LONDON/NEW YORK (Reuters) ? More insurance takeover bids are likely in the wake of British insurer Aviva Plc?s ?17 billion offer for Britain?s Prudential Plc , as companies jockey for position, but analysts are sceptical of a merger-and-acquisition spree.

Although Prudential has rebuffed Aviva?s approach, the news, along with recent reports of early takeover talks between St Paul Travelers Cos. Inc and Zurich Financial Services AG , has sparked a frenzy of bid excitement in the sector.

?Where there is this much smoke, there is some fire,? said Donald Light, an insurance analyst with Celent LLC. ?I think there is big money in play out there.?

France?s Axa has said it is open to doing a major transaction, while in the United States, Light sees MetLife Inc. and American International Group Inc. as potential buyers.

More takeover talks could be in the offing as insurers look to increase their financial muscle and expand into new markets or countries, analysts argue.

The industry saw merger-and-acquisition momentum develop late last year when Swiss Re agreed to buy General Electric Co.?s reinsurance units for $7.6 billion, and London-based Old Mutual Plc won control of Sweden?s Skandia Insurance Co. in a $6.8 billion cash-and-stock hostile takeover.

Analysts have predicted that the pace of consolidation may quicken this year as insurers have rebuilt their balance sheets after the World Trade Center disaster as well as the bear market that ended in 2003.

Strong operating conditions in both life and non-life insurance means companies are generating surplus cash that could go into war chests for acquisitions.

?Surplus capital is growing at five percent among property casualty insurers, while premium growth is only one percent,? said Stephan Christiansen, director of research with Conning Research & Consulting Inc. ?That puts pressure on companies to use that money.?

In February, Hartford Financial Group Inc. chief executive Ramani Ayer said he expected to have excess capital of $1.5 billion by 2006 that he could use for acquisitions or other purposes. Canada?s Manulife Financial Corp. has said it has $3 billion available for possible purchases.

Worries among top-ranking European insurers that a deal between rivals could drop them down the rankings has spurred a number to begin tentative bid talks with rivals, bankers say.

But analysts have indicated that shareholders remain wary of giving the go-ahead for big deals unless there is a clear logic behind them.

?We continue to believe that M&A activity, though potentially increased, will continue generally to be disciplined and focused, fulfilling hard economic as well as strategically sound criteria,? said the European insurance team at specialist investment bank Fox-Pitt, Kelton in a note.

The bid by Aviva, Britain?s biggest insurer, for rival Prudential is widely regarded as have a strong strategic logic. Aviva looks for Prudential to bring it thriving and fast-growing businesses in Asia and the United States, where it lacks presence.

In the same way, Bermuda insurers, hit hard by the hurricanes, may look to acquire Lloyd?s of London insurers in an attempt to diversify their business and to limit their losses from future disasters.

Other Bermuda-based firms may be open to a takeover, said Peter Streit, an analyst with Williams Capital. ?Their monoline (single insurance) strategy didn?t hold up as well as a global multiline company,? Streit said.

For life companies, mergers will be dictated by economies of scale, said Mark Rouck, an analyst with Fitch Ratings.

?The cost savings when you put two of these companies together may be substantial,? said James Ellman of Seacliff Capital, a hedge fund. ?But it ultimately comes down to when these companies want to sell.?