Merrill Adjusts Recommendations on European Insurance Stocks

By Sarah Thompson

Sept. 26 (Bloomberg) -- Insurance stocks will remain ``vulnerable to swings in both the credit and equity markets,'' Merrill Lynch & Co. wrote, but ``investors should remain relaxed on balance sheet strength for now at least.''

The bank upgraded Munich Re, the world's biggest reinsurer, and Vienna Insurance Group to ``buy'' from ``neutral.''

``We prefer to focus on strong franchise values or at least those companies with more resilient earnings streams,'' Edinburgh-based analyst Blair Stewart wrote in a research note dated today.

``Capital positions may well prove to be resilient, but there is an undeniably long list of reasons why earnings will drop heavily this year and remain under pressure,'' Merrill added.

Aviva Plc, the U.K.'s biggest insurer by premiums, was cut to ``neutral'' from ``buy,'' while ING Groep NV, Old Mutual Plc and Scor SE were lowered to ``underperform'' from ``neutral.''

Assicurazioni Generali SpA and Zurich Financial Services AG were raised to ``neutral'' from ``underperform.''

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.