The agreed all-share `merger of equals' would form the largest British general insurance group and one of the top five life insurers in Europe, but will bring some 5,000 job losses as the new firm targets annual cost savings of 250 million pounds.

CGU chief executive Bob Scott will keep the same role at the enlarged group and CGU shareholders will own 58.5 per cent under the deal which marks a fresh round of consolidation sweeping the UK and continental European financial services.

National Westminster Bank has just been swallowed up by rival Royal Bank of Scotland and CGU itself was created by the merger in 1998 of Commercial Union and General Accident.

AXA, the French insurance giant, bought Guardian Royal Exchange last year, while Royal Insurance and Sun Alliance merged to create Royal & Sun Alliance.The merged group - to be known as CGNU - will have worldwide premium income and retail investment sales of 26 billion pounds, making it the UK's largest general insurer and second largest life and pensions group behind market leader Prudential Plc.

It will also have a big asset management business, with morethan 200 billion pounds of funds under management.