A trio of investment banks - Societe Generale, Jefferies and Arcano Partners - are handling the sale of the 148-year-old insurer, which is controlled by U.S. buyout fund Apollo.

Apollo bought Tranquilidade in 2015 from the remnant of Banco Espirito Santo in a deal worth about 200 million euros.

It turned it into Portugal's second-largest insurer with an average market share of 15% and is now looking to fetch 500 million to 600 million euros from the sale, the sources said.

Lisbon-based Tranquilidade, whose business in Portugal is only second to Fosun-backed Fidelidade, declined to comment. Apollo was not immediately available for comment.

The insurer was part of the troubled web of businesses of the Espirito Santo family which had backed it for decades.

But the 2014 collapse of Banco Espirito Santo and its subsequent 4.9 billion bailout led to the creation of Novo Banco, which swallowed the lender's healthy operations including Tranquilidade while its toxic assets were shifted into a bad bank.

An auction process for the insurer kicked off earlier this year drawing interest from a series of industry players including Germany's Allianz, Belgium's Ageas and Spain's Mapfre, the sources said.

Binding bids were submitted earlier this month, the sources said, with Generali and Catalana emerging as the two main bidders.

A final decision is expected in about two weeks, three of the sources said.

Private equity funds did not take part in the auction as they faced strong competition from big insurers like Allianz.

However, binding bids from Allianz and Ageas were deemed too low while Mapfre - Spain's second-biggest insurer - decided against bidding, the sources said.

Generali, Ageas and Allianz declined to comment while Mapfre was not immediately available.

A spokesman for Catalana said that the company was always on the lookout for opportunities, especially in relation to assets "that would allow us to add value and strengthen our position, whether in a specific segment of the business or in a geographical area."

Generali, Europe's third-biggest insurer, has a 5% market share in Portugal and has been reviewing its presence in the country since 2017 when it hired advisers to look into a possible exit, two of the sources said.

Generali's French boss Philippe Donnet had initially drafted in Barclays to find a buyer for the company's Portuguese unit as part of a plan to raise at least 1 billion euros by leaving 13 to 15 countries, these sources said.

However, the Trieste-based group has now changed tack and wants to use Tranquilidade as a platform to step up its game in Portugal, they said, adding it retained Barclays to make a competitive bid.

For Catalana the deal is also critical to establishing its presence in the country where it runs some small credit insurance operations through Spain's Crédito y Caución. The company has hired BNP Paribas to work on a possible deal, one of the sources said.

Catalana has a market value of 3.7 billion euros and ranks as Spain's sixth-biggest insurer with a 4.4% market share.

(Reporting by Pamela Barbaglia; additional reporting by Andres Gonzalez, Sergio Goncalves, Stephen Jewkes, Arno Schuetze, Alexander Huebner, Gianluca Semeraro and Carolyn Cohn; Editing by Susan Fenton)

By Pamela Barbaglia