It sold the 9.5 million shares at 252p to Cazenove and Warburg, which placed them at 255p. The mid-market price of shares in London and Manchester slipped from 270p to 264p.
The move follows Sun Alliance's sale last month of a 13.5 per cent stake in Commercial Union and last year's sale of its holding in Sun Life.
The stake in London and Manchester dated from 1974, when Sun Alliance was the reinsurer of the smaller company's general insurance business.
John Kent, deputy managing director of Sun Alliance Investment Management, said the holding had for several years been a portfolio rather than a strategic investment. The decision to sell was based on 'portfolio reasons'.
Sun Alliance, regarded as relatively heavily invested in UK shares, retains 1.1 million shares in London and Manchester.
Tom Pyne, L&M's chief executive, said he was pleased the market had a strong appetite for the company's stock and the shares had been speedily placed among a wide range of investors.
Union des Assurance de Paris, the large French insurer, which acquired a 50 per cent interest in Sun Life in the takeover that followed the Sun Alliance sale last year, reported a 59 per cent fall in first-half net profits to Fr948m ( pounds 115m). Pre-tax profits were down from Fr2.8bn to Fr1.9bn.
UAP said insurance profits were depressed by Fr699m because of strong competition from banks in the life insurance sector, high interest rates and the continuing depression in property markets. Banking profits fell by Fr392m because of substantial provisions against property loans.
Group premium income climbed by 22 per cent to Fr65.6bn, largely due to the inclusion of Sun Life.Reuse content