Pearl increased its all-cash bid by 4.2% to 720 pence a share, the Peterborough, England-based company said in a statement. Pearl also said it raised its stake in Resolution to 24%, possibly enough to block Standard Life's cash and stock bid valued at 716.1 pence a share, which came an hour earlier and won the backing of Resolution management.

"A bidding war has broken out, " said Marcus Barnard, a London-based analyst at Pali International Ltd. "Standard Life will have to come back, but I think Pearl looks very determined.'" Clive Cowdery, Resolution's chairman, built the insurer over the past three years by buying up so-called zombie funds, groups of life policies that are closed to new business.

Resolution's board now backs the takeover by Edinburgh-based Standard Life, which raised $2 bn in an initial public offering of shares last year.

"I wholeheartedly recommend it, " Cowdery, 44, said on a conference call.

Resolution "strongly recommends that shareholders take no immediate action, " it said in a statement following Pearl's announcement of a sweetened offer. Resolution said it will have a further announcement as soon as possible.