ZURICH Financial Services has emerged as a front runner to snap up Royal Bank of Scotland's insurance arm as the deadline for initial bids approaches.
Bidders must submit by Wednesday their indicative bids for the division, which includes top brands Direct Line and Churchill. It has been put up for sale with a price tag of £7bn.
Earlier this month, eight bidders were sent sales memoranda by ba
nkers acting for RBS. As well as Zurich, they were Assicurazioni Generali, Allstate, Allianz, Berkshire Hathaway, Travelers, Ping An and American International Group (AIG).
Warren Buffett's Hathaway has already ruled itself out of the running.
Industry sources say that aside from Zurich, few of the bidders have the desire or clout to buy the insurance division, which some observers valued at £10bn when it was put on the market last month.
While analysts expect strong interest in this initial round of bids, they predict some groups will pull out in round two.
Commentators have pointed out that UK rivals will struggle, because of competition rules, to buy a player that accounts for one-third of the country's car insurance policies.
Zurich, followed by other European bidders, is seen as the favourite despite being scalded by its expensive acquisition of Eagle Star in 1998. Zurich is already a growing player in the UK car-insurance market and hired RBS Insurance's former head, Annette Court, two years ago.
Having taken Zurich from a loss in 2002, chief executive Jim Schiro may want to finalise a big deal before retiring.
RBS Insurance was put on the market as part of the bank's plan to boost its weakened balance sheet, along with a £12bn rights issue, and it is hoping to seal a deal by September.
Despite the attractions of its assets and brand names, the credit crunch, the highly competitive nature of the UK market and the sheer scale of business is expected to put off some bidders going beyond the first round, due to close on May 28.
Generali last week confirmed it is examining documentation on RBS's insurance businesses. The Italian insurer's chief financial officer, Raffaele Agrusti, said: "We are going to study the documents next week."
German insurer Allianz is keen to build its presence in the UK general insurance market, but it is thought to be undecided on whether to submit a proposal.
US buyers are seen as unlikely given the weak US dollar. Ping An is not regarded as a front runner because of the constraints in Chinese rules for financial investment overseas.
RBS excluded private equity groups from bidding in the first round, but depending on the interest received this week, they could be allowed to take part. RBS declined to comment on the bidding process.
Private equity groups are thought to among the bidders for Lombard, Friends Provident's top-end insurance arm, which is also on the market.
Sources say the second round of bidding for Lombard, which is due to start this week, will include four buyout groups.
