Lloyd's of London syndicates will be among the groups most heavily affected by the flood of claims in the aftermath of the attacks on the US.

The latest setback comes in the wake of a series of major claims for syndicates arising from Hurricane Allison, the Petrobas oil rig disaster and the attack by Tamil Tigers on Sri Lankan Airlines.

Merrill Lynch says profits at 10 firms within the European insurance sector are likely to suffer substantially, although it sees no threat to their solvency.

Apart from Lloyd's, the companies affected include Munich Re and Swiss Re, along with Royal & Sun Alliance.

Even if the bill from the attacks does not rise, the groups face a one-notch downgrade from the ratings agencies. However, Merrill remains modestly positive about the longer-term outlook for the sector.