UK insurance giants consider merger

Two of the UK's biggest life insurers - Friends Provident and Resolution - today confirmed they were in talks over a possible £8.3bn (€12.35m) merger.

Resolution - the UK's biggest manager of closed life insurance funds - is seen as a good fit for Friends because cash generated from its extensive book of life policies could be used to fund an aggressive increase in business.

Rival bidders may yet disrupt the tie-up, with the French insurance giant Axa and Standard Life among potential candidates.

A combination of Friends and Resolution is likely to spark further consolidation in the life insurance sector, putting pressure on Standard Life to do a deal of its own.

Friends, which is the majority owner of asset manager F&C, sells life protection, income protection, pensions and investment products for individuals and corporate clients throughout the UK.

The merger, if agreed, would see Friends Provident shareholders own 49.1% of the new company, with Resolution investors holding the rest. Resolution has a stock market value of around £4.3 billion, slightly bigger than Friends Provident at £4bn (€5.95bn).

FTSE 100 Index-listed Resolution has grown at a rapid pace, including through the acquisition of Abbey National businesses including Scottish Mutual, Scottish Provident and Abbey National Life.

However, it is thought to have found it harder to land big deals after Prudential and Scottish Widows reportedly rejected approaches to sell their closed-life fund businesses.

A statement said the "complementary fit" of the two companies extended to "products, customers, distribution, financial profile and management".

It added that potential synergies arising from a possible merger will reflect the "already highly efficient nature" of Friends Provident's back office and Resolution's recent outsourcing agreement with Capita, which will commence next month.

The statement did not provide further details.