The £5.6 billion takeover of More Than owner RSA by rival Zurich has collapsed after a slump in the Swiss group's general insurance business prompted it to abandon the deal.
Shares in FTSE 100 listed RSA plunged by over a fifth wiping more than £1 billion off its market value.
Zurich revealed that it was pulling out of talks as it disclosed a 275 million US dollar hit (£177 million) from a series of explosions at a Chinese storage station last month.
A tie-up had looked certain after RSA indicated weeks ago that it was willing to recommend an offer to its shareholders, and said it would extend a talks deadline, due to expire on Tuesday.
RSA stocks had headed higher on the deal which valued it at 550p a share but the collapse of the takeover saw them plunge from more than 500p to around 400p.
RSA said in a statement: "As a result of recent deterioration in the trading performance of Zurich's general insurance business, Zurich has terminated discussions with RSA regarding a possible offer."
The group said Zurich had completed its "due diligence" scrutiny of its accounts but had "not found anything that would have prevented them from proceeding with the transaction terms announced on August 25".
RSA said it was continuing to make progress, pointing to its recently announced 84% rise in half-year operating profits to £259 million, and adding that trading in July and August had been ahead of expectations.
The group hired former Royal Bank of Scotland boss Stephen Hester in February last year to revive its fortunes as it was rocked by a series of profit warnings.
Since then the chief executive has sold a clutch of assets, overhauled management and held a £775 million rights issue to rebuild its balance sheet.
Zurich said discussions about its potential offer "have now been terminated, and that Zurich does not intend to make an offer" to buy RSA.
It revealed in a separate trading update that it was facing a major hit from the impact of a series of explosions at a container storage station in Tianjin in mid-August.
The firm said that in addition to this, it now sees weaker-than-expected profitability in its general insurance business extending into the third quarter. Meanwhile, a review of its US auto business will result in a 300 million US dollar hit (£193 million).
It said: "In the light of the above recent deterioration in the trading performance in the group's general insurance business, Zurich announced this morning that it has terminated its discussions in connection with a possible offer for RSA.
"The group's focus instead will be on taking the necessary actions to deliver on the required performance of the general insurance business."
Shore Capital analyst Eamonn Flanagan said it "remains to be seen" whether the possible offer by Zurich may have sparked interest from other potential bidders.
But he added: "Whilst we would not rule this out, we suspect it may take some time."