AXA SA and Assicurazioni Generali SpA are among bidders shortlisted for HSBC Holdings Plc's <0005.HK> planned sale of its general insurance business, sources familiar with the matter told Reuters.

HSBC, Europe's biggest bank, launched the sale in September in a deal expected to fetch about $1 billion, sources previously told Reuters. HSBC operates a non-life insurance business in Asia, some Latin American countries and France.

The sources said that while HSBC would prefer to sell the unit in one lot, it could split the sale along different geographies if it received higher bids on that basis.

It was not clear whether the two shortlisted bidders had bid for the whole unit or parts. Second round bids were due in late December, one of the sources said.

The sources said HSBC's planned sale was the first bancassurance deal to be attempted in Asia, and the valuation of this transaction would set the benchmark for future deals.

Typically, bancassurance deals are valued in two parts. Some suitors agree to pay a higher upfront value for the existing business and attach a lower value for the bank distribution agreement.

HSBC manufactures and distributes general insurance products in Panama, Honduras, El Salvador, Argentina, France, Mexico. But it earns chunk of its premium from Hong Kong and Singapore, with the two centres alone producing about $300 million, one of the sources said.

HSBC declined comment. AXA and Generali also declined comment. The sources were not authorised to speak about the deal publicly as the discussions were private.

HSBC's planned sale comes at a time when the euro zone debt crisis is forcing financial institutions to conserve cash and raise capital. As a result, some expect the sale to fetch about $750 million, less than initially thought.

It was launched at the worst possible time, when all the most likely bidders from Europe had other things on their minds. So that makes it difficult, one of the sources said. Secondly, non-life insurance is not as attractive as life and hence people are more reluctant (to bid up).

HSBC is streamlining its mammoth operations under Chief Executive Stuart Gulliver. The bank is shedding non-core assets in a bid to cut $3.5 billion in costs and revive flagging profits.

Non-life insurance premiums totalled $1.3 billion in 2010, according to HSBC's balance sheet. The general insurance business earned a profit before tax of about $250 million in 2010, according to a recent HSBC presentation.

(Reporting by Denny Thomas and Kelvin Soh; Aditional reporting by Nigel Tutt; Editing by Chris Lewis)