It is paying �150m in cash for a 75% percent stake in Britannia Asset Management (BAM), and it is buying 100% of Britannia Life for �196 million.

The asset management business has �18bn under management.

Britannia, Britain's third largest building society and one which opposes conversion from mutual status, was forced to put the businesses up for sale after it faced a huge bill for pension mis-selling.

Britannia, based in Leek, Staffordshire said it will use the money to improve benefits to its 2m members.

Britannic's products will be distributed through Britannia's 187-strong branch network on an exclusive basis for an initial 10 years.

Smart move

"The acquisition looks a very smart one," said Trevor May, insurance analyst at Salomon Smith Barney. "It brings funds management expertise which they need and broadens their distribution."

Chief Executive Brian Shaw said the deal would transform the firm, giving it an edge in the Independent Financial Advisers business and enabling it to participate in stakeholder pensions.

"We are moving from home service insurer into a financial services group with a fund management business," he said.

Analysts said the Britannia acquisition did not eliminate the possibility of a tie-up with the struggling fellow door-to-door insurer United Assurance.

No redundancies were expected among Britannia Life's 550 employees or the asset management group's 230 staff, but some Britannic staff will be transferred to Glasgow.

Profits down

Meanwhile, the company reported that half-year profits fell by 1.7% to �63.2m.

Analysts said the company would next year reap the benefit of investing in laptops for its salesforce.

New business growth was a respectable 37% in the first six months and the company had delivered on expectations of a 20% dividend increase, analysts said. The half year payout was lifted to 14.4 pence per share, from 12.0p last year.