In terms of assets under management, however, the combined group will be the world's largest insurer.
Axa has Fr1,550bn of assets under management while UAP has Fr743bn.
"It's an industry-shaking move with enormous ramifications for the European insurance industry," said Charles Landa, an insurance analyst at Societe Generale Strauss Turnbull. "It's got to lead to further consolidation."
In the UK the merger will make the group the country's third-largest life insurer as Axa owns Axa Equity & Law and UAP owns 60 per cent of Sun Life. Under the terms of the deal Axa, Europe's third-largest insurer, is in effect taking over its larger rival UAP, which was privatised in 1994.
Analysts predict numerous benefits for UAP, which lost money last year but returned to profit in the first half of 1996. UAP, a regular target for bid speculation after its losses last year and depressed share price, has seen its shares rise 14.3 per cent since late last month.
Its shares were suspended yesterday at Fr116.9 francs. "There have been plenty of rumours about UAP but they had all been discounted," said one analyst. Dealings in Axa's shares were also suspended yesterday with the price at Fr318.5 francs.
News of the merger sent shares in other UK insurance companies higher amid expectations that the deal would prompt further mergers among insurance companies. "There has been a general trend towards consolidation but this will quicken the process," one analyst said.
Shares in Legal & General ended 7.5 p higher at 332.5 p, while Prudential's shares rose 8p to 457p. Sun Life closed at 243.5, up 5.5p.
Axa and UAP said they would capitalise on their complementary businesses and geographical presence. The combined group will become the number one insurer in France and the insurers said they would rank among the leaders in the UK, Belgium, Germany and Spain. The deal will increase their presence in Italy and the Netherlands.
UAP shareholders will receive 10 UAP shares for four Axa shares plus four "certificates of guaranteed value".
If Axa's shares are below Fr392.50 in June 1999, the certificates entitle holders to receive the difference between that and the market price. The certificates can pay no more than Fr80 per certificate, or Fr32 per UAP share.