Insurance services giant Capita is expected to announce to the Stock Exchange today (May 24) that it is acquiring the UK's second largest loss adjusting company – McLarens Toplis.

A merger between Capita and McLarens Toplis would create a formidable new force in the £4bn-a-year claims management industry, with a combined turnover of £523m. It would be able to offer a full range of outsourced insurance services from back-office functions to front-end loss adjusting services.

Capita has substantial expertise in managing outsourced back-office insurance services. Last year, it won contracts worth £700m, including a £323m, ten-year contract with Abbey National to develop and manage the bank's general insurance processing business.

Last November, Capita acquired the remaining 74% stake it did not already own in Eastgate, the UK's largest administrator of third-party insurance claims, for more than £10m. Capita also took on Eastgate's outstanding debt of £26m.

A tie-up with McLarens Toplis would also give Capita access to the loss adjuster's network of 90 branches and 16 casualty claims centres. However, Capita is understood to be interested in only acquiring the UK-based part of the McLarens Toplis business.

The international side of McLarens' business, which specialises in implementing catastrophe response services following earthquakes and hurricanes, is to become a separate company.

Executive chair-man of Capita Rod Aldridge said: “We are a UK business and want to remain that way. We have an agreement with the international side of McLarens Toplis, which is going to be retained by its existing shareholders and renamed McLarens International Group.”

Aldridge also revealed Capita's plans for McLarens Toplis: “The idea is to merge the operations of both companies. The acquisition will take place immediately.”

McLarens Toplis, which was founded in Scotland in 1932, has grown to become the second largest loss adjusting company in the UK, as measured by turnover.

Its fee income from loss adjusting reached a record level of more than £70m in 2000 and it has approximately 1,800 staff.

The company's expertise ranges from domestic and commercial claims handling to outsourced claims management.

Its commercial division has concentrated on growth areas such as first- and third-party motor claims handling, railway industry claims and product recall.

Capita has grown spectacularly since it was formed as an off-shoot of the Chartered Institute of Public Finance and Accountancy with two staff in 1984. Today it has a turnover of more than £453m and 7,500 employees.

Net profit before tax for the year to December 31, 2000 increased 41% to £51.2m. McLarens Toplis declined to comment.