Royal Liver, the mutual insurer which operates in Ireland under the Caledonian Life brand, and Royal London have successfully completed the first stage of merger talks and have signed an agreement setting out the framework for ongoing discussions.

The non-binding "heads of terms" signed earlier this month will provide the basis for a transfer agreement of the assets and liabilities to Royal London, Royal Liver said in a statement. Both companies will now carry out due diligence to decide whether a deal would be in the best interests of their respective members.

No final proposals for the transfer have been tabled for the Royal Liver board to consider. Finalised proposals are expected to be put before a Royal Liver delegation for approval at a special general meeting planned to take place later this year.

The terms signed mean Royal Liver has entered into a "period of exclusivity" with Royal London over a potential merger, though there is no guarantee of a transaction.

Royal Liver has been through a very difficult year, with high levels of boardroom turnover and divergence between management and delegates over whether to seek a partner. Talks with Liverpool Victoria, another mutual insurer, broke down late last year, leaving Royal London as the only suitor.

At Royal Liver's annual general meeting in Cardiff last month, a "possible transaction" with Royal London was put to the group's 200 elected delegates who are reported to have been told by chairman David Woods the takeover would be in the interests of policyholders.

A deal can only take place with Royal London if 75% of Royal Liver's 200 delegates vote for it at a special meeting, probably in the autumn. About 70 of these delegates represent approximately 500,000 members in Ireland.