Insurers Aviva plc and Friends Life Group plc reported forecast-beating yearly profits yesterday, lifting their shares to multi-year highs ahead of a £5.6 billion agreed merger due to complete next month.

Aviva is acquiring Friends Life as changes in the UK pensions market put pressure on life insurance companies, leading to a drop in their sales of income-bearing annuities.

The deal is expected to bring £225 million in annual savings, Aviva reiterated yesterday, and material capital savings, without giving further detail.

Aviva chief executive Mark Wilson, appointed two years ago from Asian rival AIA with the task of restructuring the company, told reporters: “The proposed acquisition of Friends Life accelerates our turnaround and our ability to deliver our investment thesis.”

Aviva reported a six per cent rise in operating profit to £2.17 billion, a touch higher than forecasts of £2.15 billion in a company-supplied poll.

Friends Life’s operating profit jumped 38 per cent to £556 million, beating forecasts of £352 million in its company poll.

Holders of Friends stock will receive 0.74 new Aviva shares for each Friends share. Investors, who vote on the merger on March 26, have said the deal makes sense as a way to cope with UK pension changes.

The reforms, to be implemented next month, allow retirees to use their pension pots as they choose, rather than forcing them to buy an income-bearing annuity.