(by G. Andersen)

Strength in the heavily weighted pharmaceuticals sector and the recently beleaguered computer and information technology areas yesterday rescued European markets from another disastrous showing.

After falling as low as 958.72 early in the day, the FTSE Eurotop 300 rallied to close 0.25 per cent higher at 968.69.

Switzerland’s Converium, the reinsurer, issued a profits warning and said it would have to increase its reserves for losses incurred in the US between 1997 and 2001 by $400m via a capital raising, which could include a rights issue, among other moves.

It will also have to write off $289m in deferred tax assets plus $94m in goodwill.

Converium shares were savaged as dealers slashed the stock price amid an avalanche of selling pressure that saw the shares more than halve at their worst point before ending 46.41 per cent lower at a record closing low of SFr33.25.

Converium was spun out of Zurich Financial Services in 2001 and has seen its shares under severe pressure several times since after having to make substantial additions to reserves.

Converium’s warning provoked a severe reaction across the general insurance sector, which was among the worst performers among FTSE Eurotop sub-sectors.

One of the the biggest losers was Zurich Financial Services, which guaranteed when it floated Converium that it would pay claims for specific exposures if they exceeded specified amounts.

Analysts at Barclays Private Clients said: "We believe that this guarantee primarily relates to losses from the September 11 attacks in 2001, which would indicate that Zurich does not have to pay up for Converium’s reserve increases, although we will have to investigate Zurich’s exposure further."

Zurich Financial Services shares dropped 2.3 per cent to SFr178.50 after the comapny said it was "prudently reserved".

Swiss Re lost 2.4 per cent to SFr72 and Germany’s Munich Re fell 1.1 per cent to €79.40. Hannover Re dropped initially to €24.91 before stabilising to trade 0.6 per cent higher at €25.81 after it said it did not plan to boost risk provisions at its US casualty arm.

Munich Re said it could not predict if there was a need for boosting reserves for its US arm, while Swiss Re, the world’s biggest reinsurer, would not comment on its reserves ahead of its first half results scheduled for August 26.

France’s Scor saw its shares slide 4.8 per cent to €1.20 and said its reserves were at "best estimate".

In sharp contrast to the insurers was a buoyant pharmaceuticals arena, where Switzerland’s Novartis captured the limelight in the wake of a much-better-than-expected set of first-half results. The figures show a 19 per cent increase in net profits and a 21 per cent rise in earnings per share.

There was additional good news for shareholders in the form of a bullish interpretation of the company’s guidance, which now predicts that full-year operating and net profits will be "markedly" ahead of last year, compared with its previous forecast that spoke of "profit increases".

Deutsche Bank analysts said: "The shares look a safe haven in uncertain times." The stock settled 4.6 per cent higher at SFr55.70.