Aviva in negotiations to purchase Friends Life

British insurance provider Aviva has opened negotiations to buy sector peers Friends Life for £5.6bn.

The deal, which would be the biggest of its kind in the insurance sector since the merger of CGU and Norwich Union created Aviva over a decade ago, could revolutionise the UK pensions industry.

According to sources cited by the Financial Times Aviva is considering a bid of about 400p a share, a 15% premium to its Friday closing share price of 347.7p, adding that the deal was far from being finalised.

An agreement between the two insurance companies could strengthen their position ahead of the pension reforms set to be introduced by the chancellor George Osborne.

The overhaul has seen a sharp decline in sales of annuities, which have been among the sector’s most lucrative products.

Friends Life, which is not reliant on annuities, reported a pre-tax loss of £31m in the first six months of the year, pushed lower by amortisation and impairment charges.

On Friday, Aviva shares closed 1.22% up to 539.00p, while Friends Life closed 1.28% up at 347.70p.