Several firms having been eying Friends Provident, reports say.

The move, which would create a firm worth about �8bn, prompted shares in Friends Provident to jump nearly 8%.

The move came as speculation rose that a rival offer may be made for Friends Provident, with reports linking Axa and Standard Life to a bid.

Friends and Resolution confirmed the "advanced" talks on Monday and a deal may be unveiled within a fortnight.

'Significant value'

By close of trade in London, shares in Friends Provident had risen 7.8% to 201 pence. Shares in Resolution rose 7% in early trade but ended the day 1.1% up.

Shares in other insurers such as Legal & General and Prudential also got a boost from the prospect of consolidation in the sector.

Friends Provident and Resolution believe that a merger would create significant value for both sets of shareholders Resolution statement See Friends Provident shares See Resolution shares

The proposed all-share deal would see Resolution shareholders control about 51% of shares in the combined business while Friends Provident investors would own the remainder.

"Friends Provident and Resolution believe that a merger would create significant value for both sets of shareholders," Resolution said in a statement.

Under the proposal, Resolution's chairman Clive Chowdery would head the joint group.

Friends sells life protection, income protection, pensions and investment products throughout the UK to both individuals and businesses.

It has about 2.5 million customers and employs 5,000 staff.

'Good fit'

Resolution became the UK's biggest manager of closed life insurance funds last year when it bought the closed life funds of the Abbey bank for �3.6bn.

Analysts say it would be a good fit with Friends as the cash it generates from its life policies could be used to fund an aggressive increase in business.

Poor stock market returns and heavy regulation have led to many of Britain's life funds being shut to new business - known as closed funds.

A life fund takes premiums paid into life assurance policies and invests them in a range of assets, such as equities, property, fixed interest securities and cash.