German insurer Allianz is poised to become the largest insurer in Europe once again following its "white knight" ride into the French insurance market with a 18 billion deutschmark (£7 billion) bid for AGF. The friendly offer, one of the most expensive takeovers ever undertaken by a German firm, counters a hostile bid from Italy's Assicurazioni Generali. An Allianz victory would create a global insurance group with DM110 billion in premium income and DM480 billion in assets under management.

It would also give Allianz an entry into the Irish insurance market as AGF is the controlling shareholder in Church & General and Insurance Corporation of Ireland.

Allianz, which lost its place as Europe's largest insurer last year when French companies AXA and Union des Assurance de Paris (UAP) joined forces, said it was open to all options should Generali raise its bid. "If something happens tomorrow, all our options are open," Allianz chairman, Mr Henning Schulte-Noelle said.

Late on Monday, Allianz offered AGF shareholders a choice between a straight cash offer of 320 French francs per AGF share or a put warrant allowing the owner a minimum guaranteed price of Ffr360 in June 2000. The bid topped Generali's earlier Ffr300 per share offer, the largest hostile takeover bid in France.

In Milan, analysts said they expected Generali to increase its bid to Ffr350 per share, but said this might not be enough to persuade AGF shareholders to turn down Allianz's offer, which comes with the recommendation of AGF's management. Generali has declined comment on the Allianz bid.

Allianz, offering reassurance that AGF would retain its identity after the takeover, said it would keep AGF chairman, Mr Antoine Jeancourt-Galignani on and that the French firm would remain a separately listed company after the deal.

Mr Jeancourt-Galignani said he had first searched for a French partner before agreeing to the Allianz proposal but that none could be found.

The final Allianz price for AGF would depend how many AGF shareholders opted for the warrant rather than cash offer and on the performance of AGF's shares.

Mr Diethart Breipohl, financial director of Allianz, said the takeover, which could cost up to DM19 billion in a worst-case scenario, would be funded primarily from existing resources.

"Seventy per cent of the financing would come from internal resources, which may be added by some debt," Mr Breipohl said. "The other 30 per cent would come from a new equity issue, but we are not under pressure to go to the market now," he added.

Allianz said that if it won the bidding war over AGF, it would not make an offer in the privatisation of France's state controlled insurer GAN, set to be sold off early next year.