a 7.0 billion ($11.32 billion) takeover bid for Britain's Royal & Sun Alliance Insurance Group Plc makes strategic sense, analysts say.

But the Anglo-Swiss group will have to jump several major hurdles to ensure success, including the threat of counterbids from major British and German rivals and a reluctance by non-European investors to accept Zurich shares, they say.

Royal & Sun's shares jumped as much as 13 percent yesterday -- the London market's first day of trading since Christmas -- after The Sunday Telegraph and Sunday Business reported speculation that Zurich, which owns Bermuda's Centre group, was preparing a takeover bid.

Both companies declined to comment on the reports.

Royal & Sun was up 11 percent at 451 pence, making it the strongest performer in the FTSE and helping boost the FTSE 100 0.4 percent into record territory.

But even after this 10 percent rise, Royal & Sun's shares were still trading at about one times net assets, when peers like CGU Plc trade at 1.5 to 2.0 times net assets.

Allied Zurich, the UK listed group which owns 43 percent of Zurich, is itself trading at 1.9 times net assets. Analysts said Royal & Sun's very cheapness, along with its strong positions in the UK and other general insurance markets made it attractive to Zurich.

Such a takeover is seen making strategic sense to both groups, boosting Zurich's UK presence and offering significant cost savings, while lifting Royal & Sun's exposure to the lucrative life assurance and funds management sectors.

Zurich Financial was formed from the 1998 merger of Switzerland's Zurich Insurance with British American Tobacco (BAT) Plc's financial units, which included UK property and casualty group Eagle Star, UK life assurer Allied Dunbar and the US property and casualty group Farmers Group Inc.

Zurich faces hurdles Zurich also owns US funds manager Scudder Kemper.

A combined Zurich/Royal & Sun would increase Zurich's British non-life market share to 17.9 percent from 8.8 percent and make it Britain's largest property and casualty insurer.

A combined Royal & Sun-Zurich group would have annual premium income of over $60 billion worldwide, lifting it above Axa's $46 billion to become Europe's largest insurer.

Royal & Sun has substantial US operations, particularly since the acquisition this year of property and casualty insurer Orion Capital Corp for $1.4 billion, which would add to Zurich's Farmers, which is the third largest property and casualty in the United States.

A combination of the group's funds under management would also lift Zurich's current $423 billion to $515 billion and boost it higher up the list of the world's top 10 fund managers.

So the deal make sense, but Zurich is seen having to clear three major hurdles: Securing the agreement of the Royal & Sun management Convincing Royal & Sun's mostly UK and US shareholders to accept Zurich shares, most likely the London-listed Allied Zurich rather than the Swiss-listed Zurich Allied AG.

Fending off possible competing bids from Germany's Allianz and Royal & Sun's main rival, CGU.

"Zurich do not have tons of surplus capital or the capacity to gear up an awful lot more, so any offer for Royal & Sun would be likely to use Allied Zurich paper,'' said Fox Pitt Kelton analyst Andrew Ritchie.

The dual listing structure underpinning Zurich since the BAT merger has not been received enthusiastically by UK investors, with Allied Zurich trading at a discount of over 10 percent to its Swiss counterpart, which owns 57 percent of Zurich.