Zurich Insurance, a Switzerland-based multi-line insurance provider, is in advanced stages of negotiations to take over Australian firm Wesfarmers' A$2bn insurance business.

The Swiss firm has commenced due diligence on the Aussie’s general insurance company, which has written premiums worth A$1.6bn for the year ended 30 June, reported the Australian Financial Review citing sources familiar with the matter.

If finalised, the deal would merge two insurance firms that have been struggling to withstand in a market dominated by QBE Insurance Group, Insurance Australia Group, Suncorp and Allianz.

Wesfarmers’ insurance unit contributed 5% of the total earnings for the year to 30 June. It reported A$205m in earnings before interest and tax with a 14.7% return on capital.

The company operates offices in New Zealand and Britain. It has a work force of 3,600 in Australia.

Zurich Insurance entered the Australian market in 1961 and has employs about 1,220 people there.