UK insurance giant Aviva has agreed to a take over deal with pensions company Friends Life. Katie Gregory has more on the merger, which will see the companies form the UK's largest insurance firm.
It's the UK's largest insurance industry takeover in almost two decades. Aviva's $8.8 billion tie-up with Friends Life will see the combined companies develop into a market leader with 16 million insurance customers. Richard Hunter is from Hargreaves Landsdown (SOUNDBITE) RICHARD HUNTER, ANALYST, HARGREAVES LANSDOWN SAYING: "There was an element of surprise when it was first announced in as much as Aviva was actually looking to folLow in the footsteps of the likes of Prudential and get something of a more diversified international portfolio." It's all about cost cutting for Aviva, the company set to benefit from the smaller insurer's cash flow. Chief Executive Mark Wilson says the merged firm is expected to generate around $942 million in excess cash flow a year and about $350 million in annual cost savings by the end of 2017. Both companies had been facing uncertain times. Aviva had been selling off businesses to cut costs, Friends Life is being hit by the UK government's changes to the pensions market. People over-55 now have more freedom to cash in their annuities early. (SOUNDBITE) RICHARD HUNTER, ANALYST, HARGREAVES LANSDOWN SAYING: "The message is at last getting through to the general public that planning for one's own retirement is now top of the tree and obviously that represents a big opportunities for the life insurers. " After the agreement was announced, shares in Aviva were up more than 1 percent...Friends Life rose almost 3 percent.