Royal & SunAlliance (R&SA) has denied it will follow the route of Heath Lambert and offload its pension deficit on to the government in a bid to make itself a viable purchase.
This week, Corvus Capital, run by Andrew Egan, confirmed that the UK's third largest insurer was one of a number of potential acquisition targets that it was looking at.
But experts suggested that the £700m pension deficit could stand in the way of a takeover. Corvus could find itself forced to absorb the deficit as part of the takeover. Any discount agreed could be obliterated by the debt.
But an R&SA spokeswoman said there were "no plans to follow in Heath Lambert's footsteps".
Last week it emerged that Health Lambert had done a deal with the Pensions Regulator in order to plug its £210m pension shortfall.
Doubts have also been cast on how viable a takeover of R&SA in its current form would be by some market sources. The extent of its asbestos liabilities in the US is "uncertain", and R&SA would not be interested in selling off the profitable UK arm and then enveloping its US losses, they said.
Towergate Partnership executive director Peter Cullum said: "While we believe that the UK arm of R&SA is an attractive proposition, the insurer's US exposures will make any financier very cautious and may pose difficulties if R&SA wants to sell the group as a whole."
Sources suggested that although no takeover discussions with Corvus had been held, Regan believes R&SA's £2.4bn market capitalisation does not reflect the group's cash flows and valuation.
A spokesman for Regan declined to comment.