TWO of Britain’s biggest life insurers, Resolution and Friends Provident, are in advanced talks to create an £8.3 billion insurance giant.

Details of the talks, which have been going on for several months, will be confirmed tomorrow. The insurers have broadly agreed on a nil-premium merger deal, which they hope to announce in the next two weeks.

Under the bold plan, Mike Biggs, the Resolution chief executive, is expected to lead the combined group. Philip Moore, his opposite number at Friends Provident, could be offered the opportunity to work as his deputy chief executive and step up to the top job in the future. This reflects the fact Moore has only held his post at Friends Provident for six months.

However, it is not clear who will chair the combined group. Resolution is chaired by Clive Cowdery, the founder of the closed life funds consolidator, while Sir Adrian Montague, the City grandee, is chairman of Friends Provident.

Bankers say there are concerns that the entrepreneurial Cowdery, who set up Resolution with only £500,000 of his own money in 2003 and now has a 3% stake worth £129m, would not be well suited to the more conventional culture of Friends Provident. However, Cowdery has made it clear that he wants the top job.

Revelation of the talks could lead to a rival bid. Friends has been in play since May, when it emerged that JC Flowers, the private-equity group, had been eyeing Britain’s fourth-largest insurer. Axa, the French giant, and Standard Life have run the numbers on Friends and could mount offers.

A merger of Resolution and Friends Provident could also spark a wave of consolidation, with some observers arguing that Standard Life will come under pressure to strike its own deal. Resolution has been keen to clinch a merger or sell itself. Last autumn, Cowdery approached rivals, including Prudential, Standard Life and Friends Provident, about a sale or merger but was rebuffed.

However, Friends Provident, which has a market value of £4 billion, has been won round to the merger after increasing pressure on its cashflow and balance sheet in recent months. Bankers say that Resolution would make a good fit for Friends because it generates a lot of cash that could be used to fund an aggressive increase in business.

There has been tension between the two firms in the past. In 2005 Resolution scrapped a multi-million-pound contract to place £20 billion with F&C Asset Management, the listed group controlled by Friends Provident.

Resolution has grown explosively to become a £4.3 billion FTSE 100 company by buying up life funds that are no longer writing new business. Last year it pulled off its biggest deal, buying the closed life funds of Abbey for £3.6 billion.

Resolution is finding it harder to land big deals. Prudential and Scottish Widows, owned by Lloyds TSB, have large closed-life fund businesses but have rejected approaches to sell.

In an attempt to drive growth, Cowdery has focused his attention on life insurers open to new business. One of the key attractions of the Abbey deal was that it included open funds and allowed Resolution to sell protection products such as term assurance to the bank’s customers.

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