The insurance firm Legal & General (L&G) has launched a �786m ($1.2bn) rights issue to bolster its finances.

This rights issue is being made from a position of strength

David Prosser, chief executive, L&G

The company said it would use the money raised to expand the business and to give it greater financial flexibility.

Many firms in the insurance sector have seen their financial strength weakened by falling world stock markets.

Last week, Zurich Financial Services announced plans to raise up to �1.6bn, while Royal & Sun Alliance (RSA) is reported to be on the brink of launching its own rights issue.

First-mover advantage?

"This rights issue is being made from a position of strength," said L&G's chief executive David Prosser.

"We have taken the decision as a result of looking at our business and the opportunities of growing our business over the medium term, and we don't want to constrain the growth rate."

L&G is seen as one of the financially stronger firms in the insurance sector, and some analysts have speculated that the company will use the money to fund acquisitions.

Experts have also said that L&G could enjoy an advantage by getting its cash call in ahead of its rivals.

In addition to Zurich and RSA, reports have suggested that Friends Provident and Aviva are also thinking about raising extra funds.

Shares in L&G, which fell 5.5% in morning trade on Tuesday, closed 1.75p higher at 114.25p.

The new shares being issued will be priced at 60p and will be issued on the basis of 13 new shares for every 50 held.