AIB said yesterday that no decision has yet been made on the future of its life assurance arm, Ark Life, although the bank is considering a number of options for the business.

Among the approaches believed to be under consideration is a link-up with Hibernian, which would see Ark Life sold to the Aviva-owned group while remaining a tied agent of AIB.

Hibernian is currently the third largest player in the Irish life insurance market, just ahead of Ark Life and behind the two main players, Irish Life & Permanent and Bank of Ireland.

Analysts said yesterday that a tie-up between the two would make sense, allowing AIB to sell Hibernian's life and pensions products through its branches, filling a product gap, in the pensions area in particular.

But a number of question marks remain over any such deal. Davy analyst Scott Rankin noted that while it would solve AIB's product problems - which have stemmed in large part from the underperformance of its asset management business in recent years - it would not solve AIB's lack of distribution through the broker channel.

In addition, analysts questioned how Ark Life, whose business is inextricably tied into AIB's branch network, could be sold off in its entirety. Market sources also wondered what AIB plans to do with AIB Investment Managers, whose performance has tended to lag that of its peers.

"It's not a straightforward deal," Mr Rankin said.

Other alternatives open to AIB include setting up a greenfield operation, including a broker channel, something the bank has signalled its reluctance to do. Or it could link up with another player, although attempts by AIB to do a deal with Eagle Star, the fifth-largest player in the market, came to nothing.

Goodbody Stockbrokers noted that the financial implications of a sale of Ark Life, which accounted for just 2 per cent of group income last year, were likely to be limited.

Ark Life made €63 million after tax last year and had embedded value of €467 million at the end of 2004 out of a total group net asset value of €5.58 billion.

But any decision to sell the unit would be a key strategic move for the bank, according to Goodbody analyst Mr Eamonn Hughes.

It would indicate that the bank was happy with third party distribution in the life assurance area, rather than owning and managing all aspects of its life assurance offering, like its main rival Bank of Ireland.