Resolution and Friends Provident confirmed this morning that the two life insurance companies are in £8.3 billion merger talks. The move raises the prospect of job cuts.

Resolution will be left with 1,500 staff after outsourcing 2,000 of its employees to Capita, compared to Friends Provident, which has 4,829 employees.

In a joint statement, the businesses outlined that Resolution will be the dominant partner in the merged company, with a 50.9 per cent holding while Friends Provident will own the remaining 49.1 per cent.

Both companies said today that the potential synergies a merger would create would "reflect the already highly efficient nature of Friends Provident's back office processing and Resolution's recent outsourcing agreement with Capita".

A spokeswoman at Friends Provident, refused to comment on job cuts but said: "It is not about synergies, it is about growing the business."

Shares in both companies surged in early trading. Friends Provident's shares rose 7.6 per cent to 200.75p while Resolution's stock increased by 4.45 per cent to 657p.

It is understood that Resolution executives will dominate the board of the merged business, with the life insurers' founder chairman, Clive Cowdery, keeping his position as chairman of the combined group.

Mike Biggs, will be chief executive, but it is understood that Philip Moore, chief executive at Friends Provident, will be groomed to take over. He will become deputy to Mr Biggs on completion of the merger.

Last year, Resolution reported operating profits up from £180.4 million to £532.5 million, including a £158 million contribution from the acquisition of Abbey's life business last year. In contrast, Friends Provident reported declining profits, down from £524 million to £509 million.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax