A spokesman for the association said an auction was one option to meet interest by foreign institutions in taking over Aoba, which has managed policies existing at the time of the association's takeover of the failed Nissan Mutual.

He said the association had not yet decided whether to auction of Aoba. Economic daily Nihon Keizai Shimbun reported on Thursday that as many as seven foreign insurance companies, including America International Group Inc (AIG), had contacted the association about the business prospects of Aoba.

The paper quoted industry sources as saying that the association would offer information on Aoba's operations to potential buyers on a confidential basis.

The paper said bids for Aoba would be invited in October after the association examined potential buyers' business plans for Aoba, and take those into account as well as the highest bid price, in hopes of selecting a buyer as early as November.

In May, the association gave AIG the go-ahead to study the possibility of taking over Aoba, customers of which include major Japanese companies Hitachi Ltd and Nissan Motor Co Ltd.

The association also decided in May to hire US investment bank Morgan Stanley to help find a potential buyer and to help calculate an appropriate sales price for Aoba.

Aoba was set up with financial assistance of about 200 billion yen ($1.45 billion) from association member life-insurance firms after Nisan Mutual's business was suspended by the finance ministry in April 1997.

Nissan Mutual had suffered heavy losses as a result of excessive securities and real estate investments in the late 1980s ``bubble'' of inflated asset prices.

Analysts said the association and its member firms were hoping for the prompt sale of Aoba in order to minimise business losses, as Aoba's balance sheet has been hit by cancellations of policy contracts.

``For foreign insurance companies, the life insurance business in Japan, in particular the pension fund business, must seem attractive at the time of the nation's Big Bang financial reforms,'' a senior analyst Haruhiko Urushibata at Nikko Research Center, said.

In April, GE Capital, the US financial unit of General Electric Co, and the troubled Toho Mutual Life Insurance started operations of a joint-venture insurance company in Japan. It was regarded as an acquisition of Toho by GE Capital at a bargain price, as the new venture took over the troubled insurer's business operations and sales network and will focus on new insurance contracts.