The giant international insurer Commercial General Union (CGU) is expected to make a bid for the Hibernian Group in coming months which could value the Irish group at up to £500 million. CGU - the merged international operations of Commercial Union and General Accident - will then merge its General Accident and Hibernian operations here to create the arguably the largest general insurer in the Irish market.

While CGU said no decision has yet been made on the issue, a move is expected in coming months. A merger of General Accident and Hibernian could possibly topple Guardian PMPA from its top slot in the market.

General Accident has just under six per cent of the market while Hibernian has 12.75 per cent, according to the 1996 figures from the Irish Insurance Federation. A merged operation would have about 18.8 per cent of the market, close to the 19 per cent held by Guardian PMPA and well ahead of the AGF-IL share of 14.8 per cent..

Hibernian shares have rising strongly since the £14.1 billion sterling merger of Commercial Union and General Accident was announced in February. CGU already owns 28 per cent of Hibernian and has close links with Munich Re which has 11 per cent of Hibernian. Other shareholders in Hibernian, according to its 1997 annual report, include Bank of Ireland with 22.4 per cent and AIB with 9.2 per cent held on behalf of a range of investors. Irish Life owns 5.9 per cent.

Hibernian shares closed at 820p yesterday, on a prospective price earnings ratio of 19.3 times and a price to book ratio of 2.3 times. The shares are 56 per cent up on their end 1997 level. Brokers say the price now includes some bid premium. A bid at 820p per share would value the company at £439 million and would cost CGU £316 million.

But to encourage acceptance, CGU would have to offer a premium to the current market price. Price earnings ratios in the UK market are significantly higher - Commercial Union is trading at more than 30 times earnings, General Accident at 24 times and Guardian Royal at 39 times earnings. But on the price to book measure the Hibernian price is more in line with UK levels where Commercial Union is at 2.3 times, General Accident at 2.8 times and Guardian at 1.9 times.

A 10 per cent premium or 900p per share would value Hibernian valued at £482 million.