Mutual life and pensions company Royal London is in discussions with Co-operative Financial Services (CFS) over the purchase of CFS asset management and life insurance businesses.
The proposal is the result of a 20-month strategic review conducted by CFS of its life and savings activities during the economic downturn.
The proposed acquisition represents two million policyholders and £20bn of funds under management to Royal London and CFS subject to regulatory approval.
Both the firms have agreed on a non-binding Memorandum of Understanding and the discussions will continue while Royal London completes a detailed due diligence.
CFS chief executive Neville Richardson said the potential development was due to the increasing regulatory costs especially when the business was moving towards becoming sub-scale.
"This move supports our strategy to focus our specific attention on our banking and general insurance areas, where we have a growing and strongly differentiated competitive position," Richardson added.
CFS’ funds include the £1.1bn CIS UK Growth fund and £313m CIS Sustainable Leaders Trust.