Clive Cowdery, the founding chairman of Resolution, signalled that he would put any other insurance takeovers on hold after unveiling an £8.6 billion agreed all-share merger with Friends Provident yesterday.

Resolution, set up just four years ago by Mr Cowdery to consolidate the insurance market, is understood to be preparing to withdraw from the £1 billion auction of Lloyds TSB’s Abbey Life closed funds, even though it has reached an advanced stage.

Resolution was one of four suitors, alongside Hugh Osmond’s Pearl Group, Deutsche Bank and Swiss Re, to have tabled second-round bids for Abbey Life at the end of last week. However, Mr Cowdery indicated yesterday that, unless a transforming deal appeared, acquisitions would be on the back burner until Friends Provident and Resolution are fully integrated.

“Between now and 2010 I would expect most of our time and attention to be focused on the merger,” Mr Cowdery said, although he added that it would be “foolish to ignore” the right acquisition if it came along. He declined to comment on the Abbey Life auction process.

Resolution and Friends Provident promised that the creation of their newly merged company, to be called Friends Financial, would result in at least £100 million of annual cost savings by 2010. The combination of the two insurers’ life and pensions businesses and integration of head offices will save just over half of that sum, with the combination of the two companies’ fund management arms expected to save a further £26 million.

F&C, which is 52 per cent owned by Friends Provident, yesterday hired Lexicon Partners to advise it on the merger of its funds with Resolution’s. Insiders dismissed the prospect of a management buyout.

Several hundred jobs from a combined workforce of about 6,500 are expected to be cut as a result of the merger. Talks with internal union officials began several days ago.

The combination of the two groups will create the UK’s fourth-largest insurer with about 9.5 million customers with policies worth an underlying £7.9 billion. Friends Financial is likely to generate pretax profits of about £1 billion a year.

Mr Cowdery said Friends Financial would be a top-five player in provision of life and pension services, effectively issuing a challenge to Legal & General, HBOS, Standard Life and Aviva, the owner of Norwich Union.

Resolution executives dominate Friends Financial, with Resolution’s chief executive, Mike Biggs, installed at the helm and Jim Newman, its finance director, taking the same job at the enlarged group.

Jim Smart, Friends Provident’s finance director, is not expected to stay on once the takeover process has been completed. Philip Moore, Friends’ chief executive, becomes deputy chief, in charge of asset management and international development.

Friends has been expanding gradually overseas in countries such as Germany, Singapore and the United Arab Emirates. Mr Moore, who pledged to remain with Friends Financial unless the board told him otherwise, said to expect “more of the same, only with greater capital input”.

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