Insurance group Phoenix is preparing to launch a bid for Abbey Life, which is owned by Deutsche Bank.
Phoenix is understood to have hired investment bankers to advise on a bid for the company.
Abbey Life has been valued at £3bn, but sources close to Phoenix told Sky News the real figure is unlikely to be worth more than a third of that amount.
It was reported last October that Deutsche Bank was considering selling the insurer, which reported balance sheet assets of £10.9bn at the end of 2014.
And City sources told Sky News the German company has started to contact potential buyers in the last couple of weeks.
News of the potential sale has emerged shortly after Abbey Life was named as one of six insurance firms facing investigation from the Financial Conduct Authority (FCA) into the impact exit charges are having on customers.
Read more: Six insurers face FCA exit charge probe
The move from Phoenix comes after it missed out on buying another competitor, Guardian Financial Services, last year. Admin Re, part of Swiss Re, bought the company and has also been tipped by analysts to be interested in Abbey Life.
Phoenix and Deutsche Bank declined to comment.