Aviva has finalised its agreement to buy insurance rival Direct Line in a deal worth up to £3.7bn.

Under the terms of the deal, Direct Line shareholders will receive 0.29 new Aviva shares, 129.7p in cash and up to 5p in dividends per share.

This values each Direct Line share at £2.75 spread across cash and shares.

Aviva said its Solvency II shareholder cover ratio would remain at the “upper end” of the group’s working range, with upside from material capital synergies over time. The insurer also said the acquisition would not impact its credit ratings and that it expects centre liquidity to remain above £1bn, in line with its capital management framework.

Aviva CEO, Amanda Blanc, described the deal as “excellent news” for the customers and shareholders of Aviva and Direct Line.

“It builds on our track record of delivering four years of strong financial performance and, in line with our strategy, it accelerates our growth in capital light business,” Blanc said.

“The financial strength and scale of the combined group means customers will benefit from competitive pricing, an enhanced claims experience and even better service.”

Chair of Direct Line, Danuta Gray, added: “The offer represents a substantial premium and reflects the attractiveness of Direct Line, a high-quality business with powerful insurance brands, excellent customer focus, and exceptional people.

“The board of Direct Line has been very pleased with the progress made by its new management team, but Direct Line is in the early stages of an extensive turnaround, and it believes the offer allows Direct Line Shareholders to realise the value of their investment in the near term.”

However, both companies have indicated they plan to cut between 5-7% of the combined group’s employee base, which would be equivalent to between 1,600 and 2,300 jobs from a total 33,100. According to its last annual report, Aviva employed 23,000 people, while Direct Line employed 10,100.

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