UK insurers Friends Provident and Resolution have confirmed that they are in advanced talks to merge their businesses.

The companies believe that a merger would create significant value for both sets of shareholders by combining Friends Provident’s new business growth opportunities with Resolution’s strong cash flow generation. A deal would make the combined company the fourth biggest UK insurer, worth an estimated GBP8 billion.

The merger, if agreed, would involve an all-share combination of the two groups. Friends Provident shareholders would own 49.1% of the merged company, while Resolution shareholders would own 50.9%. Resolution’s chairman Clive Chowdery, who set up the company in 2003, would head the combined group.

The announcement follows recent media speculation that AXA and Standard Life were planning on bidding for Friends Provident.