Merging two firms will create biggest Lloyd's underwriting operation

Catlin will become the largest underwriting operation at Lloyd's after agreeing takeover terms with rival insurer, Wellington Underwriting.

The managing agent has agreed to pay 121p for each Wellington share in a deal that could be worth as much as £706m.

According to market sources the merger could place significant pressure to retain representation on both executive boards.

As part of the merger Stephen Catlin will remain chief executive, but Wellington's current chief executive, Preben Prebensen, will take on a deputy role, where he will be responsible for the integration of both companies.

A senior Lloyd's figure told Insurance Times: "The deal is likely to fail on personality grounds. If you take the top 10 employees at Catlin and the top 10 employees at Wellington and play musical chairs with them, then that is where the problems will arise."

Insurance analysts have also predicted difficulties in merging two Lloyd's businesses together. Numis analyst Richard Gradidge said: "It is impossible to exaggerate the potential difficulty in integrating underwriting businesses, given that there is often substantial revenue overlap and major cultural and personality differences typically involved."

Meanwhile, speculation has mounted that the deal could lead to a number of redundancies with the intended closure of Wellington's Syndicate 2020 at the end of the year.

Catlin said it could not categorically rule out job losses, but insisted that the acquisition was about creating a "stronger" company, which utilised all underwriting talent.

As a result, it is understood to have produced a retention agreement for key employees.