Company of the week: Lloyds TSB Group

LLOYDS TSB agreed to buy Scottish Widows, the mutual life assurer, for pounds 7bn in cash, making it the number two UK insurer and manager of pension plans and mutual funds - a market expected to boom as European governments phase out cradle-to-grave social welfare.

Edinburgh-based Scottish Widows, founded 184 years ago to care for the wives of soldiers killed in the Napoleonic wars, is owned by its one million pension customers and 350,000 life insurance clients, and has pounds 33.7bn of managed assets.

"Scottish Widows is a leading brand and it fits within the Lloyds stable," said Logie Cassells, fund manager at Capel-Cure Sharp. However, some analysts think a rival may offer more for Scottish Widows. "I'm not convinced it's a knockout blow," said Richard Coleman, an analyst with Merrill Lynch. "Others are running their numbers now, in the UK and abroad."

The transaction provides a safe harbour for Scottish Widows, which has been weighing conversion from mutual ownership in the past year. Lloyds TSB will pay pounds 5.7bn to Scottish Widows' members and add pounds 1.3bn to the customers' policies. Policy holders will receive an initial payment of pounds 500 from Lloyds. Scottish Widows' chief executive Mike Ross will join Lloyds TSB to oversee its life, pensions and fund-management business from Edinburgh.

Banks and brokers are keen to expand in money management as pension funds around the world grow. These funds are estimated to expand 39 per cent to almost $15,400bn (pounds 9,690bn) in the next four years. Europe's pension assets are likely to jump about 44 per cent, to almost $3,900bn, while the UK's could climb to $1,9300bn from $1,3500bn.

"While some would have expected Lloyds to concentrate on strengthening its UK mortgage market position, this deal greatly strengthens its bancassurance capabilities," said James Ravine, a credit analyst at Banque Nationale de Paris.