London and Edinburgh specialises in household, motor, creditor and commercial insurance.

Norwich will buy the company from the US-based Hartford International Financial Services Group for £315m ($535m) in cash. The money will come from existing cash reserves.

Richard Harvey, Chief Executive of Norwich Union: 'We must be wary of global recession'

The chief executive of Norwich Union, Richard Harvey, said the company saw itself "as a consolidator in the UK market" and predicted cost savings of £30m a year from 2000 onwards, while the integration itself would costs £35m.

Part of the savings are to come from redundancies. At least 600 people will lose their jobs, among them 200 at London & Edinburgh's base in Worthing, West Sussex.

Staff at Norwich Union's headquarters have been told that they will have to brace themselves for sackings as well.

Mr Harvey said the deal represented "a rare opportunity to acquire a sizeable UK general insurer that will, when merged with our existing general insurance business, bring critical mass" to Norwich Union's strong market position.

Last year London & Edinburgh made a general insurance pre-tax profit of £16m on net written premiums of £673m and a life insurance pre-tax profit of £7m on net written premiums of £82m.