Zurich Insurance Group has abandoned its planned take-over of rival insurance firm, RSA because it expects significant losses in its own general insurance operations in the third quarter and will conduct a review of why that has happened.

Last month the Swiss company proposed a £5.6bn (€7.69bn) offer for RSA.

Both companies employ hundreds of people in Ireland and it had been feared that a corporate merger would lead to job losses here.

Zurich announced this morning that claims arising from a series of major industrial explosions in China last month, are among the factors leading to an expected loss of $200m in its general insurance business this quarter.

RSA has been under-performing too, and has had to pump €400m into its troubled Irish operations to strengthen its reserves over the past two years.

"Given the deterioration in profitability, general insurance CEO Kristof Terryn is conducting an in-depth review of the business," a Zurich spokesperson said.

This morning's announcement sparked a sell-off of RSA shares - they fell by 22% in early trading. Zurich took less of a hit - falling by 2.3%.