The UK's biggest insurer, Aviva has sold its general insurance businesses in Australia and New Zealand.

This is an excellent deal for Aviva shareholders

Richard Harvey, Aviva group chief executive

The businesses have been bought by Insurance Australia Group (IAG) for 1.86bn Australian dollars (�651m).

The deal, which looks set to hand IAG Australia's first and fourth largest general insurers, and the second and third largest insurers in New Zealand, will require the approval of competition watchdogs.

Analysts said the acquisitions would give IAG 32% of the Australian general insurance market.

Aviva, formerly known as CGNU, said it would retain and reinforce its long-term savings and asset management operations in Australia.

Industry 'transformed'

"This is an excellent deal for Aviva's shareholders," said Aviva's group chief executive Richard Harvey.

"The price is equivalent to 6% of our market capitalisation.

"In contrast, the businesses account for approximately 2% of our results, whether measured by premium or profit."

IAG chief executive Michael Hawker also welcomed the deal.

"This in our view is a transformational day for IAG and a transformational day for insurance in Australia," he said.

"I think it's tremendous we have an Australian group buying back assets from a British company."

IAG said the acquisitions would boost its earnings within two years and would generate about A$160m a year in cost savings.

IAG issued new shares worth 500 million Australian dollars to help fund the deal, pushing its stock price 15% lower to A$2.50 earlier on Friday.

Aviva shares were 1.6% higher at 490p in early London trade.