LONDON, FEBRUARY 20: British insurers Norwich Union Plc and CGU Plc will announce on Monday that they plan to merge, creating an insurance giant valued at around 19 billion pounds ($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 pounds a year ($40 billion) and over 190 billion pounds ($305 billion) of funds under management, the new titan will rank among Europe's top five insurers, industry sources said late on Saturday.Norwich Union would not confirm nor deny the deal but said it would make a statement on Monday."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 one billion pounds, 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 pounds, the new group is snapping at the heels of Prudential which has a market capitalisation of 19.4 billion pounds. But that could all change on Monday 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 pounds at Friday's close, will own around 55 per cent of the new group, while investors in Norwich Union, worth 8.4 billion pounds, will have 45 per cent.CGU Chief Executive Bob Scott will head the new combine until his retirement next year when Norwich Union's Richard Harvey will take the helm. CGU's Chairman Pehr Gyllenhammer will chair the new group with Norwich Union's 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 pounds within three years.CGU and Norwich Union's boards approved details of the nil premium merger on Friday, sources said. Dresdner Kleinwort Benson is advising Norwich Union while CGU is using Goldman Sachs.Norwich Union has been seen as a takeover target ever since it demutualised and floated in 1997 but its strong share price has warded off potential predators.Norwich Union's shares rallied 15 per cent last week to 435.5 pence while CGU shares rose 11 percent to 796.5 pence.CGU and Norwich Union stock meanwhile have underperformed the FT All Share Index by around 24 and nine percent respectively over the past 12 months.CGU shares have however outperformed the Insurance sector by 12 per cent in the past year, whle Norwich Union stock has outpaced the Life Assurance sector by nine per cent.
