(Reuters) - British insurer Aviva agreed terms for a 5.6 billion pounds ($8.8 billion) takeover of rival Friends Life in all share deal which creates a market leader with 16 million life insurance customers.

Analysts said the cost savings from the combination were higher than expected but would take several years to be achieved.

Aviva said the merged company is expected to generate 600 million pounds in excess cash flow a year and about 225 million pounds in annual cost savings by the end of 2017.

Andy Briggs, current group chief executive of Friends Life, will become CEO of Aviva UK Life, with Mark Wilson continuing as CEO of the enlarged Aviva Group.

Wilson told a conference call there would likely be job losses but would not give an estimate.

The merger has the backing of Clive Cowdery, who founded Friends Life in 2008 when it was known as Resolution.

Holders of Friends Life shares will receive 0.74 new Aviva shares, valuing the company at 5.6 billion pounds, unchanged from their announcement of a planned merger on Nov. 24.

Friends Life shareholders will also receive a second interim dividend of 24.1 pence per share. Aviva said it proposes to pay a final dividend of 12.25 pence for 2014, up 30 percent on last year.

In opening trade on the London Stock Exchange, shares in Aviva were up 1.3 percent at 506 pence, while Friends Life were up 2.8 percent at 376 pence.

Eamonn Flanagan, an analyst at Shore Capital, reiterated a "sell" recommendation on Aviva, saying the deal is a "rights issue in disguise" that does little for strategic positioning at Aviva.

"We remain puzzled why Aviva felt the need to do it now. Is it a camouflage for issues within its own internal restructuring and turnaround story?" Flanagan said.