Aviva insisted it had sufficient capital as it ruled itself out of the race for the "grossly overvalued" assets of American International Group and warned that a £1bn pay-out to policyholders could be scrapped.

Andrew Moss, chief executive, said the UK's biggest assurer had had "no discussions with the Treasury around the capitalisation of insurance companies", de-spite market movements wiping out £600m of Aviva's spare capital in less than a month. He also insisted the group did not need to raise fresh capital and that there was no change in its dividend policy, driving the shares up 6 per cent to 259p.