Speculation that Zurich is set to buy the diversified Wesfarmers Insurance business has been discounted, with sources suggesting the alleged acquisition target is most likely to be general insurance subsidiary Lumley.

The Australian Financial Review reported this morning that the giant Swiss insurer has started due diligence and says talks to buy the Wesfarmers Insurance arm are at an advanced stage.

The article does not mention the Lumley business. Nor does it mention the highly diversified nature of Wesfarmers Insurance, which includes WFI, the Coles insurance operations, major broker OAMPS and New Zealand broker Crombie Lockwood, among others.

Zurich would be unlikely to be willing to pay the price for assets that are not core to its business, and Wesfarmers would be unlikely to hand over control of such operations as Coles Insurance.

The speculation comes a few days before Zurich’s Global CEO General Insurance Mike Kerner visits Sydney.

The newspaper notes that Wesfarmers and Zurich have struggled to gain traction in a market that is dominated by QBE, IAG, Suncorp and Allianz.

insuranceNEWS.com.au is aware that Lumley has been intermittently in play over the past few years. Some mid-sized insurers were approached informally in 2011 to ascertain their interest in acquiring the company, which Wesfarmers bought in 2003.

Wesfarmers Group CEO Richard Goyder said last week that “he’s in no mind to join the rush for the exit” and sell assets, but added: “If someone offers us a value after tax that’s more than net present value we’d be in a mind to sell it because it would be in investors’ interests.”

Wesfarmers Insurance MD Anthony Gianotti told insuranceNEWS.com.au in August that Wesfarmers had no plans to sell any parts of the insurance business.

A spokesman for Zurich said the company “does not comment on market speculation”. Wesfarmers Insurance did not return calls.

More details in our Monday bulletin.