The future of NIG hangs in the balance once Direct Line finalises its deal to buy Churchill, according to senior sources.
It is understood that senior management within NIG are formulating an MBO as a possible option in the event that Direct Line has no interest in a commercial insurer.
But according to senior insurance company sources, if NIG was to be cut loose, several insurance companies would be interested in buying it. Companies in the frame include AXA, Allianz Cornhill, and Royal & SunAlliance (R&SA) and with so much interest, this could start a bidding war as they strive to secure NIG's book of small and medium enterprise (SME) business.
It is believed NIG would be worth around £300m.
Raising cash from venture capitalists to back an MBO should not be hard, but it might not match an offer from a blue-chip insurer.
One source from a major insurer said: "If that business came up for sale, we would not be left behind in the queue. It wouldn't be the most expensive acquisition and it would be easy to integrate."
But not everyone believes Direct Line will offload NIG. One insurance executive said: "Some parts of the NIG book of business are very attractive. Others are not. But this does seem an ideal opportunity if Direct Line wants to develop its market through intermediary channels."
One broker warned that in order to establish its market position, NIG had taken on some high risk business. He said that any prospective buyer would need to be aware of the potential liabilities it would inherit.
It is understood that Direct Line has been granted a two-week exclusivity extension to conclude acquisition negotiations over Churchill.
Churchill and NIG were not prepared to comment on the rumours.