UPDATE 1-Aviva rules itself out of RBS Insurance bidding

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LONDON, April 25 (Reuters) - Britain's largest general insurer Aviva (AV.L) has ruled itself out of the running for the insurance arm of Royal Bank of Scotland (RBS.L), as speculation intensifies over the list of possible suitors for the unit.

RBS Insurance, which includes Churchill and Direct Line, is the UK's second-largest general insurer and the largest car insurer, underwriting a third of British motor premiums.

Aviva, however, dismissed talk of its interest in all or part of the unit, valued by analysts and bankers at up to 8 billion pounds ($15.8 billion) based on UK sector multiples.

"We have consistently said our priority is to maximise the value of existing businesses," Aviva Chief Executive Andrew Moss said. "It's very hard to see any compelling reason for us to go down that route and, frankly, I think value creation would be difficult for us."

The size of the acquisition, he told analysts on Friday, would make a deal "very hard".

Aviva had been named by analysts and industry bankers, but most expect a buyer to come from the ranks of European players such as Allianz (ALVG.DE), Zurich Financial Services (ZURN.VX), Generali (GASI.MI), Axa (AXAF.PA), Mapfre (MAP.MC) -- or even U.S. giant AIG (AIG.N) or U.S. investor Warren Buffett.

RBS Insurance's former boss, Annette Court, joined Zurich Financial in late 2006.

Merrill Lynch and Goldman Sachs have been lined up to run the auction, a source familiar with the situation said.

PRIVATE EQUITY INTEREST

A private equity suitor or combination of bidders is also possible, bankers say. The Financial Times reported on Friday that a consortium, to be led by Kohlberg Kravis Roberts [KKR.UL] and Apax Partners [APAX.UL], was being formed to examine a possible offer, but one banking source said that was premature.

Apax and KKR were not available for comment.

"Private equity firms are circling and investment banks are circling," the banking source said.

The process is at an early stage, with information packs yet to be sent out to interested parties, said the first source, adding it could take weeks for first-round bids to be received.

Industry observers and bankers have said the deal would be difficult to pull off for private equity, where bidders would need to raise billions in debt in the toughest market conditions for a generation.