Flood losses and M&A to overshadow insurance earnings

LONDON (Reuters) - Concerns over the impact of flood losses and speculation over the shape of consolidation in the sector are set to dominate first-half earnings next week from some of the country's largest life and general insurers.

Aviva and Royal & SunAlliance are expected to see headline operating earnings drop almost 8 percent and 14 percent respectively, on the back of heavy claims after floods hit Britain in June and July.

The insurance industry as a whole, already hit by windstorm Kyrill in January, could face flood claims of 3.3 billion pounds, according to some estimates. Aviva has said its flood bill alone adds up to 340 million for June and July.

Merger speculation will centre on Friends Provident. It announced plans to merge with Resolution (RSL.L) last week, but the deal has come under scrutiny since rival Pearl began building a stake in Resolution.

Analysts said Friends -- which published headline first-half numbers along with the merger terms and will release full numbers on Wednesday -- is set to face questions on the future of that deal and on other possible suitors.

Sources close to the situation said on Friday that Friends had held preliminary talks with Old Mutual before Resolution. Newspaper reports have said suitors eyeing Britain's smallest bluechip life insurer include Zurich Financial (ZURN.VX).

FLOOD WOES AT AVIVA, RSA

At Aviva, where Chief Executive Andrew Moss will be presenting results for the first time since he took over last month, attention is set to focus on its general insurance unit.

Ten analysts polled by Reuters saw operating profit, on a European embedded value basis, at an average of 1.57 billion pounds compared to 1.70 billion a year earlier, as the fall in general insurance earnings overshadowed growth in life.