Insurance a drag for FTSE

Worries about the margins achieved by UK insurers created a drag on the London market today.

The declines for the sector – mirrored by falls for banking stocks – caused the FTSE 100 Index to retreat from yesterday’s three-and-a-half year high, standing 14.9 points lower at 5362.6 by mid-morning.

The declines for insurers followed results from industry heavyweights Royal & Sun Alliance and Norwich Union owner Aviva.

Profits of £1.32bn (€1.9bn) from Aviva were at the top end of expectations but failed to prevent shares falling 2% or 15.5p to 641.5p.

An element of profit-taking after a recent strong run was a factor, but analysts pointed to the pressure on UK margins as rivals fight for new business.

Friends Provident slipped 1.25p to 177.75p and Prudential eased 12.25p to 524.75p while general insurer Royal & Sun Alliance fell 2.25p to 91.75p, even though improved profits showed its recent recovery remained on track.

The weakness in the insurance sector spread to banks, with Lloyds TSB down a penny at 469.25p and Barclays off 5.5p at 584p.

Oil stocks were again providing the market with a degree of support after the price of crude broke beyond 65 US dollars a barrel in overnight trading.

BP rose 4.5p to 658p to reach its highest level for nearly five years, while investors also liked Royal Dutch Shell – up 8p at 1944p.

Among other risers, telecoms group O2 gained 1.25p to 145.5p as rumours about bid interest from Deutsche Telekom resurfaced.

It was beaten to the top of the Footsie risers board by BAE Systems, which lifted 2% or 8p to 327.75p on the back of a broker upgrade.

Elsewhere, Arla Foods fell 9% or 6.25p to 63.25p after higher oil and utility costs forced it to warn on profits. Second-tier rival Dairy Crest was also down 7% or 37.25p at 477.75p.