Allianz SE, Europe’s largest insurer, is in discussions with Assicurazioni Generali SpA as it weighs a bid for the company’s French operations, according to people familiar with the matter.

Allianz executives are uncertain whether a combination with the French insurance business would be approved by regulators, and the companies may not reach a deal, one of the people said, asking not to be identified because the deliberations are private.

Spokesmen for Allianz and Generali declined to comment.

France accounts for about 15 percent of Generali’s gross written premiums, making it the company’s third-largest market after Italy and Germany. A purchase of the unit would add more than 11 billion euros ($11.5 billion) in premiums to Allianz’s business, bringing it closer to the top three insurers in France. Chief Executive Officer Oliver Baete, who took the top post last year, has said he’ll consider acquisitions to help boost profit.

Generali rose as much as 5.2 percent to the highest in more than 10 months in Milan. The shares were up 2.7 percent at 12:47 p.m. The stock is the worst performer in the Bloomberg Europe 500 Insurance Index this year, with a decline of 14 percent. Allianz rose 0.5 percent in Frankfurt.

‘Antitrust Issues’

“We are a bit skeptical about a possible sale of the French business, as Generali is a top player in that market and a successful turnaround has just been completed,” Mediobanca SpA analyst Gianluca Ferrari said in a report. “There might be some antitrust issues for Allianz, considering that the German insurer is a major player in France.”

A person close to the situation told Reuters on Friday that Generali doesn’t plan to leave France.

European insurers are struggling to maintain earnings growth as investment returns fall and competition pressures prices. Generali, Italy’s biggest insurer, has said it will exit less-profitable businesses to increase efficiency and mitigate risks. The company has said it plans to generate 1 billion euros from disposals and lower operating costs by 200 million euros in its mature markets by 2019.

The disposal plan doesn’t envisage exiting France, Giuseppe Mapelli, an analyst at Equita Sim SpA in Milan, wrote in a note to clients. An eventual sale of the French operations would have positive consequences the insurer’s Solvency II capital ratios, he added.

Paying a Premium

Generali France, with about 7,600 employees, has close to 5 percent market share in both the life and non-life segments, according to the insurer’s website. Allianz is currently the fourth largest property and casualty insurer in the country and No. 8 in life and health, according to an investor presentation earlier this year.

Allianz CEO Baete has set a target to increase earnings per share by an average of 5 percent a year by 2018. He is also selling less profitable operations and investing in technology to boost earnings, but has said he’ll consider acquisitions to help meet the targets.

The insurer has until the end of the year to spend 2.5 billion euros left in its acquisitions budget or the company will have to return the funds to shareholders through a buyback. He told investors last month that the insurer remained “extremely disciplined on M&A” over the past 18 months as it hasn’t seen “the quality assets coming around at the proper prices.” But he also made clear that Allianz would be ready to pay a premium if it found the right fit.

“That might mean in some situations where we really believe we are going to get to a totally different strategic standpoint by closing a gap in a region, getting to a leading position in some of our markets, we are going to pay a premium, maybe even a larger one,” he said.