Lloyd's of London insurer Amlin is in advanced talks to be bought by Japan's Mitsui Sumitomo Insurance as a wave of takeovers reshapes the sector.
The FTSE 250 company, which provides a range of insurance cover from airlines to art galleries, is expected to be sold for a significant premium to its market value of 2.45 billion pounds, said people familiar with the matter.
Amlin has hired investment banking advisers Rothschild and Evercore to work on the deal, the people added.
They said Amlin, whose history dates back to 1903, was close to reaching an agreement with Mitsui Sumitomo, which is looking to expand overseas as the Japanese industry faces a tough market at home. An announcement could come within hours.
Mitsui Sumitomo plans to pay for Amlin mainly through cash on hand, funding the remainder with bank loans, according to Nikkei, which first reported the deal.
The mooted transaction comes just two weeks after Charles Philipps, Amlin's chief executive, told reporters the company was "not for sale".
It is the latest sign that an insurance dealmaking wave is gathering momentum. Within the past year at Lloyd's, New York-listed XL bought Catlin while Fairfax of Canada purchased Brit.
Japanese insurers have played a leading role in the industry's dealmaking boom — and have tended to fork out substantially more than their target's market prices to secure the deals.
The Japanese companies are turning to overseas acquisitions as an ageing and shrinking population have dimmed their domestic prospects.
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Purchases outside Japan also diversify their non-life insurance operations away from their home country, which is vulnerable to costly natural catastrophes.
This summer, Meiji Yasuda Life Insurance agreed to pay $5 billion for US-based StanCorp Financial while Tokio Marine paid $7.5 billion for Texas-based HCC Insurance.
Mitsui Sumitomo launched at the Lloyd's market in 2000 but has eschewed the chunky deals pursued by its Japanese rivals recently. The purchase of Amlin would transform its overseas operations, giving it a platform to expand in Europe, the US and elsewhere.
Amlin has a global footprint that will be attractive to its Japanese suitor, with underwriting operations in Europe and Bermuda as well as at Lloyd's. Last year Amlin set its sights on Latin America, opening an office in Miami.
Intensifying competition is encouraging insurers to yield to takeovers. An absence of catastrophes recently has propped up short-term profits, but the longer-term outlook is more downbeat.
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Premiums for several types of insurance have come under pressure, partly because of pricing competition from investors who are pouring capital into the industry in a search for yield.
The pricing strains have been greatest in reinsurance — back-up cover for insurance companies. Amlin generates about half its premium income from reinsurance.
Last month, the group cautioned about "continued pressure on pricing in certain market segments". Amlin's reinsurance prices fell 6 per cent in the first half of the year.
Amlin generated a profit before tax in the first half of the year of 143 million pounds, down from 149 million pounds a year ago.
Amlin shares closed at 492.5p on Monday. Shares in MS&AD Insurance Group, parent of Mitsui Sumitomo Insurance, were up 1.8 per cent on Tuesday morning in Tokyo.