MILAN (Reuters)—Italian insurer Unipol Gruppo Finanziario S.p.A. will sell policies attracting €1.7 billion ($2.15 billion) of annual premiums to meet regulatory demands, as it presses ahead with plans to rescue troubled peer Fondiaria-SAI S.p.A. and create Italy's No. 2 insurer.

"We have already had several manifestations of interest for these assets," Unipol Chief Executive Carlo Cimbri said on a conference call.

Italy's competition watchdog imposed a series of conditions on Unipol to clear the takeover of loss-making Fondiaria, including selling a "significant amount of premiums."

Merging Fondiaria with Unipol would create a company with 32% of Italy's nonlife insurance market and around 37% of its motor insurance business, able to compete with Italy's biggest insurer, Assicurazioni Generali S.p.A.

Unipol agreed in January to rescue Fondiaria in a four-way merger. But regulatory hurdles and a bitter dispute between Unipol and Fondiaria's main owners, the Ligresti family, have led to delays.

Beside the competition watchdog, the insurance and banking regulators also have already given their blessings. Market regulator Consob is expected to give its opinion next week.

Cimbri, who confirmed the new insurance group would begin operations at the start of 2013, said he expected Consob to give a positive opinion on the deal.

Fondiaria, whose market capitalization has fallen to just €416 million ($525.8 million) compared with €5 billion ($6.32 billion) five years ago, has been run into the ground by years of Ligresti management.

Insurance regulator ISVAP said a condition of its clearance is that the new group keeps a solvency ratio over 120% in coming years.

In an updated business plan also presented on Friday, Unipol said it sees the new entity's solvency ratio—a measure of financial strength—at 184% in 2015 under new Solvency II rules.

The survival of Fondiaria, Italy's biggest car insurer, is crucial to top investment house Mediobanca, which holds 1.1 billion ($1.39 billion) of Fondiaria debt.