CGU, Norwich Union to Form European Financial Giant.

CGU plc and Norwich Union plc, two of the United Kingdom's largest international composite insurers, intend to merge to form a European insurer with annual premium income and retail investment sales of about [pounds]26 billion (about $16.29 billion).

The merger, expected to close by June, has been orchestrated to create a European "super-league" life and savings insurer to rival Allianz AG Holding of Germany, France's Axa, Italy's Assicurazioni Generali SpA and Zurich Financial Services Group of Switzerland. The new group, to be called CGNU at the holding company level, will abandon the U.S. property/casualty market, where CGU is the 16th-largest player.

The transaction is to be carried out through a zero-premium share exchange, with current CGU shareholders garnering 58.5% of the enlarged company.

"We are committed to having a top-five position in the markets in which we participate," said Norwich Union Chief Executive Richard Harvey, who will succeed CGU's Chief Bob Scott at the helm of CGNU upon Scott's retirement in June 2001.

CGU's Boston-based operation underwrites in 50 states, generating premium income of more than $4 billion.

"The U.S. market is extremely fragmented, and consolidation is going to take place," Scott said.

"This merger presents a significant opportunity to be the British champion," Scott said. "We, as a major U.K. company, will be a consolidator, particularly in Europe and other international markets."

Both Harvey and Scott declined to identify immediate targets, but Harvey mentioned "expanding opportunities" in Italy and Spain. "The real growth is not confined to our shores, but extends to continental Europe," he said. "Most European countries are in much worse shape than the U.K. when it comes to private pensions business."