Legal & General shares jumped 10.6 per cent in early trading after the insurer revealed it plans to more than double reserves to £1.2 billion.
A weekend report in the press suggesting Legal & General was in talks with the Financial Services Authority (FSA) sparked a slide in shares yesterday amid concerns over how much cash the group had to set aside.
Shares fell 11 per cent as investors speculated the insurer may have to launch a rights issue to raise money for its reserves.
However, the group said it is doubling credit default reserves to £1.2 billion in light of an anticipated rise in defaults in its bonds portfolio.
The increased reserves are both "prudent and appropriate" Legal & General said, and confirmed it has worked closely with the FSA.
L&G said: "The planned additional reserves, which are before tax, follow a thorough sector-by-sector review of our portfolio, and default experiences from the 1930s and subsequent recessions."
Despite the increased level of reserves, capital surplus was in excess of £1.6 billion, the company added.
The figure includes falls in equity markets and the credit default reserve, but not the final dividend.
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