Fears that Britain’s two biggest insurance companies could be forced into emergency capital raisings sparked a sharp sell-off in shares across the sector yesterday.

Shares in Aviva, the owner of Norwich Union, fell almost 13 per cent as investors began to raise questions about elements of its £24 billion bond portfolio. Shares in Prudential closed down 9.3 per cent, despite analysts rallying around the UK’s second-largest insurer to play down the prospects of a rights issue.

The sell-off prompted the intervention of the Association of British Insurers, the industry trade body, in an effort to reassure investors and nervous analysts. Shares have fallen almost 30 per cent in the past two days. Cazenove analysts speculated that Prudential may be forced to bring forward to Monday a trading statement that is scheduled for next week.

Peter Vipond, director of regulation at the ABI, said that plunging markets posed real issues for insurers. However, he insisted that leading companies were much stronger than they were five years ago, when sliding equity markets brought several insurers to the brink of insolvency.

One analyst said: “It’s irrational at the moment. Everybody’s worried that the insurers will be the next sector to be nationalised.”

Aviva said last week that a 40 per cent slide in equities would wipe £700 million off its capital position but still leave it strong. The FTSE 100 blue-chip index has lost about 20 per cent of its value since that update. Last night a promised £1 billion payout for Aviva policyholders was also thrown into question after the steep falls in company shares.

The Pru brushed off the need for an emergency cash call. “Our capital position is extremely robust,” it said.

Keefe, Bruyette & Woods analysts reckon that the Pru has a most recent capital surplus of at least £700 million and described its position as conservative. Its capital surplus stood at £1.4 billion at the end of June.

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