CGNU has dropped a £124m contract with computer giant IBM after just two years.

The insurer said its decision was agreed during merger talks last year.

Before the merger with Norwich Union (NU), CGU signed a seven-year outsourcing deal with IBM in 1999.

This extended an existing deal – signed by the then General Accident – and covered software, hardware and technical support.

The current data centre in Perth will be phased out, and operations will be run in-house from a NU centre.

It is thought the migration will be complete by 2002.

Both CGNU and IBM are refusing to reveal whether any penalty clauses have been paid to IBM for terminating the contract five years earlier than agreed.

But a source close to CGNU said a penalty clause of between £6m and £12m had been agreed for the Perth deal before the contract re-negotiation last year.

A spokewoman for CGNU said: “The decision was taken to move the data centre in order to implement a shared service model.

“The Norwich data centre is first class and is better equipped to cope with the work from the Perth operation.”

She added: “IBM have provided an excellent service for the Perth data centre and we continue to be delighted with the other services IBM provide for CGNU.”

Some 120 IT staff at the Perth data centre are waiting to hear whether any jobs are to be lost.