NORWICH Union owner Aviva today unveiled a deal to buy motoring services group RAC for £1.1bn.

But the tie-up will mean 1,700 job losses, it warned.

Aviva said the addition of RAC's brand and customer base would boost its general insurance business, which insures one in seven of all UK motor vehicles.

The proposed deal, which has the backing of the RAC board, follows speculation yesterday that a bid was in the pipeline for the 108-year-old business.

RAC is best known for its roadside recovery service, but also owns the BSM driving school and provides travel insurance and financial services.

It has about 275,000 motor and home policyholders under the RAC Insure brand, while its business services arm includes Lex vehicle leasing - a joint venture with HBOS offering contract hire, fleet management and car finance services.

Today's move comes less than a year after rival the AA was bought by a private equity consortium for £1.75bn.

The RAC was a private members' club for nearly a century until it was bought by listed car hire company Lex for £437m in 1999 - resulting in £34,000 windfalls for its 12,000 full time members.

Aviva said that about 1,700 jobs would be lost as a result of the integration of the two businesses. RAC and Aviva together have about 24,000 staff. Aviva said it expected the deal to result in annual savings of at least £80m a year by 2006.

The cash and shares offer, which has yet to be approved by RAC shareholders, could yet be derailed by a rival bid, possibly from private equity groups.