SSP is to acquire Sirius in a deal that will create a software house bigger than market leader Open GI.
The combined enlarged group will have a turnover of roughly £64m, of which around 11% would be overseas business. This compares to Open GI's £33.5m turnover.
The Aim listed companies will trade under the SSP title. SSP is paying £43.5m for the purchase, creating a combined value of £102m.
SSP said the combination would create a UK market leading insurance software provider but with a platform to expand the enlarged business internationally.
In the UK, Sirius will continue to specialise in commercial lines while SSP will maintain its personal lines range.
But rival software houses warned that the merger would create confusion among customers.
Speaking to Insurance Times, David Rasche, executive chairman of SSP, said Sirius was acquired because it was a good fit, product-wise. He said: "It's a good business and there's not a lot of overlap. It gives us a wider distribution spread."
SSP said the group would have a combined workforce of 600 people but warned that some redundancies would occur.
But rival firms said the merger would create confusion in the market.
A spokesman for Acturis said: "When an acquisition like this happens, it creates uncertainty. And when brokers are uncertain they will go somewhere else. I expect they will lose some customers."
Open GI chief executive Phillip Bell said: "It will undoubtedly result in a good deal of confusion for existing and potential broker clients of the 'new business' in terms of product strategy."