Plans to float Royal Bank of Scotland’s insurance giant Direct Line on the stock market could reportedly be derailed by a private equity bidding war.

The bank has been ordered to sell its insurance arm, whose brands include Churchill and breakdown recovery service Green Flag, after taking a £45 billion (€57 billion) government bail out and had been expected to float the business in the second half of 2012.

But two consortiums of private equity firms are planning rival bids, which would scupper a flotation in what is gearing up to be “the takeover battle of the year”.

However, a bidding war could be good news for RBS as it seeks to rebuild its battered finances in order to help the government, which owns an 82 per cent stake, get back some of the billions it pumped into the lender.

Direct Line Group is Britain’s biggest car insurer by number of policies and a leading provider of home insurance.

Earlier this year, it changed its name from RBS Insurance as it prepares for independence.

London’s The Sunday Times said an official intention to list on the stock exchange is expected to be filed next month, with the float of 30 per cent of the insurer pencilled in for September.

But it has learned that private equity groups are planning to pounce as soon as the end of the month.

Two American buy-out giants, Blackstone and Bain Capital, are expected to team up for one bid, while Kohlberg Kravis Roberts, Apax and BC Partners are hatching a rival offer, it reported.

Buy-out firms have long been interested in the insurance giant. In 2008, RBS put the company up for sale after unsolicited approaches from investors including American billionaire Warren Buffett.

But the auction was scrapped after offers fell short of the £7 billion asking price.

Direct Line is thought to be worth some £3 billion to £4 billion after big losses in 2010 sparked by soaring claims from car accidents.

However, it swung back into the black in 2011 with operating profits of £454 million in 2011, compared to a £295 million loss in 2010, helped by milder weather.