British insurers Norwich Union plc and CGU plc, both of which have large operations in the Republic, will announce today that they plan to merge, creating an insurance giant valued at around £19 billion sterling (€30.5 billion), industry sources said.
After weeks of secret talks, Norwich Union and CGU have agreed an all-share merger of equals that will create a British powerhouse ranking first in general insurance and second in life and pensions behind Prudential Corporation plc.
With premium income of more than £25 billion a year and over £190 billion of funds under management, the new titan will rank among Europe's top five insurers, industry sources said.
Norwich Union and CGU - which since last November owns Hibernian - are both among the largest insurers in the Republic. Hibernian and CGU together have some 1,100 employees in the State, while Norwich Union has around 500.
Norwich Union also has at least 80,000 Irish shareholders who benefited from its demutualisation in 1997. If the two Irish operations were to be merged, some staff layoffs could be expected as part of an efficiency drive.
Norwich Union would not confirm or deny the deal but said it would make a statement today. "There is a lot of speculation around and in view of that we will be making a statement on Monday," a Norwich Union spokesman said. CGU could not be reached for comment.
The new combine aims to build a European powerhouse to rival giants such as Germany's Allianz AZ and France's AXA, with plans to build up its pensions and life business further through European acquisitions, sources said.
At the same time it plans to scale back business in the risky and less popular general insurance market and will put CGU's US general insurance operation up for sale in a deal that is expected to raise more than £1 billion, the sources said.
"The new group's focus will be building its reach overseas, especially in Europe, and rebalancing its emphasis toward life and pensions and away from general insurance," an industry source said.
Valued at a combined £18.8 billion, the new group is snapping at the heels of Prudential, which has a market capitalisation of £19.4 billion. But that could all change today when CGU and Norwich Union's shares are expected to rally sharply in response to the merger.
The picture could also look much different once CGU's deal to buy half of Royal Bank of Scotland's life and pensions business goes through.
Shareholders in CGU, which was valued by the stock market at £10.4 billion at Friday's close, will own around 55 per cent of the new group, while investors in Norwich Union, worth £8.4 billion, will have 45 per cent.
CGU chief executive Mr Bob Scott will head the new combine until his retirement next year when Norwich Union's Mr Richard Harvey will take the helm. CGU's chairman Mr Pehr Gyllenhammer will chair the new group with Norwich Union's Mr George Paul as deputy, the industry sources said.
While CGU is stronger in general insurance and on the Continent, Norwich Union's strengths lie in the life and pensions business, with a strong base in Britain.
But despite the neat fit, the merger will lead to job losses. The merger between Commercial Union and General Accident in 1998, which created CGU, led to 5,000 job losses.
As well as shedding jobs, the enlarged group - which will have its headquarters in London and has yet to be named - is expected to push through a cost-cutting programme to save £200 million within three years.
CGU and Norwich Union's boards approved details of the nil premium merger on Friday, sources said.
