GMAC, the US financial-services group, has emerged as the surprise favourite to buy the motor-insurance business of doorstep lender Provident Financial.

It is understood to have offered about £175m for the business, known as Provident Insurance, and hopes to announce the deal within the next two weeks.

However, the group faces competition from Brit Insurance, the listed insurer, and a number of private-equity firms.

GMAC is 49% controlled by General Motors with the remainder held by Cerberus, the private-equity group.

The deal would mark a major expansion into insurance for GMAC in Britain where it has so far largely concentrated on providing finance for people to buy cars.

In America, GMAC is a financial services powerhouse with interests spanning car finance to mortgages, although it has been hit hard by the collapse of the sub-prime mortgage market.

Provident Financial put the car-insurance division up for sale in January after it received several approaches for the business.

The division has about 500,000 policyholders and edged up pretax profits to £41m last year amid tough competition in the car-insurance market.

The sale comes as Provident plans to demerge its international business, which offers consumer credit in developing markets such as Poland, Hungary and Mexico.

Part of the sale’s proceeds will be used to strengthen the international business’s financial position before the demerger.

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