Lloyd's integrated vehicles Wellington Underwriting and Limit have begun merger talks that could lead to the creation of the market's biggest independent underwriting company with a capacity of around £1.2bn.
Representatives of both companies said that Wellington managing director Julian Avery and the Limit chairman Jonathan Agnew are in preliminary talks but it is not certain whether they will result in an agreement.
However, analysts suggest the two Lloyd's businesses would create a powerful independent insurance company that would have a significant presence among insurers listed on the London Stock Exchange.
One report said Wellington's strength is that it has one of the best underwriting teams in the Lloyd's market, while Limit has considerable surplus capital.
Last December, Limit purchased Lloyd's motor insurer Torch for a price tag of £10m.
The two businesses are complementary in underwriting terms with only a limited amount of overlap. Wellington owns 47% of its £465m capacity and deals in all risks except personal lines.
Limit, meanwhile, owns 54% of its Lloyd's integrated vehicle which has an underwriting capacity of £812m.
It is not the first time that Limit has been in merger talks. Last year it rebuffed an approach from Australian insurer QBE following speculation that its cash offer for the company at around £500m was too low.
Wellington is due to unveil its results for the year ending December 1999, on April 13, while Limit has yet to set a date for its results, also expected in April.
In its last results for the year ended December 1998, Wellington Underwriting declared increased operating profits of 7% up to £18m compared to £16.8m in 1997.
Limit's operating profit was £10.3m in the six months to the end of June 1999, down from £23.9m at September 30, 1998.