are stable, but there are growing doubts. Last year, some commentators felt short-selling by hedge funds undermined banks. The FSA had to step in to ban the practice. Although the ban was lifted in January, short-sellers still have to declare their positions.