By John Revill and Alexander Hübner

The Swiss insurance group said it was committed to finding a solution for the portfolio, which administers around 700,000 life insurance policies in Germany, and would continue to explore options.

Zurich's update came after a statement from Viridium which said the deal would not conclude "due to considerations relating to Viridium's current ownership structure".

The deal may have run aground due to concerns by authorities over Viridium's ownership by private equity company Cinven. The London private equity firm declined to comment on Tuesday.

According to two sources on Tuesday, German regulator BaFin has made it clear that it would block the deal, which was the reason for Viridium to pull out.

Potential concerns could have been the role Cinven played at Italian life insurer Eurovita, which it acquired in 2017 and which ran into difficulties last year due to rising interest rates.

Eurovita's capital needs were at least four times higher than the amount Cinven had put in to try and plug the shortfall. Cinven later agreed to buy back 160 million euros of debt to avoid a messy liquidation of the company.

The regulator declined to comment on Tuesday.

Reuters reported in October that Cinven, which owns a majority of Viridium, along with insurers Hannover Re and Assicurazioni Generali who hold minority stakes, has begun exploring a sale of the company, which buys old books of insurance from other insurers.

Such a transaction could eventually clear the way for Viridium to revive the Zurich deal.

"With a different owner the deal would have been approved," said a person familiar with the matter. "This will delay the next deals for Viridium until Cinven has sold their stake."

KBW Analyst Will Hawkins said the deal's collapse showed there was more regulatory resistance to private equity involvement than anticipated.

Zurich on Tuesday said the failure to offload the business would have no impact on its financial targets or capital management plans.

Zurich had announced the deal to sell legacy traditional life insurance back book for just under 500 million euros in June 2022.

The deal included the transfer of $20 billion of net reserves, mainly related to annuity and endowment products, Zurich said in 2022.

(Reporting by John Revill, Editing by Rachel More and Ros Russell)