Royal Liver and Royal London have successfully completed the first stage of merger talks and have signed an agreement setting out the framework for ongoing discussions.
The non-binding "heads of terms" signed last week will provide the basis for a transfer agreement of the assets and liabilities to Royal London, Royal Liver says in a statement.
Both companies will now carry out due diligence to decide whether a deal would be in the best interests of their respective members.
No final proposals for the transfer have been tabled for the Royal Liver board to consider.
Finalised proposals are expected to be put before a Royal Liver delegation for approval at a Special General Meeting planned to take place later this year, once they have gained recommendation by the Royal Liver.
Spokesperson for Royal London Alasdair Buchanan said today's announcement is "an agreement which sets out a framework for ongoing agreements".
"Up until now the preliminary discussions were to discuss the potential of a transaction. The next stage is to thrash out what that might look like.
"We are moving on from 'this might go forward or it might not', to 'this might go ahead and this is what it might look like'."
Buchanan says the signed terms mean Royal Liver has entered into a "period of exclusivity" with Royal London over a potential merger, though there is no guarantee of a transaction.
"Part of the process will be looking at the implications of the transactions in terms of cost and price," Buchanan says.
However, he says he does not expect the process to be a "particularly speedy operation".
At Royal Liver's annual general meeting in Cardiff last month, a "possible transaction" with Royal London was put to the group's 200 elected delegates who are reported to have been told by chairman David Woods the takeover would be in the interests of policyholders.
The two parties held talks three years ago but Royal Liver ended discussions just a few months later, having opted to retain its independence.
If the merger comes to fruition, the enlarged group would have assets of more than £33bn and almost six million customers.
A deal can only take place with Royal London if 75% of Royal Liver's delegates vote for it at a special meeting.
Royal Liver has been hit hard by the recession and has been undergoing a restructure since last year as it bids to cut losses.
Park Row, the IFA arm of the Royal Liver Group, was wound up and closed last November after the company posted a turnover of £4.3m to the end of June, less than 70% of its anticipated budget.
