British insurer Aviva has set aside a plan to sell most of its stake in its loss-making Taiwan joint venture for the time being as Taiwan's regulators oppose its leaving the market, two sources with direct knowledge of the matter said on Friday.

Aviva, which would be the latest foreign life insurer to exit Taiwan's saturated market, was initially denied permission in 2010 by the Financial Supervisory Commission (FSC) to sell its entire 49 percent stake in the joint venture with local bank First Financial <2892.TW>.

It then submitted a plan last year to sell 40 percent of the stake in two stages and keep 9 percent, but no progress has been made.

One of the sources said Aviva has not been able to come up with a reason for leaving Taiwan that can satisfy regulators.

Aviva saw the FSC's attitude is so firm, so it has simply stopped talking about the plan, added the source, who asked for anonymity due to the sensitivity of the matter.

But the source added that did not mean the plan had been completely abandoned.

An FSC official declined to comment.

The FSC is extremely sensitive about the life insurance industry as most of Taiwan's population hold policies and it sees the industry as one that needs long-term commitment on the part of operators and financial sufficiency.

The FSC did not give a final approval to American International Group's $2.2 billion (1.3 billion pounds) sale of its Nan Shan Life unit until July 2011, two years after the insurer first tried to sell up.

Others to have left Taiwan in recent years are Metlife , ING , Prudential
and Aegon , while New York Life is still looking to sell its local subsidiary.

Among the reasons for leaving are a crowded market where there are 30 life insurers for a population of 23 million and where investment returns are among the lowest in the region, as well as pressures back home due to the global financial crisis.

First Financial had said in October that it expected Aviva would offload the stake in stages as early as the end of 2011, subject to approval from Taiwan regulators.

Although the plan has been shelved, the venture, First-Aviva Life Insurance, is operating normally.

Despite differences between Aviva and First over the JV's business strategy, it continues to operate normally, said the second source.

The two companies invested a combined T$2 billion ($66 million) in 2008 in the tie-up, which has lost money each year since its establishment.

At 0908 GMT, Aviva shares slipped 1.6 percent, lagging the 0.3 percent fall in the FTSE 100 index <.FTSE>.

(Editing by Jonathan Standing)