Resolution, the company formed to manage closed with-profit life funds, which merged with Britannic last September, unsettled the stock market yesterday by saying it might well attempt another big acquisitions and could deploy up to £1 billion for the purpose.

It also coupled a 11 per cent dividend increase with a stated intention to raise the pay-out by 13 per cent a year through to 2009.

But that was not enough to stop the shares sliding by 29p to 6541/2p, where they yield just over three per cent.

Resolution reported that its European embedded value has risen by six per cent since last June to £2.13 billion or 5.90p per share - excluding the value of targeted merger synergies of £38 million a year.

During the six months to December, Resolution made a pro-forma EEV pretax profit of £160.5 million and a net profit of £118.4 million.

"In reviewing the dividend, the board took into account the strengthened dividend paying capacity following the merger, current and prospective EEV earnings and the strong projected cash flows underpinning the group," said Paul Thompson, chief executive.

"From 2010, we have modelled two per cent per annum dividend growth absent further value creating activities such as restructuring or acquisitions."

Mr Thompson noted that Resolution is "strongly positioned to lead the future consolidation of in-force life funds".

"We continue to believe that the dynamics of the life assurance sector will lead to further closures to new business and that the sale of closed funds to specialist managers will remain an attractive option," said the chief executive.

The timing of Resolution's next deal, though, will be difficult to predict against a backdrop of buoyant capital markets.

But he confirmed that the company would be actively considering acquisitions once the Britannic merger has been "well bedded down".

He refused to name potential targets, though speculations are rife that they could include Abbey Life's insurance licenses or Equitable Life's non-annuity liabilities.

The integration of Britannic and Resolution Life is progressing well and on course to deliver annual synergy benefits of £20 million starting from the end of next year.