Legal & General was the biggest faller in a falling FTSE 100 after a profit warning from German insurer Munich Re.

It lost nearly 8 per cent to 98p and rival insurers followed suit, with Standard Life and Prudential down 6 per cent.

Munich blamed steeply falling bond and equity prices for a slump in its investment returns.

Royal Bank of Scotland, which is trying to sell its insurance business amid growing talk that it may pull the sale, lost 5.6 per cent to 207p.

Banks were also hit by renewed fears over the financial health of Washington Mutual. It warned on profits on Wednesday but one analyst last night suggested that creditors were quietly pulling funds.

The FTSE 100 was 54 down at 5308 by 10.36am.

BG Group rebounded from yesterday's falls as the oil price firmed slightly and investors shrugged off worries about flat production.

Rentokil Initial lost 34 per cent to 67p after giving warning that full-year profits will be lower than expected, owing to problems restructuring its washrooms business.

Inmarsat rose 1 per cent after US hedge fund Harbinger said it was planning to bid for it and combine it with its SkyTerra business once it obtains regulatory approval.