A flotation would raise much needed capital for the group's ultimate parent Credit Suisse First Boston (CSFB). Market sources said a float would give Churchill the flexibility to continue its spending spree, which included the purchase of Avon's renewals from NFU in November 2002 and Prudential's renewal book in 2001.
The news leaked as CSFB revealed plans to cut 1,250 jobs across the group, including 350 in its insurance subsidiary Winterthur - Churchill Group's owner.
The move is intended to stem CSFB's losses which totalled £438.8m in the fourth quarter of 2002.
But to another source, a takeover of Churchill has been mooted. "Direct Line has been talking to Churchill about buying the group since last October," the source said. "I understand that the talks are ongoing."
A Churchill spokesman said the company did not speculate on market rumour.
Direct Line chief executive Annette Court said: "You can't expect me to comment on that."
Meanwhile, Churchill Group announced that pre-tax profit jumped by 48% to £83.3m and premium income rose by 15% to £2.14bn for the 2002 year of account.