FRANKFURT/MUNICH (Reuters) - Italy's Generali GASI.MI is expected to start exclusive talks shortly over the potential sale of its 40 billion euro ($48 billion) German life insurance portfolio to private equity-backed Viridium, a person close to the matter said.

FILE PHOTO: An Assicurazioni Generali SpA's logo is seen on a building of their offices in Saint-Denis, near Paris, France, February 27, 2018. REUTERS/Benoit Tessier

Generali and Viridium declined to comment, and people familiar with the matter said no final decisions had been taken and that talks could still fall apart.

Italy’s biggest insurer is expected to sell its German Generali Leben unit, which is in a “run-off” process honoring existing policies but not issuing new ones, for about 900 million to 1 billion euros, people close to the matter have said.

Generali Leben was put up for sale last year and Viridium has been vying with Fosun-backed peer Frankfurter Leben and Apollo-backed Athora ATH.N for the asset, sources have said.

The sale process was delayed by German financial watchdog Bafin’s concerns that policyholders be treated fairly, people close to the matter said.

Bafin had no immediate comment on Thursday.

Insurers are struggling to pay guaranteed returns because of record-low interest rates and European capital rules that have become more stringent for some life policies, prompting some companies to consider selling their life insurance portfolios.

Viridium is 80 percent owned by buyout group Cinven with reinsurer Hannover Re HNRGn.DE holding the rest. It has 15 billion euros in assets under management after the acquisitions of three smaller so-called "back book" portfolios from Heidelberger Leben, Skandia and Entis.

After fending off a possible takeover from Italy's biggest retail bank Intesa Sanpaolo ISP.MI last year, Generali has exited smaller markets such as Belgium to focus on core markets such as Germany.

Europe’s No. 3 insurer, present in more than 60 countries, is looking to sell businesses in about a dozen countries.

Generali Leben would be by far the biggest sale of a run-off operation in Germany. Ergo, owned by Munich Re MUVGn.DE, had considered a sale of an even bigger portfolio, but opted to wind down the unit itself after it deemed offers too low.

In Britain, Prudential earlier this year announced the sale of a 12 billion-pound UK annuities book to Rothesay Life.

The option of selling its German life portfolio is part of a broader reorganization of Generali’s operations in the country, which has also seen German financial adviser DVAG, 40 percent owned by Generali, distribute its products exclusively.

Generali is aiming to keep a small minority stake in Generali Leben and to sign a partnership agreement with the buyer, a person familiar with the matter said.