The London market reacted coolly to the CGU and Norwich Union's plan to create the UK's biggest insurer, sparking speculation that a European rival might try to break up the deal.
Shares in CGU fell 22p to 774p sterling, valuing it at £10.2 billion ($16.3 billion), while Norwich Union slipped 39p to 396p, valuing it at £7.7 billion ($12.3 billion). The combined market value of £17.9 billion was £1.4 billion below the day's starting level, despite the promised cost cuts.
Mr Roman Cizdyn, life assurance analyst with Merrill Lynch, said there was a 30 to 40 per cent chance that a European insurer would intervene, but any bidder would have to pay cash and be interested in "putting their flag on the UK" map rather than cutting costs.
Potential bidders include Germany's Allianz, the Netherlands-based insurer, Aegon, and Generali of Italy.
However, European insurers favour agreed deals and the fall in the share prices suggests hopes of another bidder are not strong.
Mr Bob Scott, who will be chief executive of the group, said it would be known as CGNU, but would use the Norwich Union brand name in the UK.
The merger is expected to bring at least £250 million annualised pre-tax cost savings within 18 months of completion. However, this will mean some 5,000 job losses worldwide, of which 4,000 are likely to be in Britain.
Mr Pehr Gyllenhammar, who will be chairman of the group, said: "You should see this as creating a strong base as a stepping stone to participation in the international consolidation. We intend to be leaders in the game."
CGU shareholders will hold about 58.5 per cent and Norwich Union shareholders 41.5 per cent of the combined group. Norwich shareholders will get 48 new CGNU shares for every 100 Norwich shares.
The companies said the merged group might return capital to shareholders, but the amount and timing would partly depend on the disposal of CGU's general insurance business in the US, which is expected to fetch about £2 billion.
Analysts said the nil-premium merger had not gone down well, partly because institutional shareholders were keen to receive cash they could put into telecommunications, media and technology sectors.
CGU said operating profits last year fell slightly, from £775 million to £771 million, well ahead of analysts' expectations.
