The auto insurance business is expected to fetch around $2 billion, the source said.

The auto insurance business is part of AIG's US personal lines unit, which includes selling products to high net-worth individuals through its AIG Private Client division. AIG Chief Executive Edward Liddy has said that the private client division is not being sold.

The unit being sold includes the 21st Century Insurance Group business, which AIG took over in 2007 when it bought out the minority stakeholders for $811 million.

AIG and Zurich both declined to comment.

Zurich, the fourth-largest European insurer, has said it was on the lookout for deals that will bolster its North American personal lines and global life insurance businesses.

AIG, once the world's biggest insurer by market value, averted bankruptcy in September with an $85 billion federal bailout. The rescue later swelled to about $150 billion.

On October 3, the insurer said it planned to keep its US property-casualty, foreign general insurance businesses and an ownership interest in its foreign life operations but sell the remainder.

Since then, the insurer has announced the sale of some businesses, including the sale of HSB Group to German reinsurer Munich Re for $742 million and its Canadian life insurance unit to Bank of Montreal for about C$375 million.