Logica, the company that runs the Association of British Insurer's (ABI) core IT, will lay off 250 staff, 5% of its workforce.

The move comes after Logica's announcement last month of a 39% rise in full-year profits to £132m.

Redundancies will hit the firm's Edinburgh, London and Birmingham offices. There are no plans for any job losses outside of the UK.

A spokesman for Logica said: “The board wanted to take prudent and prompt action to address the imbalance between resources available and what we need for our ongoing business.”

Logica recently signed a five-year deal to operate and maintain the ABI's core IT functions.

The software company will provide a range of services, including desktop and server management and operations.

Eventually, the ABI's hardware will be supported by a Logica secure data centre in South Wales, from which Logica will run the help desk and provide remote support.

ABI director general Mary Francis said: “IT support is an essential part of our continuing programme to represent and communicate effectively with our members.”

Director of Logica's outsourcing department Steve Burnett said: “Logica was selected as a strategic business partner because it offers a low risk and fixed-price solution based on a flexible resourcing model.”

Logica has recently renewed a five-year contract with insurance software company Polaris and is developing the technology and handling queries on behalf of Polaris.