By Steve Slater
LONDON, Jan 20 (Reuters) - Britain's Co-operative Group has scrapped the sale of its general insurance business following a restructuring deal which means it does not have to contribute as much capital to its struggling bank as initially envisaged.
The business had been expected to fetch several hundred million pounds and was due to have been sold during this year.
Co-op Group, whose bank has been hit by a capital shortfall and a drugs scandal involving its ex-chairman, said on Monday it had decided to keep the general insurance business because the group now had to contribute less capital to the bank under a revised restructuring plan agreed in November.
Co-op, which is owned by its members and has operations spanning banking, supermarkets and funeral services, was last year rocked after a 1.5 billion pound ($2.5 billion) capital shortfall was identified at its bank and Paul Flowers, former chairman of the bank, was arrested as part of an investigation into the supply of illegal drugs.
A restructuring of the bank will leave hedge funds in control of that business and Co-op Group with a 30 percent stake. The group said it can meet its reduced capital commitment to the bank through the already completed sale of its life and savings business and "the strategic management" of some property assets.
Euan Sutherland, chief executive of Co-op Group, said he had received "a significant amount of interest" in the insurance business, which provides home, motor and other insurance products.
UK insurer Legal & General considered a bid, a person familiar with the matter previously said.
Other potential suitors included private equity firms Anacap and Advent International, and Catalina Holdings, a consolidator of general insurance firms, according to media reports.
"Having considered the sale process, and in light of the changed requirements on us under the Bank recapitalisation process, we believe it is in the best interests of our members, customers and colleagues, that we retain this strong business and develop it further," Sutherland said in a statement.
The Co-op announced its plan to sell the business last March.